Consumer Alert
Franchise Fundamentals: Researching franchise opportunities
By
Lesley Fair
Senior Attorney, Division of Consumer and Business Education, FTC
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No one would try to run a marathon with just a few days of preparation. It takes months of rigorous training before you can step up to the starting line with confidence. Of course, the process of studying, selecting, opening, and operating a franchise can make a marathon feel like a stroll in the park. In the second of our Franchise Fundamentals blog series, we take a closer look at the extensive research “road work” prospective franchisees should undertake before investing in a franchise.
Step 1: Start with financial introspection. Your financial investment in a franchise is much more than just the franchise fee. Before you begin the buying process, figure out how much you can comfortably pay for the franchise and whether you’re financially prepared to handle the other costs you will incur even before your franchise opens. For example, you may have to pay for training, real property, lease payments, leasehold improvements, inventory, utilities, equipment, and decorating. The list could go on. Are you ready to cover those costs out of pocket or will you need financing? Have you budgeted for those outlays and what’s your back-up plan if other expenses exceed your original budget? Those are discussions you may want to have early on – and later in the process, too – with a trusted independent financial advisor.
This inquiry requires that you pose some tough questions to the Investor in the Mirror. How much money can you spend? How much can you afford to lose? Will you need financing? Where will you get it and how much will financing add to your costs? What’s your credit rating and is your credit score in tip-top shape? Do you have sufficient savings or additional income to tide you over until your franchise opens and – fingers crossed – becomes profitable? How will you pay for those additional fees? Will you lose your home or retirement savings if your franchise fails?
Step 2: Research the marketplace. To boost your franchise IQ, read everything you can find from a wide variety of sources – online materials, books at the library, magazines about franchising, etc. Just be sure to filter the information through some healthy skepticism. As with any other investment, it can be difficult to discern between objective evaluations and advertising. Those glowing reviews may shine a little less brightly if it turns out they were written by people on the payroll of franchisors.
Franchise expositions are another source of information that allow you to compare franchise possibilities under one roof. Before you attend, decide the categories of franchises that best suit your budget, experience, and goals. Visit multiple exhibitors whose franchises fit your criteria and come prepared with a list of hard-hitting questions:
- How long has the franchisor been in business?
- How many franchised outlets are there? Where are they?
- What’s the initial franchise fee? What are the additional start-up costs?
- Are there continuing royalty payments? How much are they?
- What management and technical support does the franchisor offer?
- What controls does the franchisor maintain?
- Is there an operating manual for the franchise and what does it require of franchisees?
Attendees report that enthusiasm can run high at expositions, which is why it’s crucial to keep your cool. Exhibitors may offer incentives for you to attend promotional meetings to discuss the franchise in detail. Those meetings can give you a chance to probe for in-depth information, but be wary of even a hint of the hard sell. A high-pressure “Act now!!” sales pitch is your cue to head for the exit.
Step 3: Seek wise counsel. It goes without saying that you shouldn’t make a final decision about a franchise without getting independent legal and financial advice – and that’s exactly what we’ll say in the third of our Franchise Fundamentals series. But even at the preliminary stage, it’s smart to talk things over with people you trust. If you’ve read the autobiographies of admired entrepreneurs, you may be struck by how much they value the opinions of tell-it-like-it-is advisors. Before you decide a franchise is for you – and certainly before you sign on the dotted line – appoint your own informal “Board of Directors” made up of successful business people in your circle and others whose judgment you trust.
What about engaging the services of a “franchise broker”? The short answer is “It depends.” You may see ads online or in business magazines for advisors or consultants who say they can help you select among various franchise options. Before deciding to use a broker, do in-depth research into what they promise to do for you. Ask how many franchisors the broker represents. A broker who represents only a few won’t be in a position to give you big-picture advice. Find out how the broker selects franchisors to represent. What criteria do they apply and how many franchisors have they turned down recently?
Then there are big questions about compensation. Who pays the broker and how is the payment calculated? Some brokers get a flat fee while others earn a commission based on the cost of the franchise – meaning they could have an incentive to steer clients into more expensive options or to specific franchises. Read A Consumer’s Guide to Buying a Franchise for what to consider if you’re thinking about using a franchise broker.
