10 Tips on How To Avoid Business Opportunity and Franchise Fraud
The Alberta Government has put a very good franchisefraud brochure online.
1. They give some nice examples of fraud, for example there was the promoter who showed up at a hotel and pitched marks on a limited opportunity involving a hot dog stand - for a mere $1500. The promoter took deposits and then vanished.
2. Another nice description of a business opportunity fraud was that the promoter left town "and the distributors are left with slick catalogues and order forms". Much like business cards, slick catalogues confer an aura of respectability on the project.
3. They also suggest inspecting the goods to determine the quality. Unfortunately, this recommendation is a bit unrealistic since often the fraudulent promoter will be at the other end of the country. But you should still try to demand to get a sample sent to you, for a short period of time to evaluate it. Criminals will not send you a sample.
4. Size up the market. But instead of relying upon market studies, see if you could sell a sample of the product in your local community. No sales, no distributorship.
5. Get earnings claims in writing and have an accountant review the assumptions. Most business opportunities are sold with stupid earnings projections, which have no basis in reality.
6. Honest promoters do not guarantee their clients a return on their investment, much less astronomical profits. Excellent advice - guarantees are generally fraudulent because they are not funded.
7. Don't be impressed with ads in National papers - they don't screen their ads.
8. Examine unjustified start up costs. What are you exactly receiving for your initial fee?
9. Get the names of other distributors and customers and talk with them. Talk with more than 15 of them. Do it and don't just think about doing it.
10. Take the disclosure document to a qualified lawyer and have it reviewed.
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