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Avoid franchise scams

Be on the lookout for sham franchises by reading this simple checklist from the experts
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Franchise success stories are often written or talked about, but there’s another aspect of franchising that seldom gets enough media attention—the franchise scam.

People who get scammed in the franchising business naturally don’t want to talk about the experience. After all, it is proof positive that their “gullibility” has made them lose not just their money but also their self-respect. Indeed, it would be foolhardy for anyone to publicly admit that they have been scammed in a franchising deal.

Would-be franchisees should keep in mind that if they aren’t discerning and cautious enough, nothing can protect them from falling victim to a well-laid franchise scam. Thus, for those being propositioned to buy a franchise, Entrepreneur has gathered pointers from knowledgeable people to help them decide whether to sign that franchise contract or just politely walk away.

 

LOOK BEFORE YOU LEAP

Ma. Alegria Sibal-Limjoco, chairperson of the Philippine Franchise Association (PFA) , says that the two major reasons why people are victimized by franchise scams are the following: (1) lack of awareness and information about the franchising business, and (2) people’s attraction to putting up only a small capital for a business.

“Prospective franchisees should know that a business that hasn’t proven to be successful can’t really franchise itself legitimately,” she says. “In particular, the public should beware of businesses that require a franchise capital of only P10,000 to P20,000. Not all businesses that require such low capital could be genuine.”

This concern over very low-priced franchises is shared by Rudolf Kotik, a franchise consultant. “Franchise sellers who offer franchises for as low as P10,000 will often tell you later that this amount is just a down payment,” he says.

And Kotik says that not all scams are confined to franchises in the P10,000-range. He particularly cites the case of a halo-halo cart operator who succeeded in running off with P330,000 from a prospective franchisee. Once the latter had paid the franchise fee for a similar cart that he intended to put up in another mall, the supposed halo-halo franchisee and his cart simply disappeared.

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