Sorting the wheat from the chaff

Richard Holden, Head of Franchising at Lloyds TSB, explains how to identify a genuine franchise opportunity from an opportunist who wants to just take your money

Many individuals find themselves in a position where working for themselves becomes an attractive proposition in a difficult employment landscape. Others have redundancy payouts they want to use to set up on their own.

However, you cannot compare the potential of a well proven franchise business based on years of experience and a tried and tested business model, to some of the ‘scams’ which offer the investor little or no chance of building a successful business.

Unfortunately, many websites and classified ads promote what amount to business scams alongside genuine franchise opportunities. This makes it tricky for the investor to identify a true opportunity at a glance.

I’ve witnessed a growing national epidemic of business opportunity scams preying on the aspirations of would-be entrepreneurs. When you’ve been reading the same promises for years, they become easy to identify.

This isn’t always easy for the eager and motivated business person looking at the opportunity of setting up on their own for the first time.

Yet we’ve all been exposed to adverts and spam emails promoting business opportunities that seem too good to be true. I’ve picked out some of the most frequent, rarely proven, claims, which are made:

  • Huge profits, no competition, low level investment!
  • Work no more than 20 hours per week and earn £50,000+ per year!
  • Run your own business, no experience needed, money back guaranteed!
  • Earn great profits, do it all from home with total flexibility!
  • No fees, absolute best products available anywhere!
  • The ability to earn a substantial income working from home!
  • These promised returns rarely materialise, and investors can get stuck holding worthless stock they can’t sell.

The fact is that there are no shortcuts to wealth – the only people likely to make money are the scammers! Aspiring business owners need to apply lots of common sense when researching a potential business opportunity.

Where to start

A good place to start is by taking a close look at well-established franchise opportunities, which have been tried and tested over a number of years. There is a reason why these businesses are successful – a good franchise is the duplication of a proven business model with initial training and ongoing support delivered by the franchisor.

In addition to a track record of success, a well-established franchise can also provide the investor with a known brand name, national account contracts and better supplier terms. The advantage of training and support should not be overlooked by would be investors. Having someone to share their years of experience running a similar business, and stop you from making costly mistakes, is a real and significant benefit for franchise owners.

Compare this to the scam option, which often involves the investee parting with significant cash up front for little more than some stock and an instruction sheet that gives them very little instruction.

Thorough research

Whether you are looking at a standalone business opportunity or joining a proven franchise brand, any investment requires thorough research and careful evaluation before you make your commitment. One essential piece of research is to speak to as many existing franchise owners as possible. It is likely that the franchisor will want to manage that process – and that is fine – but don’t let them cherry pick who you speak to.

You should try to speak to a selection of franchise owners, including some of the best and worst performers, to help you determine what is required to make the opportunity work.

You may also wish to speak to someone who has recently established their business – they will have gone through the same process as you very recently, so their experience will be invaluable. It’s also worth speaking to franchise owners who are more established. They will be able to point out some of the pitfalls to avoid and where you can expect your own business to be in a few years time.

Of course, franchising is not right for everyone. For people who value independence or want to run a business without restrictions or to reinvent the wheel, franchising might not be the right choice for them. Franchising is not an easy business option and investors need to go in with their eyes wide open.

Ultimately if you’ve done your research, considered all the alternatives, taken the right professional guidance and decided that franchising is the best way forward for you then there is every opportunity to benefit from your chosen franchise for many years to come.

Lloyds TSB sponsors a series of free evening educational seminars about the benefits and pitfalls of franchising, which are ‘must attend’ events for people starting on their franchising journey. For further details and booking information, visit the website.

10 top tips to protect yourself against business opportunity fraud

  • If it looks too good to be true, it probably is
  • Beware of promises of guaranteed or very large returns
  • Look out for being sold goods or services with little or doubtful value
  • Beware of offers to teach you ‘secret’ or ‘exclusive’ techniques for building wealth
  • Avoid advertisers who state ‘this is not a pyramid scheme’ or ‘this is totally legal’
  • Never be pressured into making decisions about the investment
  • Always investigate schemes carefully before you agree to invest
  • Ensure that you actually visit the head office business premises before you commit
  • Always speak to existing investors and thoroughly check all testimonials and references
  • Seek independent legal, financial or other professional advice before parting with any money