Is Entrepreneurship for
Multilevel Marketing Plans
SBA Financing Programs
for a loan
Personal vs. Business
Marketing Research Process
and Business Opportunities
Want to be your own boss? A franchise
or business opportunity may sound appealing, especially if you have limited resources or
business experience. However, you could lose a significant amount of money if you don't
investigate a business carefully before you buy. The Federal Trade Commission's Franchise
and Business Opportunity Rule requires franchise and business opportunity sellers to give
you specific information to help you make an informed decision.
Use the FTC Rule
A franchise or business opportunity seller must give you a detailed
disclosure document at least 10 business days before you pay any money or
legally commit yourself to a purchase. You can use these disclosures to
compare a particular business with others you may be considering or simply
for information. The disclosure document includes:
names, addresses and telephone
numbers of at least 10 previous purchasers who live closest to you;
a fully audited financial
statement of the seller;
background and experience of the
business' key executives;
cost of starting and maintaining
the business; and
the responsibilities you and the
seller will have to each other once you've invested in the opportunity.
If the seller doesn't give you a disclosure document, ask why. Verify the
explanation with an attorney, a business advisor or the FTC by calling its toll-free
helpline at 1-877-FTC-HELP (382-4357). Even if the business is not legally required to
provide a disclosure document, you still may want one for your own information.
Get All the Facts
Before you buy a business:
Study the disclosure document and proposed contract carefully.
Interview current owners in person.
(They should be listed in
the disclosure document.) Visiting them in person may help you identify any that are
"shills"-people paid to give favorable reports. Don't rely on a list of
references selected by the company because it may contain shills. Ask owners and operators
how the information in the disclosure document matches their experiences with the company.
Investigate claims about your potential earnings. Some
companies may claim that you'll earn a certain income or that existing franchisees or
business opportunity purchasers earn a certain amount. Companies making earnings
representations must provide you with the written basis for their claims. Be suspicious of
any company that does not show you in writing how it computed its earnings claims.
Sellers also must tell you in writing the number and percentage of
owners who have done as well as they claim you will. Keep in mind that broad sales
claims about successful areas of business-"Be a part of our $4 billion
industry," for example-may have no bearing on your likelihood of success. Also,
recognize that once you buy the business, you may be competing with franchise owners or
independent business people with more experience than you.
Compare franchises with other business
opportunities. Some companies may offer benefits not available from the first company you
considered. The Franchise Opportunities Handbook, published annually by
the U.S. Department of Commerce, describes more than 1,400 companies that offer
franchises. Contact those that interest you. Request their disclosure documents and
compare their offerings.
Listen carefully to the sales presentation.
Some sales tactics
should signal caution. For example, if you are pressured to sign immediately "because
prices will go up tomorrow," or "another buyer wants this deal," slow down.
A seller with a good offer doesn't use high-pressure tactics. Under the FTC rule, the
seller must wait at least 10 business days after giving you the required documents before
accepting your money or signature on an agreement. Be wary if the salesperson makes the
job sound too easy. The thought of "easy money" may be appealing, but success
generally requires hard work.
Get the seller's promises in writing. Any oral promises you get
from a salesperson should be written into the contract you sign. If the salesperson says
one thing but the contract says nothing about it or says something different, it's the
contract that counts. If a seller balks at putting oral promises in writing, be alert to
potential problems and consider doing business with another firm.
Consider getting professional advice. Ask a lawyer, accountant
or business advisor to read the disclosure document and proposed contract. The money and
time you spend on professional assistance, and research-such as phone calls to current
owners-could save you from a bad investment decision.