Top Red Flags with a Franchise, Business Opportunity or Similar Offering

    By Stephen E. Story, Franchising

    Excerpt from Steve Story’s upcoming presentation Owning Your Own Franchise, a seminar on October 21, 2004 (details below).

    What are the top red flags you should look out for when presented with a franchise, business opportunity or similar offering?

    1. No state registration, Uniform Offering Circular or written Franchise Agreement; claiming no registration is necessary.
    2. Claims made orally to you that are not in the written franchise documents.
    3. Discouraging you from talking to other existing or former franchisees.
    4. Rushing you to sign the contracts.
    5. Requiring a deposit before giving you required documents to review and waiting 10 business days; asking you to backdate or agree to backdating of any documents.
    6. Guaranteed earnings claims.
    7. No right to renew; renewal only on payment of substantial fees.
    8. Unaudited, out-dated, or incomplete financial statements.
    9. Recommending against a review by independent adivsors such as your attorney or accountant.
    10. Franchisor claiming you can run this business in your spare time.
    11. Franchisor’s preoccupation with selling the franchise, and you paying them fees, and no or very little time spent on your background, experience and fit with the franchisor’s system, and the system itself.
    12. Franchisor claiming their products are so popular they sell themselves; you really don’t need training; no training manuals.

    For more information about this article, contact Stephen E. Story.

    For more information about franchises attend “Owning Your Own Franchise” — a three-hour seminar provided by the Small Business Development Center of Hampton Roads, Inc. along with Kaufman and Canoles, Resource Bank, and the Entrepreneur’s Source for entrepreneurs interested in opening a franchise. The class covers the basic steps to starting and running a small business focusing on those issues unique to franchising. Topics include: Personal Goals and Dreams/Self-Assessment, How to Start a Business/Legal Organization, Franchising Scams/Red Flags, Franchise Culture, A Panel Discussion on Financing, Legal Issues, and Operational Transition.

    The cost of the class is $25. Please call to reserve a seat; space is limited.

    To register call Andrew Sinclair at 757.664.2592 or email at 

    The contents of this publication are intended for general information only and should not be construed as legal advice or a legal opinion on specific facts and circumstances. Copyright 2024.