When it comes to franchising, there are some things that you need to be vigilant about. Even with the continuous effort of agencies and other sectors concerned with the franchise industry, some fraudulent clients continue to exist.
Franchising in India has been one of the choices of most international companies worldwide. It has the potential to become the next franchising hub, and the opportunities are endless.
Hence, it is always best to choose the company to franchise on and make sure it is legitimate.
When you do franchising in India, you need to be sure that you are dealing with an established company that is recognized and permitted to do business with you.
But, how exactly can you spot a franchise scam in India?
Well, there are indicators to look for, but first, here is a quick discussion about what a franchise scam is all about.
What is a franchise scam?
From the name itself, a franchise scam happens when you deal with business entities that are not allowed to operate in the first place.
Moreover, it happens when the franchise itself has no proven business model in the first place but still offers franchise to any business owner. In this case, the franchisee has no idea about it, making the whole transaction deceitful.
In other words, you are investing in something not worthy of your time and money.
But what exactly are the red flags you need to check firsthand, and how can you avoid them?
11 Signs of Franchise Scam in India
Whether you are an Indian or a foreign national who wants to do franchising in India, you must acquaint yourself with some of the most common signs of franchise scams.
1. Unrealistic Profits
Just like any investments, the “too good to be true” scheme makes everything super dubious. You should never fall prey to those scammers.
So, when the franchisor tells you this amount of money but finds it unrealistic, trust your guts and do not pursue the deal.
2. The MGB Promise
Any legitimate franchisor will not offer a money-back guarantee (MGB) as part of the deal. This is because they should be sure about their business model and generate the needed money.
In other words, the return on investment (ROI) is already guaranteed when you sign the documents. After that, it is just a matter of waiting for the turnaround time.
At one point, the franchisor should ask you for the franchise fee, which is alright. After all, they need the cost to get going and get your franchised unit ready.
But other than that, the MGB and other monetary promises are all red flags you should be wary about.
3. No ROI Guarantee
Concerning the previous point, fraud franchisors usually do not guarantee you the ROI right away.
They are hesitant to give you exact figures or timelines because they are not sure of that information right away.
If you meet franchisors like this, then you should be concerned about the transaction and, if possible, do not pursue it anymore.
4. Intense Pressure
Fraud franchisors always pressure you. They push you to your limits and even make you feel worst for not abiding by what they need right away.
Moreover, legit franchisors do not charge you for everything right away. Even the way you fulfill the franchise fee is sometimes staggered, depending on their requirements.
Hence, if you happen to encounter some franchisors pushing you to sign documents or give information in the first instance, you should sense that they are just after the money.
Therefore, never entertain these franchisors anymore and focus on finding businesses worthy of your time and money.
5. Lack of Legal Documents
While it is known that India has no universal franchise law, there are still regulations that franchisors need to follow.
So, even with the absence of the law, business owners still need to comply with some requirements and ensure that they are following the rules set.
Otherwise, if the franchisor cannot show any of these requirements, consider it a red flag and never entertain them again.
6. Less Than a Year of Operation
One of the main characteristics of franchise scams is marketing the franchising business even if it is still very new to the market.
You need to understand that most businesses that venture into franchising are already established and have effective business models tested over the years.
It means they already have ideas about their market and target audience. This makes the overall operation smooth and guaranteed.
However, if this is not the case, then be mindful. You may already be dealing with untrusted franchisors.
7. No Physical Offices
Even if everyone goes digital now and most businesses are done online, franchisors who want to offer franchises to clients should at least have one decent headquarters.
This is essential, so when unnecessary things arise, people can go visit to file their complaints or other needed assistance.
Again, if your prospect business has no legitimate physical presence, reconsider the deal first before signing anything.
8. Vague Franchise Agreement
The franchise agreement (FA) is an important document that you should have as a franchisee. However, if this document has provisions that are unclear in the first place, you should be alarmed. There might be something fishy going on.
Remember that the FA must contain crucial details of the business operation and the whole franchise relationship between you and the franchisor.
Therefore, if something is off about it, you should consult a lawyer first before signing the deal.
9. No Official Suppliers
This is very crucial for businesses related to food and beverages. Imagine not having official suppliers for the things or ingredients you need? How will you keep the business going?
See. This is one thing that franchisees should consider seriously. This is not a joke, and it can ruin the entire business.
10. Lack of Support and Training
Sometimes, some franchisors are just good initially but will be missing in action in the next few days.
Do not tolerate this kind of behavior. You should be proactive, but your franchisor must also be the same so that you can ensure that you and the crew are well-trained and ready to handle the business with just minimal supervision from the owner.
They should be able to show off since the company is reliable. Hence, by all means, the franchise business owner should be able to follow and provide support with business operations like logistics, marketing, and management.
Moreover, the franchisor should remain in touch with the franchisee and offer any possible support at any cost.
In most cases, a franchisor gives a feasibility study about the prospected location of the business, and this is a beneficial service that the franchisor can share with you.
11. Not a Member of Franchise Organizations
Even with the lack of one universal law, it always matters that the business is a member of an organization - local or international.
One best international organization to join is the International Franchise Association (IFA) that deals with franchises worldwide.
This is a great opportunity for every Indian business owner because it gives them other rights to market their business as a legitimate entity.
Key Takeaways
In the end, there are things that you need to know and check before entering into any franchise deals.
It is always important to review everything you have on hand before stamping your seal or signing the papers.
Aside from this, do your research first before communicating with the people in charge. This will lessen the chances of pressuring you to sign up for something you are not interested in.
Aside from this, do your research first before communicating with the people in charge. This will lessen the chances of pressuring you to sign up for something you are not interested in.
Above all, remember the following pointers.
- Every franchise should have a proven business model. If this is lacking, you should start doubting that company.
- A legitimate franchisor will not pressure you.
- Any legitimate business has at least one main office.
- Always check the terms and provisions stated in the FA. Seek professional advice if needed.
- Research the business thoroughly, including the experience of other franchisors. This can help you get a grasp of how well they take good care of the franchisees.
- Do not believe any offer if it is too good to be true.
- You should trust your instinct and guts if you are uncertain.
- Always alert yourself with some red flags you notice along the franchise process.
After all, owning a franchise should not be stressful, and it must always be a positive experience. A good business is built on trust and proven systems, and every legit business owner should know that from the beginning.
Remember that while there thousands of great franchises out there, it is still possible you will fall prey to some scammers.
So, always be alert and bear in mind that franchising is indeed a lucrative and booming niche. But, it is not for everyone - unless you are prepared and vigilant.
So, those are the 11 red flags that you should observe to protect yourself from scammers.
Always get the best franchise information at Franchise Market, your online portal for all franchising needs. Check more franchise listings if you are looking for one.
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