{"id":40800,"date":"2022-07-11T10:31:50","date_gmt":"2022-07-11T14:31:50","guid":{"rendered":"https:\/\/www.thefranchiseking.com\/?p=40800"},"modified":"2025-05-23T09:57:54","modified_gmt":"2025-05-23T13:57:54","slug":"franchise-due-diligence-trap","status":"publish","type":"post","link":"https:\/\/www.thefranchiseking.com\/franchise-due-diligence-trap","title":{"rendered":"Why You Need To Avoid This Franchise Due Diligence Trap At All Costs"},"content":{"rendered":"\n
\"franchise<\/figure>\n\n\n\n

Done right, franchise due diligence<\/strong> provides you with the vital information you need to make a smart, profitable choice in a franchise to buy. <\/p>\n\n\n\n

But if you do it wrong, because you didn’t take to the time to learn how to do your franchise research right, or worse, you were given false or misleading<\/a> information, it can cause serious financial harm. <\/p>\n\n\n\n

With that in mind, know this.<\/p>\n\n\n\n

I take my role as a Franchise Ownership Advisor<\/a> seriously. <\/p>\n\n\n\n

That means I focus on the things that will improve your chances of success as a franchise owner.<\/p>\n\n\n\n

And that includes making you aware of people, places, and things in my industry that have the potential to hurt your chances of success. Traps<\/em>. <\/p>\n\n\n\n

So keep reading, if “avoiding financial harm<\/em>” sits at the top of your list. <\/p>\n\n\n

 <\/p>\n\n\n

New York Bagel Franchise Execs Sent To The Slammer<\/h2>\n\n\n\n

I’m not going to call out New York Bagel franchisees for their poor due diligence techniques<\/a>.<\/p>\n\n\n\n

That’s because it wouldn’t help them get their money back. From who?<\/p>\n\n\n\n

Check this out, courtesy of Justice.gov<\/a>, an official United States government website:<\/p>\n\n\n\n

“According to court documents and statements made in court, Joseph Smith, of Fishkill, owned and operated New York Bagel, a business that operated in Pennsylvania and other states. Smith and Dennis Mason conspired to defraud individuals who sought to open new franchises of New York Bagel. Smith and Mason induced the prospective franchisees to open up New York Bagel stores by understating the startup costs, overstating the number of franchises that were up and running, and exaggerating the financial success of existing franchises. Smith and Mason charged prospective franchisees fees ranging between $7,500 and $44,500 to gain rights to open stores. When prospective franchisees learned of the misrepresentations, Smith refused to refund these fees<\/em>.”<\/blockquote>\n\n\n\n

Pretty ugly stuff. <\/p>\n\n\n\n

That said, I’m not sure how the money stuff<\/a> works in federal cases like this. <\/p>\n\n\n\n

Specifically, I don’t know how the franchisees<\/a> will get their money back-or if they can at all. I hope so. <\/p>\n\n\n\n

But if there’s a silver lining to the nightmare several New York Bagel franchisees have been going through, it’s this:<\/p>\n\n\n\n

It may be that current and\/or future shady franchisors, franchise consultants, and franchise suppliers (including owners of certain<\/strong> franchise opportunity websites<\/em>), will now think twice about providing misleading information, including franchisee income. <\/p>\n\n\n\n

Nah. Probably not. <\/p>\n\n\n

\n

Note<\/b>: I’m willing to bet that Senator Cortez-Masto, who’s been pressing for more transparency regarding franchisee earning information<\/a>, would be very interested in what I’m about to share. <\/p>\n

\n

 <\/p>\n\n\n

“We expect you to be making nearly $300k with your franchise”<\/h2>\n\n\n\n

<\/p>\n\n\n\n

Who said that?<\/p>\n\n\n\n

The same people who sent me this email.<\/p>\n\n\n\n

\"franchise<\/figure>\n\n\n\n

There are lots of dangerous words there.<\/p>\n\n\n\n

Why are they dangerous?<\/p>\n\n\n\n

Because anyone who’s in the market for a franchise (a franchise buyer<\/em>) instantly focuses on one thing.<\/p>\n\n\n\n

