Many consumers are drawn to seminars and infomercials promising income generating full or part-time business opportunities. While there are a number of legitimate and successful franchise opportunities available, most are very expensive and require a tremendous amount of energy and effort. Unfortunately, many people invest nearly all of their savings in opportunities that promise a large income with little effort only to lose everything.
The Colorado Attorney General enforces the Consumer Protection Act (CCPA) as well as other state and federal consumer protections laws. In addition, the Federal Trade Commission (FTC) enforces the federal Franchise and Business Opportunity Rule (16 C.F.R. Part 436).
This Rule requires franchise and business opportunity sellers to give prospective investors specific information about their business opportunity at least 10 days before collecting payment or executing a legally binding commitment.
That information includes:
- Names, addresses and telephone numbers of at least 10 previous purchasers who live closest to the potential buyer.
- A fully audited financial statement of the seller.
- Background and experience of the business' key executives.
- Cost of starting and maintaining the business.
- The responsibilities the buyer and the seller will have to each other once the buyer invests in the opportunity.
- Sellers also must tell you in writing the number and percentage of owners who have done as well as they claim new buyers will.
Other Tips When Considering A Business 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.
- Study the disclosure document and proposed contract carefully.
- Interview current franchise owners in person.
- Don't rely on a list of references selected by the company, search out other references that have experience with the opportunity.
- Ask owners and operators how the information in the disclosure document matches their experiences with the company.
- Investigate claims about the stated potential earnings. Be suspicious of any company that does not show how it computed its earnings claims in writing.
- Compare franchises with other business opportunities. Some companies may offer benefits not available from the first company you considered. 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. Also be wary if the salesperson makes the job sound too easy.
- Get the seller's promises in writing.
- Consider getting professional advice before you invest. Ask a lawyer, accountant or business advisor to read the disclosure document and proposed contract.
If you believe you have been victimized by a business opportunity scam or wish to report suspicious activity, please file a report here.