If you go the business opportunity route, follow these research guidelines.
If you're interested in a smaller investment and a completely independent business package generally not associated with a licensed trademark, you may be looking for a business opportunity investment. A business opportunity company may or may not provide a disclosure document. The law is not as universally applied as it is in franchising, so getting a disclosure document is a hit-or-miss proposition. In any case, investing in a business opportunity package requires many of the same self-protective steps, with a few subtle but important differences.1. The typical business opportunity is designed to be an impulse purchase that costs no more than a few thousand dollars. The best advice: Use your credit card to make the purchase. Then, if the company is bogus and doesn't come through on the promised package, you at least have a shot at objecting to the charge on your card. If you write a check or pay cash for the same purchase, that money's gone. Also, take a day to think about it and talk to your spouse or a friend about it. Don't believe the salesperson's claims that "territories are going fast," that he's only offering a few packages before the opportunity is gone, or that you'd better "strike while the iron's hot." Impulse purchases often disappoint.
2. Assuming you don't receive a disclosure document, you still must take a close look at the company and the offering. Step one: Ask the company rep for a list of current buyers of the business opportunity in the area, and call those buyers. If you're told a list isn't provided, be mildly suspicious. See if you can find a few people operating the business opportunity and making a go of it. If you can't find anyone actually running the business, hold on to your money.
3. Dig beneath the hype of most business opportunities, and you'll find little more than a chance to buy a sales job. You may be a "distributor" of greeting cards or vending machines, and your job is to visit places of business to arrange for the placement of your products. Do you have experience in product or distribution device placement? If you assume it's easy, you may be surprised when business owners say "no thanks."
4. One advantage of business opportunity investments is that they're flexible-you can work most programs part time. If you want to build up a weekend, evening or seasonal business (for instance, selling Christmas products), a business opportunity generally offers you more choices than a franchise.
5. Buyer beware. I advise clients not to invest money in a business opportunity if they cannot afford to lose the entire investment.
Andrew A. Caffey is a practicing franchise attorney in the Washington, DC, area, an internationally recognized specialist in franchise and business opportunity law, and former general counsel of the International Franchise Association.