“Invest $267k, make<\/strong> $267k a year, sell <\/strong>your franchise for $1M+…It’s possible with <\/em>______(I refuse to type in the name of the franchise<\/em>).<\/p>\n\n\n\n

That one thing is the word “make<\/em>.” <\/p>\n\n\n

 <\/p>\n\n\n

Franchise Due Diligence: Inside The Mind Of A Franchise Buyer<\/h2>\n\n\n\n

Let’s say someone who’s interested in buying a franchise received that email, and reacted in a 100% normal way. <\/p>\n\n\n\n

“Wow! That’s good money. All I need to do is invest around $270,000, run the franchise and I’ll make $267,000 a year? And when I decide to sell my franchise business, I’ll get over $1 million for it. I’m in<\/em>!”<\/blockquote><\/p>\n\n\n\n

So just like that, the owners of a certain franchise opportunity website have convinced an aspiring franchisee (who requested information and is now on their email list<\/em>), that he can make close to $300k a year by investing in the franchise they wrote about. <\/p>\n\n\n\n

“Wait, Joel. The email they sent doesn’t actually say he’ll make<\/strong> $267,000 a year. They said it’s possible<\/strong><\/em>.” <\/p>\n\n\n\n

Righteo. <\/p>\n\n\n\n

But in our fast-paced world, in which most people skim<\/strong> rather than take the time to read every single word included in one of the dozens upon dozens of emails they receive on a daily basis, what do you think they see<\/em> when they read something like that?<\/p>\n\n\n\n

Going deeper, what do you think someone who’s desperately trying to leave the corporate world<\/a> in one piece sees?<\/p>\n\n\n\n

They see a way out<\/em>. A $267,000 a year way out<\/strong>. <\/p>\n\n\n\n

As the owner <\/em>of something. <\/p>\n\n\n\n

\"franchisee<\/figure>\n\n\n

 <\/p>\n\n\n

Where Does This Franchisee Earnings Information Come From?<\/h2>\n\n\n\n

Just so you know, the $267,000 a year franchisee earning information comes from documents<\/a> anyone can get their hands on for free. \n
\n
\nNote<\/b>: I recently wrote about how you can get these documents too<\/a>. <\/p>\n\n\n\n

In this case, that annual income number comes from what’s known as a franchisee earnings claim. And it’s what some<\/em> franchisors include in Item 19 of their Franchise Disclosure Document<\/a>. <\/p>\n\n\n\n

Several Franchise Websites Include Numbers From FDD’s<\/strong><\/p>\n\n\n\n

If I wanted to, I could launch a franchising website<\/a> that spews out information gathered from FDD’s<\/a>, too. And I could market the website as a “Franchise Due Diligence And Franchise Data<\/em>” website. But I’m not going to do it. Because it doesn’t bring a lot of value to today’s franchise buyers. <\/p>\n\n\n\n

Nor would I ever<\/strong> send out an email suggesting someone could “Invest X amount of money, make<\/strong> X amount of money a year, and then sell it for X amount of money<\/em>.” <\/p>\n\n\n\n

Why wouldn’t I do that?<\/p>\n\n\n\n

Because doing so would put me, my business, but most importantly, my reputation<\/em> on an extremely slippery slope. <\/p>\n\n\n\n

That said, it’s something people with limited knowledge of franchising do. They think it’s okay. For them, it’s a business decision. <\/p>\n\n\n\n

But for me, it’s a moral decision. <\/p>\n\n\n\n

In addition, to me, it borders on an illegal earnings claim (although I’m not an attorney<\/em>).<\/p>\n\n\n\n

There’s more.<\/p>\n\n\n

 <\/p>\n\n\n

“We expect you to be making nearly $300k with your franchise”<\/h2>\n\n\n\n

The email forwarded to me about Crumbl Cookies included a link to a video. And the video included the sentence above plus<\/strong> these gems: <\/p>\n\n\n\n

