Thousands are leaving companies because of downsizing and mergers. They have access to over a half million dollars in liquidity. They are being targeted by franchise fraud investment opportunities. They have no ability to distinguish between legitimate small business opportunities and fakes. Having advance business degrees and corporate employee experience does not qualify them for the killer due diligence requisite to avoid being fleeced and left to sort out their final circumstances in bankruptcy court.
The crooked franchise sales organizations use the same materials that the legitimate companies use – the same brochure formats – the same claims – the same projections – and the same useless pseudo references that falsely reassure potential investors that what they are considering has the prospect for success.
The frauds take the following forms.
They are new business schemes with no significant history that are described as having characteristics they don’t have.
They are over the hill concepts that overpopulation and price competition have made incapable of having positive investment prospects – old does not mean respectable.
They are all sold on false earnings potential claims – even those that claim not to make earnings claims. They all understate break even time and working capital – including living expenses. Up and running businesses that are being resold are using false statements of earnings history.
New franchise opportunity failure rates are about 70 % in three years. New franchisors are failing at the same approximate rate, leaving their defrauded investors with no effective recourse.
Franchise contracts require investors to agree that what was told to then was not told to them, and that if it was, they didn’t rely on it in making their investment decisions. The new FTC Franchise Rule purports to make that practice nugatory, but the courts haven’t ruled on it yet. State franchise investment laws have not yet followed the FTC example, and results on those clauses vary state to state and case to case.
Most importantly, when you learn too late that you were fleeced, and you have no money to pay lawyers – few lawyers will take these on contingent fees anymore because of collectability problems – there is no avenue of redress. The government will not get your money back. Theoretical remedies are in fact quite useless.
The only way to have a chance to protect yourself is to go on line before you sign anything or pay anything and find an experienced franchise lawyer who does a lot of franchise investment due diligence. Lawyers who don’t do that all the time don’t have a clue what they are looking at. Do a search on Franchise Lawyer. Call the lawyers who show up on that search and ask them straight out – Do you do a lot of franchise investment due diligence? How long have you been doing that?
The victims of downsizing and mergers are attracting schools of small business investment sharks. You don’t have to be suckered.