Franchises

Here's How You Can Avoid Being a Victim of Franchise Fraud

It Is Important for prospective franchisees to take adequate steps to protect themselves to avoid being a victim of a fraud
Here's How You Can Avoid Being a Victim of Franchise Fraud
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Consulting Editor
3 min read
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Entering into a proven business model with all the required tools sounds alluring. There is a wide variety of franchising opportunities and these provide a stable base for successful business ventures. But with rise in franchising system, there has been a significant rise in franchise frauds. Recently, a woman in Ahmadabad was lured with fake Patanjali store franchise offer and was conned of Rs 81K.

Hence, here are the few things you should consider to avoid being the victim of franchise fraud.

Lack of transparency

Make sure that your franchisor always maintains transparency in all the business dealings at every stage. A genuine franchisor will always give the time to conduct research and do their due diligence before entering into the agreement.

Talk to existing franchisees

The best way to get information about any franchise is to visit the existing franchise stores. Contact them and clear all the queries you have about the business. This is the best source to get to know about their lives as franchisees and evaluating how well a franchisor supports them.

Disclosure document

The most important step to avoid a franchisee fraud is to thoroughly check the disclosure form. You must be provided with a detailed disclosure document, which contains important information regarding the franchise.

If they don’t provide this to you or if they refrain from providing the information you need, this should be considered as a red flag. Franchisees should never sign a franchise agreement without full disclosure.

Disclosure period

In addition to the disclosure document, a prospective franchisee should also be provided a 14 day disclosure period. A franchisee agreement cannot be signed within this time span. If the Franchisor urges you to make a quick decision about entering the franchise, it’s something you should be wary about.

These mandatory periods are provided to give franchisees the opportunity to research, review disclosed materials, and make a well-informed decision about whether they should or not be part of that franchise.

Verify the documents

It is highly advisable to verify all your legal documents by a specialist lawyer. They will help you in reviewing franchise agreements and will be able to tell you if there is anything unusual in the agreement that may require further explanation from the franchisor.

Once you understand the extent of your rights and legal obligations under the agreement you will be able to make an informed decision on whether or not to enter into the franchise.

Originally published by Franchise India Press.

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