Let’s say you’ve narrowed it down to a few different franchises. What steps should you take before making a final decision? That’s the subject of the third in our Franchise Fundamentals series, which will include a walk through some disclosures required by the FTC’s Franchise Rule.
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Consumer Alert
Credit card debt relief that isn’t
By
Jim Kreidler
Consumer Education Specialist
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Say you’re struggling to pay off your credits cards — which is already difficult with high interest rates — and you hear about a company that promises to reduce or eliminate your credit card debt for a fee. Sounds great, right? But how can you tell if that offer is legitimate or a scam?
The FTC recently announced settlements with the operators of a deceptive debt relief scam. The FTC sued the three operators and their related companies (which went by multiple names including ACRO Services) for taking tens of millions of dollars from people by falsely promising to eliminate or reduce their credit card debt. The scam charged people fees in the thousands of dollars and even told them to stop making payments to their credit card companies — leaving people in a far worse position — with damaged credit and owing their original debts plus thousands in fees and interest.
As part of the settlements with the FTC, these scammers are permanently banned from running any debt relief services or engaging in telemarketing, and they must turn over assets that will be used to provide any possible refunds to people affected by the scam.
Follow these steps to spot and avoid credit card debt relief scams.
- Don’t pay upfront.It’s illegal for a debt relief company to charge you a fee before they do anything to relieve your debt.
- Talk with your credit card company. For free. Call the customer service number on the back of your credit card. Ask for a payment plan that you’ll be able to afford.
- Consider a reputable credit counselor. They can help you develop a payment plan that works for you.
Spot a company making calls or claims like this? Report them at ReportFraud.ftc.gov.
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Business Blog
Franchise Fundamentals: Researching franchise opportunities
By
Lesley Fair
No one would try to run a marathon with just a few days of preparation. It takes months of rigorous training before you can step up to the starting line with confidence. Of course, the process of studying, selecting, opening, and operating a franchise can make a marathon feel like a stroll in the park. In the second of our Franchise Fundamentals blog series, we take a closer look at the extensive research “road work” prospective franchisees should undertake before investing in a franchise.
Image
Step 1: Start with financial introspection. Your financial investment in a franchise is much more than just the franchise fee. Before you begin the buying process, figure out how much you can comfortably pay for the franchise and whether you’re financially prepared to handle the other costs you will incur even before your franchise opens. For example, you may have to pay for training, real property, lease payments, leasehold improvements, inventory, utilities, equipment, and decorating. The list could go on. Are you ready to cover those costs out of pocket or will you need financing? Have you budgeted for those outlays and what’s your back-up plan if other expenses exceed your original budget? Those are discussions you may want to have early on – and later in the process, too – with a trusted independent financial advisor.
This inquiry requires that you pose some tough questions to the Investor in the Mirror. How much money can you spend? How much can you afford to lose? Will you need financing? Where will you get it and how much will financing add to your costs? What’s your credit rating and is your credit score in tip-top shape? Do you have sufficient savings or additional income to tide you over until your franchise opens and – fingers crossed – becomes profitable? How will you pay for those additional fees? Will you lose your home or retirement savings if your franchise fails?
Step 2: Research the marketplace. To boost your franchise IQ, read everything you can find from a wide variety of sources – online materials, books at the library, magazines about franchising, etc. Just be sure to filter the information through some healthy skepticism. As with any other investment, it can be difficult to discern between objective evaluations and advertising. Those glowing reviews may shine a little less brightly if it turns out they were written by people on the payroll of franchisors.
Franchise expositions are another source of information that allow you to compare franchise possibilities under one roof. Before you attend, decide the categories of franchises that best suit your budget, experience, and goals. Visit multiple exhibitors whose franchises fit your criteria and come prepared with a list of hard-hitting questions:
- How long has the franchisor been in business?
- How many franchised outlets are there? Where are they?
- What’s the initial franchise fee? What are the additional start-up costs?
- Are there continuing royalty payments? How much are they?
- What management and technical support does the franchisor offer?
- What controls does the franchisor maintain?
