How to Commit Franchise Fraud

Do you own a business? Would you like the opportunity to expand your business risk free? Do you want your risk-free expansion to appear completely legitimate to outsiders?

If you answered yes to these questions, look no further. Learn how to commit franchise fraud.

Simply follow these easy steps. You’ll soon have a business that grows using somebody else’s money.

Step 1: Put together a franchise disclosure document that looks very legitimate

The accuracy of the document isn’t as important as whether or not the document looks official and has information in it that will convince people to sign it.

The FTC Franchise Rule requires disclosure documents. You need to create a document, but the federal government doesn’t require you to file it anywhere. You don’t need to get any third party to validate what you put in it.

Put just about anything into the document that you want. The FTC doesn’t enforce the documents and you’re going to have all the power after your franchiSEES sign the contract so it won’t matter much if you fudge a few things here and there.

The purpose of the franchise disclosure document is not to be transparent, but to follow FTC protocol and to convince franchisees that they’re buying something legitimate.


Step 2: Write a franchise agreement that is completely in your favor

Put provisions in your contract that ensure that it’s nearly impossible for a franchisee to beat you in court. Use standard ALL CAPS clauses that force the franchisee to revoke all rights.

Clarify in your contract that you have the right to use your own distributors and that franchisees are required to purchase the goods they need to run the business from you. When you build a franchise, you’re building a network of businesses that not only pay you royalties, but that are obligated to buy from you.

Add clauses that require you franchiSEES to pay you future royalties. That way they can’t get away from you without you having the right to take their homes.

Most importantly, make sure your franchiSEES sign a personal guarantee. That will give you power over everything they own.


Step 3: Get on the SBA Directory so your franchiSEES can get taxpayer-backed loans to pay your franchise fee and to build an outlet with your name on it

Don’t worry, nobody requires you to disclose to franchiSEES actual earnings for your franchiSEES to qualify for the loans. You won’t need to tell them how many of your franchiSEES have failed in the first year, either.

It’s all set up. The government is on your side and the taxpayers have your back because they don’t know what’s going on.


Step 4: Advertise!

Ask franchise consultants if they’ll take a large commission for helping you convince franchiSEES to sign your contracts.

Remember, the better you pay your brokers, the more likely they are to bring you new franchiSEES. Make sure your broker is happy. Increase the franchise fee as necessary.

Buy a franchisee satisfaction award by signing a contract with a third-party provider that will survey your franchisees to find out they are satisfied. Make sure the provider says the surveys are anonymous when they really aren’t. If the surveys aren’t really anonymous, most of your franchiSEES will give you positive reviews no matter what! Then you’ll get an award. Easy peasy.

Advertise your award to prospective franchiSEES when they come for Discovery Days. Advertise online. Advertise everywhere. Prospective franchiSEES are trying to figure out if they can trust you to take care of them after they sign the contract. A survey of franchiSEE satisfaction will appease their fears.


Step 5: Hold Discovery Days in your office to meet prospective new franchiSEES

Make sure you put your best foot forward. Show your franchisee how big your business is and all the services and support you will provide your franchisee should they come on board.

If you’ve contracted with a franchise survey company that provides franchisee satisfaction “awards,” make sure your prospective franchisees see your award and know that the franchisees anonymously told a third-party company that they love the support you provide.


Step 6: Take complete power while promising prospective franchiSEES they can trust you

Follow the standard procedure of requiring franchisees to sign contracts with ALL CAPS clauses and personal guarantees as in Step 2 above. This way if your franchiSEE “fails,” you will have the right to take their home and any other assets so you can invest them in your business.

Make sure they agree to pay your legal fees, too.

In other words, take the position of complete power. Promise the incoming franchisees that you will take good care of them and that they can trust you.

Make sure the franchiSEES know, before they sign the contract, that you are there to use your superior business knowledge to help them build a business so they can make their entry into the world of business ownership.

When it’s time for franchiSEES to sign the contract, remind them that it’s standard procedure for franchise contracts to have a personal guarantees and ALL CAPS statements that revoke their rights. Tell the franchisees that, “All franchise agreements are that that way and you only ever use the power the contract gives you to manage ‘problem franchisees.’”


Step 7: Collect a hefty franchise fee!

This is the best part! It doesn’t matter if your franchiSEE succeeds or fails. You’ll make more off of this franchise fee than you’ll make off your franchise in royalties for the next few years. You get to use this money to expand your business no matter what happens to the franchiSEE next.


Step 8: Pay your broker

Franchise brokers can be expensive, but remember, not many franchiSEES will be willing to sign without one. This is the cost of using franchiSEE money risk free.

But don’t worry. You can increase the size of the initial franchise fee to put the burden of the broker cost back on the franchiSEE’s shoulders.

