Just another victim of franchise fraud

[Frankimoon]

I am currently in litigation with my franchisor and feel absolutely powerless in my quest to prevent other people from joining the scheme!! I have tried to contact all possible papers /organisations about it (watchdog, office of fair trading, different publication). We are about 20 franchisees at the moment, we are all in the same awful situation, we lost thousand of pounds and our franchisor is still out there convincing people that there is a lot of money to be made by this business! I would not post any slender comment or make any name of course and I would suggest anyone answering this post to avoid posting any name or specific slender comment. I want to clarify that it's not about stupidity or naivity always! Sometimes the trap is really made with skills and most people can be easily manipulated into a scam if it's done cleverly. I have fallen into a trap myself. And you know what? In fact, I have checked into everything thourougly before joining and buying this franchise! I have draw a business plan and made a bank approving it and the franchisor approving it in writing before signing any contract. I have asked for legal advice to check whether the contract was a good one, I also ringed 4 existing franchisees to check on their earning and they were really happy with everything. Little did I know that after a few months their commissions would disappear and would not translate in REAL commission. I made a big mistake: the company was too new and the franchisees I talked to were operating from just a few months: not enough to get the full piture of what was going on after the first few months. I don't say anybody who has been victim of a franchise scam should vent their frustration here. But I can see how so many people are frustrated with a complete unprotective and unregulated system at the moment and they don't find a place to vent their anger or advice other people about the scam. I just say that something need to be done, and maybe all franchisees who have been victims of this kind of fraud should come together in some way. I shall look into this idea and see how this could be done. There are TV programs today that put rough trader on the spot: people watch and love this kind of contribution from the media. But there is not talking about franchises frauds at the moment and yet still there is an awful amount of people falling into these traps! Think how good would be to have a TV program "franchising from hell" with all these companies put on the spot: that would be my dream come true!! For anybody looking into buying a franchise for now I would say, don't even trust comments made by existing franchisees if they are not old enough (they must be in the business from 6 months at least!). Also value the market: is it competitive or saturated? Value the franchisor experience and the franchisor brand, as the most important requirement. If there is not franchise brand or you have to operate with your own name there is not point in buying a franchise. And most importantly: do not trust anything else than complete honesty and trasparency from the start (i.e. full list of existing franchisees always required, take care of veryfing their feedback and don't stop with 2 or 3, just try to get the full picture, at least 6 franchisees I would say to play safe!! If the franchisor is mysterious about it, then it's a clear sign of scam and you'll trow your money away). I am now trying to get an article published at the moment, it will certainly helps to raise awareness. Anybody who want to get in touch with me about any negative experience with franchising just pm me please. The more contributions the better! Keep smiling :-)FX
B.O.L.

[no options]

We are in a similar position. We are a group of ex-franchisees of Vehicle Options and Group 20 - which are franchises being promoted by a chap called Gary Franklin. We are looking into taking legal action to try to recover our money but in the meantime we decided to take some action to try to help others in their research. I am sure that there are ethical franchisors out there, but extreme caution and in depth research is needed before investing. Questions similar to the ones we suggest on our site would also apply to most franchises.

[Frankimoon]

Good news! Thanks to a good contact (ex franchisee been in the same boat as me, 2 years earlier) I now know what to do to stop these guys ripping people of. The suggestion is always to get most franchisees together and write a formal complaint to the DTI, fraud department. They will launch an investigation and if they find the company guilty of mirepresentation or fraud they are able to put a full stop to it! Fantastic! I feel so much better. Anyone wanting to know more, just pm me I can go much more in details. B.o.L.

[broadie]

Hi

Obviously I do not know who or what company you are discussing here, but just to tell you that I appear to be in the same boat as yourself, with many other franchisees feeling the same way regarding the franchise we took out.

There have been some of the franchisees taking them to court and have won their case, just to find that they need a solicitor to proceed with further action, which in turn would cost thousands of pounds. This leaves us all with little choice but to accept it and move on. The only problem is with me, I cannot let it go!! and need to do something about it. Any suggestions would be gratefully received.

Broadie

[corishray@aol.com]

so i am due to view a bargain booze franchise soon ,3 shops ,asking price 325000 ,taking 50,000 a week under managment , would i be mad to do this ,

[eequals]

The UK small business forum (now closed apparently) had several posts on a franchising scam which involved the vending of Pringles for example and by all accounts this sort of thing is becoming more extensive. There is in fact a trade body known as the British Franchising Association http://www.thebfa.org/ which regulates a code of practice. It may be toothless in many respects but if the Franchisor is not a member that would be warning bell number 1. Number 2 is pretty simple. Go to http://www.companieshouse.gov.uk/ and from the home page click on 'find company information' then go to 'webcheck'. Last accounts, members list (i.e. shareholders) and current appointments are a pound each.