- Is there an operating manual for the franchise and what does it require of franchisees?
Attendees report that enthusiasm can run high at expositions, which is why it’s crucial to keep your cool. Exhibitors may offer incentives for you to attend promotional meetings to discuss the franchise in detail. Those meetings can give you a chance to probe for in-depth information, but be wary of even a hint of the hard sell. A high-pressure “Act now!!” sales pitch is your cue to head for the exit.
Step 3: Seek wise counsel. It goes without saying that you shouldn’t make a final decision about a franchise without getting independent legal and financial advice – and that’s exactly what we’ll say in the third of our Franchise Fundamentals series. But even at the preliminary stage, it’s smart to talk things over with people you trust. If you’ve read the autobiographies of admired entrepreneurs, you may be struck by how much they value the opinions of tell-it-like-it-is advisors. Before you decide a franchise is for you – and certainly before you sign on the dotted line – appoint your own informal “Board of Directors” made up of successful business people in your circle and others whose judgment you trust.
What about engaging the services of a “franchise broker”? The short answer is “It depends.” You may see ads online or in business magazines for advisors or consultants who say they can help you select among various franchise options. Before deciding to use a broker, do in-depth research into what they promise to do for you. Ask how many franchisors the broker represents. A broker who represents only a few won’t be in a position to give you big-picture advice. Find out how the broker selects franchisors to represent. What criteria do they apply and how many franchisors have they turned down recently?
Then there are big questions about compensation. Who pays the broker and how is the payment calculated? Some brokers get a flat fee while other earn a commission based on the cost of the franchise – meaning they could have an incentive to steer clients into more expensive options or to specific franchises. Read A Consumer’s Guide to Buying a Franchise for what to consider if you’re thinking about using a franchise broker.
Let’s say you’ve narrowed it down to a few different franchises. What steps should you take before making a final decision? That’s the subject of the third in our Franchise Fundamentals series, which will include a walk through some disclosures required by the FTC’s Franchise Rule.
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Consumer Alert
Are scams affecting your community?
By
Andrew Rayo
Consumer Education Specialist
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This month and all year long, we join the nation in honoring the cultures and many contributions of Asian American, Native Hawaiian, and Pacific Islander (AA and NHPI) individuals and communities. This year’s theme focuses on leadership. Want to do your part? Help share information on spotting and avoiding scams that impact your neighbors and friends in AA and NHPI communities.
With the resources at ftc.gov/languages, sharing information with AA and NHPI communities about fraud, scams, and bad business practices just got a little easier. For example, you’ll find advice in languages including Simplified and Traditional Chinese, Korean, Hmong, and Vietnamese on scams and how to report to the FTC (hint: at ReportFraud.ftc.gov).
But don’t stop there! At consumer.ftc.gov, you’ll find even more information to share on how to spot and avoid scams like job and investment scams and fake debt collectors — and what to do if you (or someone you know) was scammed.
The FTC wants to hear from AA and NHPI leaders and communities about your experiences. If you come across a fraud, scam, or bad business practice, tell the FTC at ReportFraud.ftc.gov. By reporting, you help the FTC and its partners stop scammers.
Scams
Money-Making Opportunity Scams
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For Release
Action by FTC and Pennsylvania Leads to Permanent Ban For Debt Collectors That Targeted Businesses, Non-Profits, First Responders
Court order bans International Credit Recovery, Inc., and its officer and manager
Tags:
- Consumer Protection
- Regional Offices
- East Central Region
- Unordered Merchandise
- deceptive/misleading conduct
- Credit and Finance
- Debt Collection
- Small Business
As a result of actionby the Federal Trade Commission and the Commonwealth of Pennsylvania, debt collection company International Credit Recovery, Inc. (ICR), officer Richard Diorio, Jr., and manager Cynthia Powell, have agreed to a permanent banfrom the debt collection industry after being charged with engaging in bogus debt collection efforts against businesses and non-profits.
The FTC and Pennsylvania alleged that ICR was a key part of a telemarketing scheme run by American Future Systems, Inc., (AFS), which also does business as Progressive Business Publications and the Center for Education and Employment Law. ICR allegedly collected on debts AFS claimed organizations such as businesses, schools, fire and police departments, and non-profits owed for book and newsletter subscriptions they did not order.
