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How to spot a franchise scam

There are several ways, and knowing them may well be your only protection against falling victim to one.
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Franchising has made great inroads in the Philippines because of the increasing number of people succeeding in business through this route. But franchising has a downside: it has given rise to scams.

 

[related|post]Franchise scams have indeed been on the upswing, but it hasn’t reached crisis proportions as it had in the United States in the 70s – considered the franchising “dark ages” – when countless individuals were duped into investing in non-existent franchises. The situation became so bad that the United States government had to step in to regulate the franchising sector.

 

We haven’t reached the boiling point yet, but we may well be on our way if we did not take steps to stop franchise scams in their tracks. Unfortunately we are on our own in this, as no government agency exists to regulate franchise operations in the Philippines.

 

But we can start by advocating responsible franchising. It doesn’t mean we’re promoting “perfect franchising,” because nowhere in the world would one find a foolproof system. Each franchise system is fraught with problems and challenges and it is vital for one to know how to distinguish between a responsible franchiser and a con artist. The first will readily admit that his system is imperfect, but he’s committed to helping the franchisees achieve the same level of success he did with company-owned branches. The latter will rave about his franchise and gloss over its imperfections. He’s out only to collect the fees and is not the least interested in helping the franchisees. Despite the obvious difference, many people couldn’t tell one from the other. Being able to spot a franchise scam is the best way to avoid losing our shirt.

 

The following are the red flags to look for to keep from falling prey to swindlers:

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Promise of good returns. Like a suitor who would vow to give heaven and earth, you will know the franchiser is pulling your leg if he promises too-good-to-be-true profits even with little or no effort from you. Responsible franchisers do not guarantee specific rate of returns. All they will offer is a business system that has worked for them and, if followed to the letter, would also work for you if you were hands-on with the business. Good franchisers lay their cards on the table and know how to manage your expectations. They are successful because they’ve worked hard to build their system and are committed to growing it through franchising.

 

High-pressure tactics.  Be wary of people who pressure you into parting with your money now because the franchise fees will go up tomorrow, or lure you into getting their buy-one, get-one-franchise-free offer. This tactic not only trivializes a franchise, but also deprives you of your right to do due diligence. A franchise often entails a major investment, and those not wanting you to do some background checks are those with skeletons to hide.

 


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