One franchise company actively promoting itself on the web at the moment was checked out like this and the results showed that it was listed as 'Dormant' and its accounts were overdue, as were the company return. Issued share capital was £1 exactly. For anyone venturing into a franchise this could be the best three pounds they ever spent.

Joe

[sensibility]

Hello,
How I sympathise and understand your feelings. Am just recovering, though not financially, from the nightmare of "owning" a franchise. I did check the parent company, had a business plan, did everything via a solicitor and spoke with 6 existing franchisees. Spent 12 months doing the research and talking to the franchisor. So why did it go so wrong. Well 4 months after buying the franchise there was a management buyout and the letters said it was the best way forward and they had wonderful plans. Ten months later it was sold to a venture capital company and again they had wonderful plans etc.
Unfortunately by then I realised that I had been taken for a ride. Some equipment wasn't fit for purpose which meant losing money and business. The only reaction from the franchisor was "well perhaps we should have excercised more due diligence" Their training proved to be less than useless. A software programme meant to drive the business did not work properly. True they supplied a Business Development manager and assorted other titles, but all that meant was they did graphs on a laptop. A lot of challenges were overcome, better software was bought and new clients acquired. But when our largest customer, who days after buying the business had demanded price reductions, and in the main got them, wanted more reductions, which meant doing the work at cost it was just too much. Our levy was always paid on time; a minimum of £2000.00 per month some months £3000.00 +. Paid of course on turnover not net profit. We kept them informed and their own financial expert concluded we would be losing £3000.00 per month. I drew almost no salary so it wasn't a question of being greedy. The franchisors only reaction was "can you borrow more money!"
And they would only take £200.00 per month levy until we could pay the 10% plus of course the back levy. Money had already been put into the business and borrowing meant incurring even more debt. I took two lots of professional financial advice, paid for of course, and was advised to go into liquidation which I did. The franchisors only reaction "well you signed a 10 year agreement and owe us over £100,00.00 in loss of earning. Yes it is legal.
Another franchisor, well establised and with two units took over the business; acquiring all stock and equipment for about £10,000.00. Not unusual. There were five other failures within 1 year of our purchse, and we discovered many other franchisees were really struggling to the extent they were taking almost no salary. There may be good franchisors out there but in my experience it's a rip off. I know I have gone into things in some detail but you shouldn't feel you did something wrong. The BFA are useless and are there for the franchisor. These people are very clever, very slick and have things sown up so tight on the legal front that there is no way they can ever be sued for anything.

[Carol Cross]

Unfortunately, franchisors sell these so-called "proven" plans without disclosing the actual performance statistics of past and present franchisees of the system.

Only when too many startup franchisees fail and the franchisor can't somehow acquire the assets of the failure to continue to produce gross sales upon which they earn their profits do the franchisors actually fail.

Please look into the matter of "churning" which is possible, of course, because prospective buyers are somehow brought through the process of SPIN and SALES hype to buying new franchises without "UNIT" performance statistics being disclosed to them by the SELLER of the franchise, the franchisor.

Were you then "tricked" into signing a "boilerplate" standard franchise agreement that wasn't negotiable in which you indicated that you bought the franchise at 100 risk of failure and that the franchisor had promised you neither profits or success?

[Carol Cross]

Yes! Franchises are sold throughout the world with spin and hype and yet franchisors are not required under law to DISCLOSE unit performance statistics of their systems to new buyers who want to join the system.

Governments throughout the world subsidize franchising because if only 50% of the original startup franchisees actually survive the time term of the contract and another 25% of the failures can be acquired and churned into the system by the franchisor directly or through the process of abetting third-party churning, the franchisors don't fail.

Governments consider that the end justifies the means and that they need the stimulation of the economy that "franchising" provides in terms of jobs and taxes, etc.... and franchising GROWS in world economies.

[Carol Cross]

In the USA, franchisors are protected because under the law, they aren't required to disclose UNIT performance statistics in their possession to new buyers of the franchises.

They use the "reference" list as the only tool on which new prospective franchisees can try to assess the risks and the rewards of the investment. It appears that under your laws, the franchisor can also sell high-risk and unviable franchises without disclosing the risk as known to the franchisor.

Is this true? Is this why the BFA is of no use to the frachisee and just protects the franchisor in the end. But your Minister of Industry was right, American franchisees get no more protection than British franchisees and your Minister is hoping that the Banks will step up and do their due diligence and not grant loans to franchisees of franchisors who have high failure rates of first-generation (startup franchisees).

Think about this!