Distributorship and Franchise Fraud

Legitimate franchises and distributorships can be profitable business enterprises if you are willing to invest the time and money, and if you are willing to have the patience to watch your investment grow. Good examples of successful franchises and distributorships are fast-food chains and car dealerships, respectively. However, not all franchises are legitimate, and chances are if you are considering a franchise that promises lots of cash fast, you are in for a rude awakening.

Scammers that create illegitimate franchises are trying to cash on to the franchise "boom" going on in our entrepreneurial society. They create their own phony "investment opportunities" and promote them to unsuspecting, inexperienced investors. They promise lots of profit in a short time to lure in the naïve and the lazy, and they rarely will follow through with their promises.

How They Hook You

Scammers promoting fraudulent franchise opportunities will often use the following hooks:

  • Promises of large profits in a short amount of time
  • Promises of guaranteed earnings in a "protected market area"
  • Money-back refund if you're not completely satisfied
Unfortunately, these promises are usually outright lies. Use your common sense when evaluating profit claims. Does it seem too good to be true? It probably is. Bona fide franchises will also rarely make sweeping guarantees about earnings or monopolies on the market. Many investors that get taken in find out that they are not in fact the only investors in their "protected market area." Satisfaction guarantees are usually worthless too, since the guarantee usually hinges on the investor operating "according to instructions," where the scammers define what this actually means. They will never judge you as having met criteria if it means parting with your money.

Legitimate franchise promoters will encourage you to contact other investors to ask about their experiences and results. Be wary of any promoter who does not encourage or allow you to contact other investors, or any promoter who is more interested in selling a distributorship than in marketing the product or service.

Avoid Being Scammed

Before you invest in any franchise, look it up. Your local Better Business Bureau, or the Consumer Affairs Branch of your State Attorney General's Office, should have information on the promoter and any distributorship or franchise you are considering investing in. You may also want to check with the publication you found the advertisement for the franchise opportunity in. look for complaints against the promoter by others who got lured in. If you have been victimized in a fraudulent distributorship or franchise promotion where the U.S. Mail was used, contact your local postmaster or the nearest Postal Inspector.

Remember, when something sounds too good to be true it normally is. Think long and hard before you invest.

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