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Homegrown Franchisers Worry Franchise Scams

A group of homegrown franchisers Monday warned the public about scams as franchising continually and increasingly becomes popular among budding entrepreneurs and even old hands.

Ricardo Cuna, president of the Association of Filipino Franchisers Inc. (AFFI), said more and more unscrupulous individuals were taking advantage of the trend, especially to victimize first-time business owners who wanted to try a venture with very minimal birth pains.

The AFFI groups about 85 established businesses available for franchising, including well-known brands like Figaro Coffee, Bobson (jeans and apparel), Fiorgelato (ice cream), Happy Feet (reflexology), Candy Corner, Cellular City, Kiss King of Balls, Lots’a Pizza, Reyes Haircutters and Rice in a Box.

Cuna said “scam boys” were very skillful in selling their so-called “business concepts,” complete with business models and one or two existing outlets for show.

“They normally copy an existing successful business concept, put their registered business name on it then sell the entire business package as a franchise even without a proven track record of viability,” he said.

Cuna said victims were lured into the scam because of very low franchise fees.

“They accept down payments from just anybody (not even screening the applicants because they are only after the money,” the AFFI president said. “Then they leave the unsuspecting franchisees to fend for themselves.”

“They do not have any support in terms of marketing, logistics, personnel training, systems, experiential and infrastructure,” he added. “They give franchising a bad name.”

Cuna offered the following tips to help rookie business owners avoid scams:

  • The business must have been in operation for at least one year.
  • The business must have the support services such as a commissary, head office, operations support, marketing support, HR/training support, supply and logistics support.
  • Interview existing franchisees (and watch out for tell-tale problems).
  • The company must be a member of a credible franchise association like AFFI.
  • Ask for an advanced copy of the franchise agreement, analyze it (including any fine prints) then have it reviewed by your lawyer.
  • Make sure the franchise will match the location and market environment you have in mind or already available.

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updated: 02/17/09

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