Most of the time franchise fraud will start with an ad sent through the mail or a booth at a business opportunity convention. The advertisement or a salesperson will tell of a great opportunity for business ownership and investment, and generally make a lot of promises about how successful your business will be and how well you will be supported if you just pay some fees for a franchising license.
Once you show interest in owning a piece of the franchise, the person might arrange a meeting. The con artist may tell you about the great business advice and great products you will be entitled to get once you pay for your franchise license, as well as how much money you will make doing business under the license.
After you pay for the licensing rights for the franchise, the person will generally disappear and you will never hear from him again. As for any support or products you were promised, most likely none of those items will ever be delivered, or if some of them are, most likely they will be sub-par.
- Avoid any franchises that promise you will make a certain amount of money. No business can control all market forces.
- Avoid any offers that guarantee you a refund if you are not completely satisfied as long as you operate your business according to the instructions. This is a stipulation that allows them to deny your refund for almost any reason.
- Make sure the person is not selling the franchise or distribution license, but is also selling the product or service of the business itself.
- Make sure you are able to contact other investors who have participated in the franchise or distributorship.
There are a number of things you can do if you are a victim of franchise or distributorship fraud:
- File a consumer complaint with your local Better Business Bureau or your State Attorney General’s Office
- File a complaint with the Federal Trade Commission
- If you were contacted about the franchise through a mailed advertisement, file a complaint with your local post office. See the article on mail fraud for more information.
- Contact an attorney with franchise agreement experience to see if you have a strong case for a lawsuit
If you think that you have been a victim of franchise fraud, you should contact a business attorney experienced in franchise law. An attorney can evaluate the strength of your case and help you recover your losses if you have been a victim of fraud.