“The defendants in the case were the second half of a one-two punch that targeted small businesses, non-profits and first responders, first with bogus subscription bills and then bogus debt collection,” said Samuel Levine, Director of the FTC’s Bureau of Consumer Protection. “We’re proud to work with our partners in Pennsylvania to hold them accountable.”
“Through collaboration with our federal partners, we reached an agreement that ensures Pennsylvanians will be protected from these callous defendants that preyed on emergency-responder and non-for-profit organizations to fulfill their selfish greed,” Pennsylvania Attorney General Michelle Henry said.
The FTC and Pennsylvania charged that, in connection with its debt collection activities, ICR contacted consumers that it knew or had reason to know did not agree to order paid subscriptions. They also charged that ICR used false or unsubstantiated representations to try to get consumers to pay, and that ICR illegally threatened consumers if they did not pay.
The court order, which was agreed to by the defendants to settle the case, permanently bans them from the debt collection industry, as well as requires them to cooperate since the case will continue against the other defendants AFS, Progressive Business Publications of New Jersey, Inc. and Edward Satell.
The Commission vote approving the stipulated final order was 3-0-1, with Commissioner Christine S. Wilson not participating. The vote on this matter closed on March 23, 2023, prior to Commissioner Wilson’s departure from the Commission. The U.S. District Court for the Eastern District of Pennsylvania approved the settlement.
NOTE: Stipulated final orders or injunctions have the force of law when approved and signed by the District Court judge.
This matter is being handled by the FTC’s East Central Region.
The Federal Trade Commission works to promote competition and protect and educate consumers. Learn more about consumer topics at consumer.ftc.gov, or report fraud, scams, and bad business practices at ReportFraud.ftc.gov. Follow the FTC on social media, read consumer alerts and the business blog, and sign up to get the latest FTC news and alerts.
Contact Information
Media Contact
Office of Public Affairs
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For Your Information
FTC Releases Speaker List for May 4 Informal Hearing on Government and Business Impersonation Rule
Tags:
The Federal Trade Commission will hold an informal hearing on its proposed rule prohibiting government and business impersonation at 1 p.m. on May 4, 2023. Chief Administrative Law Judge D. Michael Chappell will preside over the hearing, which will be held virtually and livestreamed on ftc.gov.
The following thirteen interested persons have requested to make an oral submission at the hearing:
- Risk Management Society (speaker: Mr. Stuart Ruff-Lyon, Chief Events & Sales Officer)
- Consumer Technology Association (speaker: J. David Grossman, Vice President, Regulatory Affairs)
- Exhibitions & Conferences Alliance (speaker: Thomas F. (Tommy) Goodwin, Vice President of Government Affairs)
- International Association of Exhibitions and Events (speaker: Nicole Bowman, MBA, CEM, VP of Marketing & Communications for IAEE and Executive Director of Exhibitions Mean Business)
- American Society of Association Executives (speaker: Michelle I. Mason, FASAE, CAE, President and CEO)
- William MacLeod, Esq.
- USTelecom – The Broadband Association (speaker: Joshua M. Bercu, Vice President, Policy & Advocacy)
- Neil Chilson, Esq.
- Voice on the Net Coalition (speaker: Glenn S. Richards, outside counsel)
- American Bankers Association
- INCOMPAS
- Anti-Phishing Working Group (speaker: Peter Cassidy, Secretary General)
- NCTA – The Internet & Television Association (speaker: Joni Lupovitz, Vice President & Associate General Counsel)
The order of the oral submissions will be as listed above. Each oral statement will be limited to five minutes. Each speaker’s oral presentation should be limited to the topic of the proposed trade regulation rule entitled “Rule on Impersonation of Government and Businesses.”
The Federal Trade Commission works to promote competition and protect and educate consumers. Learn more about consumer topics at consumer.ftc.gov, or report fraud, scams, and bad business practices at ReportFraud.ftc.gov. Follow the FTC on social media, read consumer alerts and the business blog, and sign up to get the latest FTC news and alerts.
