Bundy Law Firm PLLC Aug. 7, 2012

With jobs scarce for college students and new graduates, college students should beware of an increasingly active predator-the franchise sales person. They haunt job fairs and campuses with tantalizing “opportunities” to start your own business by buying a franchise; opportunities to be free of the lines for every job opening. What they are offering, unfortunately, is indentured servitude that can be hard to escape.

We see a lot of these go bad. They follow a pattern. They solicit in the fall and winter and close the deal in December or January. They offer a no money down opportunity. You sign a contract that says they provide the initial investment and you will pay back the “loan” out of your revenues. You spend the first four to six months lining up customers for the summer months-all without receiving a dime in pay. You are hoping for the big payoff during the busy summer season.

Then the summer season arrives and you discover that you are wholly untrained and ill-equipped to operate a busy seasonal business, including collecting from “very picky” customers. You get a complaint and then the franchisor swoops in and starts treating you like the employee you probably were throughout and starts micro-managing your jobs. You discover that, after paying your expenses (including paying off the now-sizeable debt to the franchisor) you still are not making any money.

With no money left and none coming in, you suddenly carefully read your contract (the one you signed back in January) and discover that, in addition to other money owed to the franchisor, they want to charge you $2,000 or so in a “termination fee” just to get out of the deal-and they keep the customers you worked all of those months to generate. You just lost eight months of your life and are suddenly back in the jobs lines-eight months after your friends-remember those people who did not buy in to the franchise “opportunity”.

If the “business opportunity”, with it’s zero down promise, seems too good to be true, it is. Remember, in spite of the friendly patter from the sales person, they are asking you to sign a binding contract-one that has a high probability of starting you out with increased debt-not income. I am sure there are exceptions, but in these deals there is seldom anything but an empty pot at the end of the rainbow. Be very careful. It would be well worth your while, if you are tempted, to spend a few minutes on the telephone with an experienced franchise attorneys before buying a franchise. Like everyone else considering such an investment, college students should beware.