If you’re looking for a way to start a business without a lot of hassle, business opportunity ads might be very tempting. But how do you know which ones are legitimate and which ones are scams? How can you be sure you buy the one that’s right for you? Get the answer to these questions, and more, in Business Know-How’s Business Opportunity FAQ.
How much does it cost to buy a business opportunity?
Prices vary widely from under $100 to $10,000 or more. And that’s just the price to purchase the opportunity. You will have to allow additional money for marketing, office expenses, and other routine costs of doing business.
Is there much risk involved with buying a business opportunity?
Yes, there can be, particularly when the purchase price is significant and you need a storefront as you would for most franchises.
One would-be business owner—we’ll call him “Joe”—sold a rental property he owned to raise the money to purchase an automotive parts business opportunity. The business looked like a franchise because it was to be operated from a storefront location and would sell the opportunity company’s brand of merchandise. But as Joe discovered after the fact, the company was not a franchise but a seller-assisted marketing plan.
Before Joe had all the up-front money in place to get the business going, the opportunity company found an existing auto parts store and negotiated a price for him to purchase the store. This was a separate transaction from the purchase of the opportunity. Once the store was turned over to Joe, the opportunity company removed all of the inventory in the store and replaced it with their own branded merchandise. “The business failed after about a year of sucking me dry, and I filed legal action to recoup my losses,” Joe explains.
To help prove his case, Joe ran an ad in a state-wide automotive periodical asking for information from people with similar experiences. He was inundated with responses and won his case against the company, but not until after the business had forced him into bankruptcy.
Looking back, Joe says he believes the company put unsuspecting consumers in business to fail so the opportunity company could profit by “repossessing more than they supplied.” In the agreement, he says, “they lien everything on the premises of the store, not just what they finance you for. That would include thousands of dollars of shelving, displays, cash registers, computers, signage, and many other peripherals of doing business.”
Joe advises others who are looking for business opportunities to treat the purchase the way you’d treat the purchase of an automobile. “If it’s not what you want exactly, at the right price and the right conditions, be ready to walk away. I didn’t do that. I let my mind overlook some obvious shortcomings for what I thought would be a positive result no matter what.” He also advises to learn the laws covering franchises and opportunities in your state and to read all disclosure documents carefully. “No one will do it for you. You must do your homework.”
Do many people lose a lot of money buying opportunities?
Unfortunately, yes. Although the Federal Trade Commission, state attorney general offices, and the government in Canada and other countries are constantly working to stop opportunity frauds, the legal process involved takes time. Furthermore some less-than-opportune opportunities manage to skate along at the edge of the law.
I want to work at home on my computer. Are the computer business opportunities that are advertised worth buying?
It depends on the specific opportunity purchased, the purchase price, and who you ask. Some opportunities provide you with information, software, supplier lists, and instructions that would be quite time-consuming to gather any other way. Others provide little of value. Generally the bigger the income claims made in the ads and the less the “opportunity” costs to purchase, the more likely you’ll get ripped off. But paying a high price to buy a computer business opportunity (or any other kind) is no guarantee you’ll be satisfied, or that you’ll be able to get a refund if you purchase the opportunity and aren’t happy with what you get.
Before you make any purchase investigate the company and get details of the return policy (if any) in writing. If at all possible, use a credit card to make your purchase. That way if you aren’t satisfied with the purchase and if the vendor won’t refund your money you may be able to dispute the charge through the credit card company. If you send a check, your only recourse would be to sue, and that would probably cost more than the money you’d recover if you won.
Why is it so difficult to spot these con artists?
The companies usually go to great lengths to make themselves look respectable. As a result, even people who have the skills and experience to do well in a particular industry can easily be fooled.
Lori Collins, an Ohio resident, bought a medical billing business opportunity after attending a seminar her husband heard advertised on a local radio station. She had done medical billing before interrupting her career to have children, so the opportunity seemed a natural.
