Franchising

Despite all the scams there are hundreds of legitimate franchise opportunities available, including home-based franchises. So how do protect yourself from the scams? It's simple BE CAUTIOUS!

What you need to beware of companies without a history. Contact existing or former franchisee's to question them about their experience with the franchise company is active in its industry and is affiliated with a franchise organization, such as the International Franchise Association.

Once you've done this review the franchisor's disclosure document. The Federal Trade Commission requires all franchisors to provide this document at least 10 days prior to asking a prospective franchisee to sign any contract or collect any money. This document will notify you of:
1. Prior litigation-This tells you if a franchisor, or any of its executive officers, has been convicted of felonies, involving, for example, fraud, any violation of franchise law or unfair or deceptive practices law, or are subject to any state or federal injunctions involving similar misconduct.
2. Bankruptcy- A franchisor must reveal any bankruptcies it or any of its executives have filed. This information will help you assess a franchisor's financial stability and general business acumen.
3. Business experience- Before you buy into any franchise organization you'll want to find out who the executives are and their prior experience, as well as how long the franchise has been in business. For obvious reasons, investing with an inexperienced franchisor may present more risks than with an experienced, well-established franchise company with a recognizable brand.

To determine whether a franchise is legitimate or a scam, answer the following questions:

• Does the company have experience in the business being offered? I'm not talking about a related business, but the exact business. If the company has successfully been operating 4,000-square-foot stores, but the franchise opportunity is only for 1,000-square-foot stores, it's not the same business, no matter what they say. The same works in reverse-bigger is not always better. If you plan to open your franchises in Boston, but the only experience the company has is in Texas, it's not necessarily the same either. Have they done the necessary research to determine if the concept will work in Boston, or are you going to be their cold weather guinea pig?

• Are you getting value for your money? Sure, if it's a well-known, established brand and the franchisees in the system are doing well, although this means you'll probably have to pay a sizable franchise fee. But, if it's a new franchise system and your training lasts only a few days, are you paying more than it's worth? Paying $25,000 or more for a franchise fee when you're only getting one week of training from a new franchisor with limited experience, simply because they have a great brochure, doesn't make sense. Ask the other franchisees in the system if they got value for their money. Keep in mind, though, that franchisees new to the system may not even know yet.

• Is the franchise offered only in the non-registration states? Only 12 states review franchise documents and require franchisors to register their offering before getting permission to offer franchises in their state. In the rest of the United States, no regulator ever sees the franchise offering. Sometimes companies don't offer franchises in the registration states simply because those states don't fit into their geographic strategy. But, if a franchisor is offering franchises all over the United States except for the registration states, that may indicate their franchise wouldn't meet the requirements. Be very careful when you come upon opportunities that go out of their way to avoid the registration states. For more information as well as a complete list of franchise registration states, click here.

These are just a few of the questions you should be asking when determining whether the franchise you're interested in is a scam. It is strongly recommended that those who are serious about finding a legitimate home-based franchise Opportunity request assistance from a professional advisor. FranChoice, a company that provides free help to prospective franchisees in identifying franchises and guiding them through the franchise opportunity investigation process