If you really think about it, the franchiSEE pays everything. There’s really no good reason for you to not franchise your business.

Franchising pays — as long as you’re the franchiSOR.


Step 9: Switch gears

The contract is signed and the franchiSEE has revoked all rights and handed over their money. Now you can put your own bottom line firstand focus on the needs of your business as a whole, not the franchiSEE’S needs. Besides, the franchiSEE is part of your business now and by serving yourself and keeping your business afloat, you’re really serving the franchiSEE.

The promises you made to the franchiSEE verbally before signing the contract don’t matter because the franchisee initialed a statement saying that they wouldn’t hold you to them.

If your new franchiSEE was talking to a broker more than you before signing, all the better! The franchiSEE certainly can’t legally hold you to promises the broker made.

And remember, the promises you made in writing in the FDD and the contract don’t really matter either. The reality is that the contract is in your favor and you’re likely to win just about any litigation.

Plus, you know how to litigate and can afford good attorneys. The franchiSEE won’t really know how and won’t have the money to beat you.


Step 10: Make a profit off your franchiSEES when you sell them the goods required to run their businesses

Remember, they signed a contract saying they would only purchase from approved distributors. You have a right to sell goods at whatever cost you choose.

Ideally, you want your franchisees to make a profit, too, so they are somewhat satisfied. Walk the line carefully. Make as much money as you can without pushing your franchisees completely over the edge. That would give you a bad reputation.


Step 11: If a franchiSEE complains or expresses any concerns about the services you’re providing, don’t admit any fault

Especially don’t admit fault in writing. If you do, it could be used against you in court.

Instead, blame any problems on the franchisee. That will help you in court.

Say things to your franchiSEE like, “You knew you were going to have to work hard when you purchased this franchise. And now you’re not working. Work harder.” You can say this no matter what — even if they are working hard and even if you’re not giving them the services they need to succeed.

Many franchiSEES buy because they have confidence in their own abilities to work hard. Use their beliefs in themselves against them by intentionally criticizing an aspect of their character they perceive to be a strength. This will often make them work harder just to prove their character to you.

Tell the franchiSEE that the franchiSEE is the only one who has ever had any of these problems and that all the other franchisees are doing just fine. Say, “Other people are making a profit just fine. This system is proven to work. You’re having a problem with it because you’re not _______.” Fill in the blank with whatever works in your industry.

The key is to make sure you always blame all the problems on the franchiSEE. Do this now and do so in writing so you can pull out your emails in court to prove your point.”


Step 12: Intentionally create a cult-like environment

Reward franchiSEES who are loyal to you and who speak positively about you and the business. Incentivize franchiSEES to speak positively about you through retaliating against those who don’t. A little fear goes a long way. If necessary, sue a franchiSEE to make sure the other franchiSEES know what will happen to them if they don’t do what you say.

Try to isolate any franchisee who is expressing concerns. Other franchiSEES will notice what you’re doing and will be afraid to speak about their concerns, too.

Do you best to turn your franchiSEES against any franchisee who is complaining by saying bad things about that person and belittling their work ethics and compliance.

This will create a cult-like environment with you as the cult’s leader. The more successful the cult-like environment is, the more money you will make.

And the more cult-like your franchise culture is, the better the recommendations your current franchiSEES will give to prospective franchiSEES because they will want to impress you. The more cult-like your culture is, the better feedback your franchiSEES will offer you on you franchise satisfaction surveys. All of this will help you recruit even more franchisees.

More franchiSEES = More $$$$ to expand your business risk free.


Step 13: Support franchiSEES owners’ associations’ efforts verbally, but do your best to sabotage them

You are not legally allowed to stop franchisees from starting owners’ associationS. Do what you can to get your most loyal franchisees into leadership positions within the owners’ association. The more the association follows the pattern you have set of speaking positively about you and the business and isolating franchisees who have concerns and complaints, the better.


Step 14: Use fear of litigation to keep franchiSEES in line

Keep a powerful attorney around and make sure your franchiSEES are afraid of the attorney. Make sure franchiSEES know that if they don’t comply with the party line, they will face legal action.

Make sure other franchiSEES know that your threats of litigation are real. Use litigation against franchiSEES when necessary.

Remember, as the franchiSOR, you have the advantage in litigation. You have more knowledge, money and you can afford better attorneys who will work harder.

Your attorney is part of your team.

When you litigate, plan on winning so that other franchisees don’t get the idea that they an get away from you safely.

The idea is to keep as many of your franchiSEES as quietly in line as possible.

Once any litigation is complete, because of how you worded your contract, you can take your victims’ life savings and homes.

Then you can use the money to build your business and recruit even more franchisees!


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