Franchising fraud
Franchising has become one of the most popular ways
for individuals to start their own businesses. However, without carefully
investigating a business before you purchase it, you may make an expensive
mistake. While the majority of franchisors are legitimate, a number of them
operate under false pretenses. In these cases, the victim may be subjected
to fast-paced, high-pressure sales tactics and is often given fictitious
sales projections, testimonials, and slick promotional brochures. He or she
is urged to act immediately to take advantage of a "ground floor"
opportunity. When the sale is completed and money collected, a number of
incidents may happen: the scam artist may disappear with the investment; the
franchisor may go out of business; products or services may turn out to be
inferior, overpriced, or unmarketable; or specialized training promised by
the franchisor may be insufficient. By the time victims realize they have
been scammed, it's usually too late.
The Better Business Bureau suggests using caution as
the best defense. Before you enter into a business arrangement, be sure you
fully understand the responsibilities of all parties. Under the Federal
Trade Commission rule, the seller is required to provide a detailed
disclosure document at least ten business days before you pay any money or
legally commit yourself to a purchase. This information includes identifying
information about the seller, background information on the business and its
officers, and substantial details on how the franchise agreement works,
along with restrictions on such things as geographical boundaries or
conditions on the right to sell or transfer ownership.
Listen carefully to the sales presentation. Some sales
tactics should signal caution. For example, if you are pressured to sign
immediately "because prices will go up tomorrow," or "another buyer wants
this deal," you should slow down, not accelerate, your purchase decision. A
seller with a good offer does not have to use this sort of pressure.
If promises are made by a salesperson, be sure they're
written into the contract before you sign. If the salesperson says one thing
and your contract says nothing about the promise or says something
different, your contract is what counts. If the seller balks at putting
verbal promises in writing, you should be alert to potential problems. You
might want to look for another business.
Unless you've had considerable business experience,
you may want to get an attorney, accountant or a business advisor to read
the disclosure document and proposed contract to counsel you and help you
get the best deal. |
