How can you identify a franchise scam?

There are all kinds of franchise opportunities available, and some seem to promise instant wealth with almost zero effort. Franchises do have a high rate of success compared to other types of small businesses, but that doesn’t mean they’re a direct path to riches.

How do you spot a franchise scam?

An entrepreneur recently asked one of our GoForth Expert section of our website how to identify the warning signs of franchise fraud. Our GoForth Expert Samir Dandekar had these tips to avoid franchise scams:

Firstly, you can choose to work only with a franchisor who is a member of the Canadian Franchise Association.

Additionally, you can look out for these warning signs of a franchise scam:

  • Slick salesperson trying to pitch a fast sale
  • Pressure for franchisees to sign gag orders
  • Insistence on cash transactions only
  • Exaggerated earnings
  • Promising a proven business model or proprietary technology that doesn’t exist
  • Promising training that never materializes
  • Forcing franchisees to spend money on so-called improvements
  • Failure to provide disclosure

As always, do your research. Be thorough, double-check everything, and seek the advice of trusted colleagues or professional advisors. And listen to your instincts!

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