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Caveat Emptor-Beware and Be Wary!
If it sounds too good to be true, it probably is too good to be true.
Kent Craven and Howard Bassuk
“If it sounds too good to be true, it probably is too good to be true.” Can you remember how many times you’ve heard that sage piece of advice from your parents and others when you were growing up?
Probably more times then you can count. Yet despite this warning having been given to us many times, it often goes unheeded.
Every day, people who are otherwise, logical, practical and rational allow themselves to be lured down the path of business ownership by false promises. Some promises claim that there is no risk involved with the business, or that there are money back guarantees. Others include promises of a low acquisition cost combined with absentee ownership, early retirement, etc.
It’s hard to conceive of any business that has “no risk”. Perhaps it exists somewhere, but we haven’t found it yet. And money back guarantees, quick retirement, absentee ownership promises, etc. while certainly not impossible, are the norm either. You should expect to work hard in your business, and to devote your heart and soul to it. That is the best guarantee you can give yourself!
Please don’t get us wrong. There are many businesses that you can own that can successfully help you achieve the life and lifestyle of your dreams. What we’re suggesting to you, is that the best way to make that dream a reality is to keep that age old warning of “Caveat Emptor… let the Buyer Beware” close at hand and focused in your mind.
It’s a big world, and the scope of businesses that you can own is truly dizzying. There are literally thousands of business opportunities, franchised or otherwise that are available to you, the would-be entrepreneur.
Unfortunately, not all of these offerings are legitimate business opportunities being offered by well-run companies. Sadly, and sometimes tragically, some of them are out-and-out criminal deceptions.
It is heartbreaking to see people who have been duped out of some or all of their life savings, by uncaring and unethical promoters and scam artists.
No business is perfect. Don’t expect to find perfection when your are looking at businesses you might want to own. It’s simply not realistic.
But just because a business isn’t perfect, doesn’t mean it might not be a wonderful one to own. At the same time, be hard headed, and don’t allow yourself to become a victim of an unscrupulous seller.
What can you do to prevent yourself from becoming a victim? PLENTY!
First, don’t rely on promises that may not be true. Instead, get the facts about any business that you are considering, and make yourself an educated buyer. Being an informed and educated buyer will vastly increase your chances of successfully realizing your dream of business ownership.
Next, be aware that there is also some governmental help that you can use. Some states, along with the Federal Government regulate certain businesses, most specifically franchises.
If a business is franchised, the FTC requires it to adhere to numerous rules and regulations.
Many people will tell you that one of the best things about franchising is that the FTC (and certain states) requires that each franchisor provide to all of its prospective franchisees a disclosure document (Uniform Franchise Offering Circular or “UFOC”) that details the particulars of a franchisor’s business.
In a franchise’s offering circular (“UFOC”), there are 23 different items that that must be disclosed to you. This “UFOC”, contains a wealth of information that will allow you to begin a serious investigation of that franchised opportunity.
Amongst the items that are required to be included in the UFOC, are sections such as: the history of the franchisor; pertinent litigation and bankruptcies if any; a detailed summary of required investment and royalty payments; separate listing of franchisee and franchisor responsibilities; a sample of the franchise agreement; the franchisor’s audited financial statements; and, a list of franchisees including those who have recently left the system.
Additionally, any sales and/or earnings information that the franchisor provides, must be documented and explained, or it can not be included as part of the offering. Further, any verbal financial claims that are not consistent reiterations of the facts included as part of the offering circular are likewise prohibited.
Another important regulation governing the buying of a franchise is that the franchisor must also give you a discreet waiting period between the time they give you the offering circular (UFOC) and the time you are allowed to purchase the franchise.
Starting from the time that you receive this “UFOC” the franchisor may not sell you, and you may not buy that business for at least 10 working days. Moreover, you are never under any obligation to buy that business…EVER!
Because of this 10 day waiting period, you cannot impulsively purchase a business, nor be high-pressure sold. As such, you will have a chance to think about what you are doing and reflect on your decision before you make it.
Also, if no earnings or sales representations that are not documented and explained in the UFOC have been made to you, there is a much smaller chance that you can be fraudulently induced to buy the business.
WOW! As you can see, the “UFOC” and the information contained in it, can be a big help if used properly. Those of us already in the franchise business, tend to take the availability and distribution of this information for granted. It’s an everyday part of our world. However, we recognize how important this information can be when we realize that the same information is not available in other types of business opportunities.
Unfortunately, no such regulations to govern other types of business opportunities exist on the federal level. Even when completely legitimate, a non-franchised business opportunity may be reluctant to go through the cost and effort needed to provide you with this much information unless required to do so by law.
Does this mean that you should not consider buying a business that is not franchised? Of course not. Many are good, solid opportunities that can be wonderful acquisitions.