“They’re all doing pretty well in this franchise system from what I’ve seen<\/em>.”<\/p>\n\n\n\n

Really?<\/p>\n\n\n\n

What<\/em> have you seen, exactly?<\/p>\n\n\n\n

“We expect you to make your money back within 2.5 years. And some have made their money back faster than that<\/em>.”<\/p>\n\n\n\n

Great. Who<\/em> has? Name names!<\/p>\n\n\n\n

“My bet, by 2024, 2025, Crumbl Cookies is going to owned by a larger company<\/em>.” <\/p>\n\n\n\n

And that’s supposed to be a good thing?<\/p>\n\n\n\n

Not to me. <\/p>\n\n\n\n

But it will definitely be good for the folks who came up with the concept. They’ll be instant multi-millionaires. And that’s fine. I just worry about the franchisees<\/a>. What changes can they expect? Wait. I’m not done yet.<\/p>\n\n\n\n

The owners of the website (I’m not mentioning it by name<\/em>) have the audacity to share this little tidbit contained in a post they wrote about this cookie franchise:<\/p>\n\n\n\n

“Lack of Crumbl Franchise Opportunities Available to Open In The U.S<\/em>.”<\/p>\n\n\n\n

So again, not only have they suggested you’d make almost $300k a year as a Crumbl Cookies franchisee, they’ve taken that attractive annual income number away from you (unless you live in a part of the country where franchises are still available<\/em>). Nice. <\/p>\n\n\n

 <\/p>\n\n\n

The Whole Point Of This Post<\/h2>\n\n\n\n

Setting false expectations for franchise buyers is bad for the franchise industry. <\/p>\n\n\n\n

In this case, it’s by insinuating that all a potential franchisee needs to do is invest $267,000 in a Crumbl Cookies franchise, and she’ll make $267,000 a year. Look at it again:<\/p>\n\n\n\n

“Invest $267k, make<\/strong> $267k a year, sell <\/strong>your franchise for $1M+…It’s possible with <\/em>______(I refuse to type in the name of the franchise<\/em>).<\/p>\n\n\n\n

I know…I know. It’s “possible<\/em>.”<\/p>\n\n\n\n

But I call B.S. on that, because I know how people see things. <\/p>\n\n\n\n

And speaking of “possible<\/em>,” I guess it’s also possible for you to only make $67k<\/em> a year if you become the owner of a Crumbl Cookies franchise. Right? Heck, I’ll go one step further.<\/p>\n\n\n\n

It’s entirely possible you’ll lose your entire $267k investment! How?<\/p>\n\n\n\n

You could choose a horrible location…or one that becomes<\/em> a horrible location. <\/p>\n\n\n\n

That’s right. Becomes<\/em>. <\/p>\n\n\n

 <\/p>\n\n\n

Stuff Happens<\/h2>\n\n\n\n

What follows are some examples of things that can quickly put the kibosh on franchisee income and revenue. This first one is a doozy.<\/p>\n\n\n\n

What if a 12-month road construction project begins right in front of your new franchise business a mere 6 months after you’ve opened your doors? <\/p>\n\n\n\n

\"road<\/figure>\n\n\n\n\n\n

Or what if something happens that no one could have predicted?<\/p>\n\n\n\n

Like a business-shuttering<\/a> pandemic.<\/p>\n\n\n\n

Finally, what if you buy the franchise you fell in love with too late in the game?<\/p>\n\n\n\n

For example, do you really think expensive, gourmet cookies will always<\/a> be a thing?<\/p>\n\n\n\n

That said, if you know anything about franchising, you’re acutely aware of fads. Of trends. Especially in the fast-paced world we currently live in.<\/p>\n\n\n

\u00a0<\/p>\n

Here’s a short video on due diligence for a franchise<\/b>:<\/p>\n