Business Opportunities May Not be Opportunities at All

January 21st, 2012

Business opportunities can be appealing to many consumers because they offer people a chance to be their own boss.  In addition, these opportunities frequently claim to provide a fail-proof, “turn-key” business, complete with all the materials needed to successfully provide the service or produce the goods at issue.  But the opportunities can end up costing consumers their savings. The FTC has been cracking down on companies offering business opportunities that it says took millions of dollars from more than two million consumers.  Before you dive into  a business opportunity, be sure to do your homework.

Ask lots of questions, such as:

  1. What exactly is the nature of the work involved – i.e., what will I be doing?
  2. How much will I be earning and how are my earnings calculated?
  3. Who is it that’s going to be paying me – the company or a customer?
  4. How much will I have to invest – exactly – to get the business started? Companies promoting business opportunities that can’t effectively address these 4 simple questions are not worth your time and should be ignored.

Request disclosure documents

The FTC   under a recently updated Business Opportunity Rule requires that the company provide you with a Disclosure Document seven days before you sign any agreement or give the seller any money.  That document should provide you with lots of information, including:

  1. Identifying information– i.e., the company’s name, address, and phone number; the sales person’s name; and the date the seller gave you the document;
  2. Legal actions– i.e., whether the company has been sued or prosecuted for misrepresentation, fraud, violation of securities laws, or any unfair or deceptive practices within the past 10 years.
  3. Cancellation or Refund Policy– i.e., does one exist and what is it.
  4. Earnings – i.e., if the company has stated or implied how much money you can earn, then it has to give you an Earnings Claim Statement.
  5. References – i.e., contact information for at least 10 people who have bought a business opportunity from the company.

Research the company

In addition to asking lots of questions and thoroughly reviewing the Disclosure Document, you may also consider doing the following:

  1. If possible, visit the company in person.
  2. Carefully examine the quality of any inventory or products that you will be selling to customers.
  3. The company may be making claims that you’ll be selling products manufactured by reputable, renowned companies.  If that’s the case, contact those companies directly and confirm that they do indeed have a business relationship with the company that you’re evaluating.
  4. Critically evaluate documentation supporting estimates for your earnings.  Some companies will misrepresent the earnings potential of such businesses in an effort to persuade you to sign on the dotted line.
  5. Take any “satisfaction guarantees” with a grain of salt.  Even fraudulent companies will guarantee the success of their program.
  6. Ask your local Better Business Bureau or State Attorney General’s office if any consumer complaints have been filed against the company.  But remember – just because you don’t find any complaints doesn’t necessarily mean the company’s in the clear.  It could also mean that no one has gotten around to complaining yet.

Take your time

Sometimes, sales people will try to rush you into a decision so you don’t have time to do your due diligence.  Don’t fall for it.  A legitimate opportunity will usually still be there tomorrow, so take your time.

Get it in writing

Any promises made by the company should be obtained in writing.  Sometimes, the Disclosure Document will cover it all, but other times, you’ll need to request additional pieces of paper from the company.

Read, read, read

Finally, before you do sign, read the contract.  Every word.

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Established in 1914 under President Woodrow Wilson, the FTC is the United States government’s primary regulatory authority in the area of consumer protection and anti-competitive business practices in the marketplace. Its Bureau of Consumer Protection assumes the lead in the Commission’s efforts to eliminate deceptive advertising and fraudulent business practices at work in the economy.

Too frequently, the term proves to be simply a euphemism for sending your money along to an unknown person or company and then watching your money magically disappear

A written, legally-enforceable representation that a product or service will meet a given standard of quality and/or performance. A word that, whether used in its noun, verb, or adjective form by advertisers, should be viewed with a healthy dose of skepticism by consumers

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