What we are saying is that when you investigate any business, make sure you can get the facts you need to make a good, sound, and informed decision. If the business you are looking at lacks an easy and available way to get reliable information, the chance for fraud and deception increases.
The possibility for fraud and deception is indeed a reality according to the “Top Ten Consumer Scams of 1998” as published by the FTC. High on the FTC’s top ten list are certain Business Opportunities and Work-At-Home businesses.
Of Business Opportunities, the FTC says, “Be cautious of ads promising big earnings from vending machines, display racks and other such business ventures. Some outfits readily offer references and promise full support. Trouble is, the earnings claims are often hype, the promised support is nonexistent and the references turn out to be shills who work for the company.”
Work-At-Home Scams, including envelope stuffing, are “among the oldest kinds of classified advertising fraud”, according to the FTC.
From time to time as part of our research, some of our Associates at Franchise Network (FranNet) may respond to a business opportunity’s classified ads.
And just as we would advise our clients to do, we always ask for references from people already in the business.
Since we believe that the best way to learn about a particular business opportunity is from those already in the business or from those who have recently left the business for one reason or another; we consider these references to be critically important.
Indeed, the single most important part of a franchise disclosure document may be the list of current and past franchisees. This all-inclusive list contains phone numbers so that you may contact whomever you choose, and even includes those franchisees that have recently left the system.
We consider that the ability and the opportunity for you to talk to a broad and representative group of owners to be vital. Without such an opportunity, it can be difficult, or even impossible to make an informed decision.
So, if a business opportunity does not give you such a list, how can you make a good and informed decision? Perhaps you can’t.
There’s also an important question that you should ask yourself and consider carefully: If there truly are a lot of happy and successful owners already in a particular business, wouldn’t the seller want and encourage you to talk to them?
Wouldn’t those references be strong endorsements for the organization? Of course they would. So, if you cannot get such a list, you must immediately ask yourself why a seller would want or allow you to be to be deprived of the opportunity to learn the facts. Most of the conclusions we’ve come up with are far from comforting!
Be careful. Don’t let anyone try to talk you out of learning the truth for yourself. You’ll hear some great excuses. They may even sound plausible. But underneath the thin veneer of plausibility there can often lurk the monster of deception.
For example, one business opportunity ad boasted, “Earn up to $10,000 per month working part-time from the comfort of your own home.” When asked for references the response was that every one in the business was too busy making money to spend time talking with all of the new prospects. Hmmm…there’s that thin veneer of plausibility!
On closer inspection, the plausibility melts away. One can’t help but wonder “How busy could they be, if they were only working part-time?”
Was there something that we were being prevented from learning? Quite possibly. Remember… even if the business might turn out to be a good one, you shouldn’t buy it if you can’t check it, so that you know the facts.
Over the years we have found that most franchisees, even if they are busy, are open and frank with others looking at joining the same franchise system. After all, they were in the same position when they were investigating business opportunities and, they remember that they too relied on the advice they received from others to help make their decision. Use this to your advantage, and learn the facts before you buy.
There are other ploys scam artists can use when asked for references. Recently we were told that “hundreds of people were already making money in a particular business opportunity.” Surely, we said, some of them would be willing to talk to us before we could be expected to invest thousands of dollars.
The response…yes, there was a revolving list of references that we could check.
The company claimed that each week they randomly chose three people from their hundreds of owners to serve as references. After enlisting some people we knew to separately respond to the same ad, we were amazed to find that the revolving list of references never changed! The hundreds of happy owners may have existed, but the references didn’t grant us real access to them.
Enterprising con artists have even moved their scams to the internet. The Internet Fraud Watch, a division of the non-profit, Washington, D.C. based National Consumers League, published its own Top Ten List of internet fraud complaints. Included in the list were work-at-home offers, business opportunities and marketing schemes.
If all this sounds a little scary, then you are getting the point. However, don’t let the scam artists prevent you from searching for, and hopefully realizing, your dream.
How can you navigate these land mines along the path to business ownership? Simple. Restrict your search to those companies that give you complete information.
There’s nothing wrong with looking at a non-franchised business opportunity that provides you with a complete set of facts and references. We’ve seen some that are terrific! But if you can’t get the information you want, why take a chance on the company?
Full disclosure is an important reason that many people prefer, or will only consider business ownership if it is with a franchise.
With thousands of franchise companies to choose from you probably can find what you are seeking. However, bear this in mind: all franchise companies are not created equal!
Just because a franchise company discloses the required facts about their business, it does not mean that it’s automatically a good business, or that it will be the right business for you.
Do your research. Be thorough, be careful and be wary. Make sure you fully understand both the potential reward and the risk of a particular opportunity. Once you do, you’ll be ready to make an informed decision that can lead you to the control and financial rewards that business ownership is all about.
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