3 Companies Franchisees Should Be Cautious Of

Like the other two companies on this list, Cold Stone was also subject to an extremely rapid expansion right before a downturn. Many franchisees have closed over the years due to high operations costs and a recession in which consumers tightened the purse strings. Add in the fro-yo craze and a general transition toward healthy eating and the growth prospects don't look as exciting for Cold Stone Creamery.

Further, Cold Stone and franchisees threatened legal action against CNBC in 2010 for purportedly portraying the company in a negative light in a segment on franchising. According to Blue MauMau , the segment accused Cold Stone of hiding expenses and relying on kickbacks from vendors while requiring franchisees to purchase equipment from them, the article says.

A lawsuit filed in January on behalf of a group of Cold Stone franchisees under the National Association of Cold Stone Creamery Franchisees, is seeking to get more information on the matter.

The lawsuit suggests that the company failed to disclose how the money rebated by vendors is used and whether prices of purchased products are raised in order to offset the rebates to the parent company, according to QSR Magazine . The group also wants the company to disclose financials related to gift card sales and whether money from unredeemed cards is retained or used by Cold Stone, the article says.

Experts say that legal matters are one of the biggest detractors to potential franchisees. It's no telling how long the lawsuits will last and what the final outcomes will be.

The company did not return a request for comment.

-- Written by Laurie Kulikowski in New York.

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