Contact Information
Contact for Consumers
Consumer Response Center
Media Contact
Office of Public Affairs
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For Release
Federal Trade Commission Returns More Than $1.1 Million to Consumers
Court ordered defendants to compensate consumers defrauded by deceptive “free trial” offers
Tags:
The Federal Trade Commission is sending 41,934 checks, totaling more than $1.1 million, to consumers who were charged for deceptive “free trial” offers for tooth whiteners and other products by RevMountain, LLC; Anasazi Management Partners; and 59 related corporate defendants.
Consumers who receive checks should cash them within 90 days, as indicated on the check. Recipients who have questions about their refund should call the refund administrator, Epiq, at 1-888-574-7818, or visit the FTC website to view frequently asked questions about the refund process. The Commission never requires people to pay money or provide account information to get a refund.
The FTC sued the defendants in August 2017, alleging that they used deceptive claims, hidden disclosures, and confusing terms to trick people into providing their billing information, supposedly to pay a small fee for the tooth whiteners and other trial products. Instead, the defendants charged consumers for two ongoing subscriptions to nearly identical products until the consumers canceled.
As a result, consumers who believed they had bought a single trial product for about $5 were charged without their knowledge approximately $200 a month until they canceled both subscriptions. Under settlement orders announced in April 2018, the defendants agreed to pay money to provide refunds to defrauded consumers.
The Commission’s interactive dashboards for refund data provide a state-by-state breakdown of refunds in FTC cases. In 2022, Commission actions led to more than $392 million in refunds to consumers across the country.
The refunds being sent today are the result of a settlement resolved before the U.S. Supreme Court ruled in 2021 that the Commission lacks authority under Section 13(b) to seek monetary relief in federal court. Because of that ruling, the Commission no longer has its strongest tool to return money to consumers, and it will become harder to provide refunds to consumers harmed by deceptive and unfair conduct. The Commission has urged Congress to restore the Commission’s ability to get money back for consumers.
The Federal Trade Commission works to promote competition and to protect and educate consumers. You can learn more about consumer topics and report scams, fraud, and bad business practices online at ReportFraud.ftc.gov. Like the FTC on Facebook, follow us on Twitter, get consumer alerts, read our blogs, and subscribe to press releases for the latest FTC news and resources.
Press Release Reference
Contact Information
Contact for Consumers
Epiq
Refund Administrator
Media Contact
Office of Public Affairs
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Consumer Alert
You got the job!
By
Seena Gressin
Attorney, Division of Consumer and Business Education, FTC
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You got the job! Work from home and earn top dollar. They already sent you a big check to buy supplies. (“Send us whatever is left, probably around $1,000,” they said.) If your alarm bells are clanging — great. This dream job has earmarks of a job scam.
Last year, tens of thousands of people reported business and job opportunity scams to the FTC, making them one of the Top 10 frauds reported to the FTC in 2022.
The scams show up as offers to help you start your own business or earn big bucks working from home. Some are pyramid schemes in which promoters claim you can make good money by selling their products, but your earnings really depend on you recruiting new participants. Other scams are fake job listings or employment services aimed at tricking you into handing over your money and personal information.
In 2022, people told the FTC they lost $367 million to business and job opportunity scams, a nearly 76% increase from 2021. What’s more, the median loss was a whopping $2,000. Compare that to the $650 median loss for all fraud types combined in 2022.
There’s no sure-fire way to detect business or job opportunity scams, but these steps can help you decide whether an opportunity is the real deal or a scheme to get your money and personal information:
- Do your own research. Don’t accept any job offer until you’ve checked it out. Scammers pretend to be both well-known and smaller companies, posting jobs on employment websites. So, reach out to the company directly using contact information you know is legit.
- Never bank on a “cleared” check. No honest employer will ever send you a check and then tell you to buy supplies, gift cards, or something else and send back whatever money is left. That’s a fake check scam. The check will bounce, and the bank will want you to repay the amount of the fake check.
Learn more at ftc.gov/JobScams. And, if you spot a scam, please tell us at ReportFraud.ftc.gov.
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