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Watch Out! Hey, suckers! Here's how to <i>not</i> throw your money away on a get-rich-quick scheme.

By Andrew A. Caffey

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Every stage of researching, evaluating and buying a franchiseoffers warning signs that the opportunity may not be right for you.Pay attention to them, and you won't get suckered into a badinvestment.

  • No UFOC. If you haven'treceived a UFOC, that doesn't necessarily mean the franchisoris reluctant to deliver one. A franchisor isn't required todeliver one until the first face-to-face meeting where a sale isdiscussed (trade show encounters don't count), or 10 businessdays before you sign a contract or pay money. But if the companyreally does not have a UFOC to give you, run, don't walk, tothe nearest exit.
  • The Hustle. The seller isexcited, his speaking voice is hyped up, he's moving fast andhe wants you to be in a hurry, too. "Territories are goingfast. Act now or you'll miss this train." You start tothink you're going to miss out on an opportunity. You feelindecisive, then courageous and ready to take a gamble. Before youknow it, you've been hustled into making a decision youweren't ready to make. Don't let this scenario become yourreality. This decision is far too important to let someone rush youinto it.
  • Big Money Claims. Theseller says his franchisees are getting wealthy, some stores arenetting six figures and some franchisees with a few stores will hitseven figures soon. If a franchisor chooses to make claims likethis, the law requires that they appear in Item 19 of the UFOC.Don't be swayed by earnings claims until you've verifiedthem with current franchisees.
  • Money Flows Like Water.Look out for the rented Rolls Royce syndrome. You should know itwhen you see it: an overdressed sales rep, too much jewelry, hintsof an ostentatious lifestyle that can be yours for the price ofyour investment. Be sure to discuss the reality of the moneypotential with existing franchisees. They'll tell you exactlywhat to expect, and whether the picture really includes aLamborghini.
  • Weak Franchisor FinancialStatements. Check out the company's financials inthe back of the UFOC. Make sure they're audited by anindependent CPA and certified as complying with Generally AcceptedAccounting Principles (GAAP). If the company's financials showweakness, move with caution. Ask an accountant to help you reviewthem. If the company is relatively new, realize the opportunity maybe a good one, but it involves the risk that the franchisorwon't have the capital necessary to grow with you. Ask youraccountant what he or she thinks, and do some careful businessplanning.
  • Too Many Lawsuits. Whatdoes it mean if Item 3 of the UFOC lists page after page oflawsuits with franchisees? Don't take it at face value; dig alittle and find out what's going on in the system. It couldmean the franchisees are deeply unhappy.

One last piece of advice: Be smart about using the Internet. Asyou know, the quality of information can be iffy. Use it to readabout companies that catch your interest, but be careful not torely on any information without checking it out thoroughly.

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