How to Avoid Franchise Scam
Posted on June 25th, 2009
Admitting in public that you have been scammed is not easy. Often people would rather not talk about it. They don’t want to admit that their being gullible has made them lose not only their money by their self respect as well. This is one of the reasons why we seldom hear about a franchise scam. We usually hear about its success but the scam part of the story doesn’t usually get enough media attention.
Franchisees should be discern and be cautious enough in looking out for fraud franchises This is what would only protect them from falling into a franchise scam. Below are some pieces of advice to help those who would want to buy franchises whether to sign the contract or just courteously turn it down.
Looking before Leaping
There are usually two reason why the franchise scam have been successful in deceiving people who want to acquire a franchise of a business, this is according to the chairperson of the Philippine Franchise Association (PFA) Ma. Alegria Sibal-Limjoco. First is the insufficient knowledge and details on the franchising business. And, the attraction to the small capital that a franchise scam is offering.
Sibal- Limjoco said that a business cannot really franchise itself rightfully unless it has proven its success. She warned the public not to be attracted to businesses offering P10, 000 to P20, 000 for not all businesses requiring such small amount are genuine.
Rudolf Kotik, a franchise consultant shared that franchises as low as P10, 000 are usually just down payments for the business. And you will only discover this once you have already engaged in the franchise contract. He also warned the public not to easily engaged to franchises with higher capital neither. He gave an example of a Halo-halo franchise amounting to P330, 000 where the alleged halo- halo franchisee simply disappeared with his halo-halo cart once the payment was made.
Doing Background Checks
Kotif said that in order to avoiding being scammed in franchising, one must ensure that the franchiser is real and legitimate. A legitimate franchiser must be affiliated with any of the three franchisees associations in the Philippines. You can have the franchiser verified first in the Association of Filipino Franchisers Inc. (AFFI), the Filipino International Franchise Association (FIFA), and/or the Philippine Franchise Association (PFA).
According the president of BMG Franchise Developers, Inc., Butz Bartolome, a franchise scam won’t identify who the owner of the franchise is. Instead they will just share telltale stories to attract the franchisees. The agent of the franchise would convince the franchisee that the franchise is very affordable, that return of investment will happen in a short time, and that it can lead you in becoming a millionaire and can stop working. These are the three tale tell signs that would indicate that a franchise is a scam.
In an explanation given by Bartolome, he said that the franchisee and the franchiser should have the franchise agreement which will define the relationship of the two parties. This agreement is usually 35- 45 pages depending on the agreement and cannot be defined in a three page franchise agreement which the franchise scams usually ask their prospected victim to sign. He said that because it is the experience of the franchiser and the franchised product that you are buying, it may cost you a little bit, at least P150, 000. Bartolome recommended doing the following to avoid scams:
• Evaluation of the business franchise
• Checking how long the product can last
• Assessment of its competitiveness with other products
• Determine its profitability
• Determine what is the business model
• Determine the total investment needed
• Identify support programs
A retiree from a paper manufacturing company, Mercedes “Chedeng†Anglo, who once was victimized by franchise scams said that people should not only think of the way to earn money fast rather they should pay attention to the details of the business. She added that to be sure that it is not a scam; payment of the franchised business should be done in the franchiser’s office not just anywhere.