“The seminar lasted an hour,” Lori recalls. “They made the field sound like a piece of cake. They didn’t promise they would obtain doctors for me; however they did make it seem like there was a high demand and that you would be tripping over them.” They also touted their professionally created marketing materials, and that seemed like an advantage to Lori, too. “The only part at this point that made me swallow hard was the $8,000 initial fee. We had checked into franchises, so we talked ourselves into the fact that even though there was a high fee, it was minimal compared to the franchise costs,” she adds.
The information package and videotape the company supplied were slick. “It all came very professionally packaged, which helped add to the thought that this was a top-notch company.” The company’s history stated they had been in business for 13 years, and the salesperson Lori had been dealing with “went out of his way to act like he was my new best friend.”
Lori checked with the Better Business Bureau in the state in which the company was based. The BBB showed only three complaints had been filed and that each had been resolved. Lori and her husband refinanced their house to get the cash to buy the opportunity. Not long after they did, the opportunity company was sued by the FTC and went bankrupt. Looking back, Lori says the one thing she should have researched but didn’t was the reputation of the people selling the opportunity. “If I had checked out the head people associated with this company, I would never have gone with them.”
Does anyone really make money from these turnkey businesses?
A few people do. However, like any business, it takes time, hard work, and some trial and error to build the business and make it profitable.
Is it mostly uneducated people and opportunists who lose money on business opportunities advertised in magazines?
The amount of education you have seems to have little to do with who loses money or makes it. People who lose money in turnkey businesses or other business opportunities generally do so for one of these reasons:
- They have unrealistic expectations about how much time and effort they will have to put into selling the product or service to make it profitable.
- They have unrealistic expectations about how much money they can make from the business.
- They salivate on cue (much to copywriters’ glee) to words like “easy,” “confidential,” “lucrative,” and “profit,” particularly if the ads also include five- or six-digit numbers preceded by dollar signs.
- They don’t determine in advance if the product or service will sell, in what quantity it will sell, or what it will cost them to sell the product.
- They don’t really like the product themselves or wouldn’t buy it themselves at the price they have to charge.
- They discover after buying the business plans or package that the business will require selling and they hate selling.
Is it possible to make thousands of dollars with little effort in my spare time like some of the business opportunity ads promise?
It depends how much spare time you have. The two most important things to remember about opportunity advertising are:
- There’s no such thing as a free lunch.
- If it sounds too good to be true, it is.
Remember, even though you may be able to process and fill orders in your spare time, you will have to start out with desirable products or services and will still have to spend time finding customers and doing other routine business chores if you expect the business to be successful. If you can’t regularly set aside time to work in the business, you won’t succeed.
What can I expect if I send for one of those blind ads that promise to tell me the secrets of getting rich?
Most of them are reports filled with hype about how the author of the report made his or her fortune (and how you could, too) in real estate or financial deals or repairing credit. Often people send away for the materials out of curiosity or because the ad has a money-back guarantee and therefore somehow seems “legitimate.” It is probably the curiosity seekers who keep these advertisers in business.
Don’t the advertisers lose money if they offer a money-back guarantee and their program doesn’t work?
Not in practice. The guarantee is an advertising ploy that builds confidence and gets the reader to send in money. Most people never bother to send for their refund if they don’t like the materials they get.
How do I avoid frauds?
There’s no foolproof way to avoid scams; however, you can avoid many scams by steering clear of any business opportunity that
- promises unrealistic profits
- promises you can become wealthy working a few hours a day in your spare time
- has agents or distributors that seem more interested in soliciting you than in selling products or services
- discourages or forbids you from contacting other investors, distributors, or licensees of the business
- requires an up-front payment before giving you any details of what the business entails
- claims no experience or skills are needed
- requires you to pay someone money to get at-home work
- makes you an agent for a company that you haven’t thoroughly investigated
Are sales of franchises and business opportunities regulated in any way?
A number of states have instituted franchise and business opportunity laws. Fifteen states have laws that require franchisors to provide presale disclosures, known as “offering circulars,” to potential purchasers. Thirteen of these state laws treat the sale of a franchise like the sale of a security. Twenty-three states have business opportunity laws. These laws usually require that companies give potential purchasers a presale disclosure document that has been filed with a designated state agency.