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Franchise & Business Opportunity News

Beware of Fraudulent Franchise Deals!

Written on April 17th, 2007 by Joseph in Franchise News.

Latest news from the FTC is that their project, known as Project Fal$e Hope$, has compiled a list of cases of illegal pitches to remind entrepreneurs who are looking at franchise opportunities, to invest with extreme caution.

They say, if it sounds too good to be true, it most probably is!

To remind people to watch their step, the Federal Trade Commission regularly publicizes a collection of cases involving allegedly illegal pitches to prospective franchisees and other aspiring entrepreneurs.

Their latest effort, called Project Fal$e Hope$, consists of a compilation of more than 100 cases pursued last year by state and federal authorities. These cases range from unreliable swindles operated by ex-felons and professional con men to paperwork stumbles by established franchisors, or so-called administrative violations. In all the cases, laws were broken or regulations were completely ignored.

There are a few lessons to be learned.

Authorities have warned that the more promising the pitch, the more cautious prospective franchisees should be in considering it.

Expert advice

Do not rush! Experts warn that you should take your time. When the franchise sellers try to get the buyers to invest as quickly as possible, warning bells should be ringing as it is most probably a recipe for disaster.

In addition, regulators are emphasizing the need to read and make absolutely sure they understand the UFOC before writing any checks.  Franchisors are required to file in and provide the UFOC to any prospective franchisee. In places where these documents are not required, people should insist that the company supply them anyway.

Regulators report that when studying the disclosure documents it is particularly important to look at the pages showing franchisee turnover. Usually, names and phone numbers of former as well as current franchisees are listed. Interested buyers should contact these ex-franchisees and find out why they are no longer in business. Most often, this can save the inquirer from a similar outcome.

Reports have recently shown that many fraud victims also regret not having consulted a professional such as an accountant or lawyer with some experience in franchising. This is important right from the very beginning, as offering circulars may be hard to understand or perhaps even misleading.

Another aspect entrepreneurs should be aware of is investing in a particular franchise over the internet. Reports revealed a surprisingly large amount of victims who bought a franchise online without even having spoken to anyone in person!

Be careful of mistaken identities. Make sure you find out everything you need to know and make sure of everything! Phone current and ex-franchisees and gain a better understanding. Most importantly, make sure the franchise is registered!