There are several ways, and knowing them may well be your only protection against falling victim to one.
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.
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 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 but gloss over its imperfections.
He’s our 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 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.
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 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 feeds 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.
Evasive answers to questions about the franchise. Franchisers or their representatives should know their franchise like the back of their hand.
They should be able to answer whatever questions you may have.
And if they cannot answer right away, at least they’re eager to get back to you as soon as they have it.
Your alarm bells should sound once you ask how long the franchise has been around or how well the franchised outlets have been doing and they answer by hyping their profits instead.
A con artist is one who paints a rosy picture of his franchise- how profitable all the franchised outlets have been, and the short time you can get your investment back.
The franchiser not having a track record. A business concept that has not been tested in the market, or a franchise with no company-owned branches is one indication of a franchise scam.
Fro a franchiser to be considered legitimate, he should have been franchise at least a year, and is overseeing at least a couple of successful company-owned outlets.
Responsible franchising means the franchiser is making available a business system that he has operated successfully.
What model can he hold up if the franchiser has not proved that his system actually working? How can the franchiser share a successful experience if he has none?
Steep start-up fees. Any franchise investment can be broken down and each fee justified. There is a formula for computing the fees that franchisers follow when franchising their business.
Responsible franchise investment because the sooner the franchisee recovers the investment, the better for the business and the franchiser’s reputation.
A swindler will tend to charge exorbitant fees because he is more interested in raking in money than in the franchisee recouping his investment.
A true franchiser cares about how you will recover your investment and is upfront with how your payment will be used in the franchise.
Talking with the franchisee broker instead of with the franchiser.
While franchise brokers may be of help, their involvement ends at some point in the application process.
You should have the chance to meet with the franchiser, and the broker should be willing to schedule a meeting.
If the broker turned down your request for an appointment, it is time to look for other franchise offerings.
A franchise is fraudulent if the only people willing to sit down with you are the brokers or the marketing staff. You should be able to meet the franchiser in person.
Lack of a franchise organization. Check if the franchiser has put an organization on place that will guide you when you operate your franchise. If there is none, it means you will be on your own when you operate your franchise.
Bona fide franchisers design an effective system that will help you make your franchised branch a success.
These are but a few of the warning signs to watch when buying a franchise, although still the best way to protect us from falling victims is to do our homework.
We should neither allow ourselves to be stampeded into buying a franchise nor be lured by attractive sales pitches.
Invest time instead in verifying franchise offerings that caught our interest, and making sure their franchisers have a solid track record and reputation in the industry.
Talk with as many people as possible with the franchisers, the middle management of the franchise organizations, and more important, the franchisees themselves.
You will then be contributing towards stemming the tide of franchise scams in the country.
Unscrupulous franchisers erode the credibility of franchising, and discourage others from using this expansion route that has changed world of business.
‘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.’