How to Identify and Report Franchise Scams

Individuals interested in purchasing a franchise need to do their homework first. In addition to the thousands of legitimate franchise businesses out there, there are also many scam artists who are looking to take your money. Before you sign a contract, make sure that the franchise you're investing in is legitimate and ethical by studying the opportunity carefully.

Instructions

Difficulty: Moderately Challenging

Identify Franchise Scams

1. Contact the Better Business Bureau or the Consumer Affairs Branch of your state's attorney general's office to find out if they've received any complaints about the franchise in question (see Resources below).
2. Request a copy of the Uniform Franchise Offering Circular. The Federal Trade Commission (FTC) mandates that every franchise must have a UFOC disclosure document and offer it to potential franchisees at least 10 days prior to signing the contract.
3. Hire a franchise attorney with experience representing franchisees. You may want to ask for referrals from your personal attorney, other franchisors or your state's bar association (see Resources below).
4. Instruct your franchise attorney to read through the document and identify potential concerns. It's easy to miss important warning signs if you don't understand the legalities of franchise law.

Report Franchise Scams

5. Report fraudulent franchises to the Better Business Bureau that is closest to the franchise's headquarters. This will help other interested franchisees identify potential problems before they fall victim to the scam.
6. Contact the source where you learned of the franchise opportunity and report your experience. This includes any newspapers and magazines where you saw an ad for the business.
7. Contact your attorney if litigation is necessary.

Tips & Warnings

• Thoroughly researching franchise opportunities can take between 1 and 3 months.
• Franchise scams may not be apparent immediately, so make sure that you discuss all opportunities with an experienced franchise attorney who understands the legalities of franchise agreements. Fraudulent franchisors can be very good at protecting themselves from litigation, giving you little recourse against these scams after you've signed the contract.