Netting a Winner

Before you chase down that business opportunity, make sure it's the right one for you. These tips will get you started.

Business opportunity. The very name of the investment concept captures the hope on which it is built. Excitement leaps off advertisements that do their best to convince would-be entrepreneurs they can make money, possibly a lot of money, with the product line or dispenser system or device they offer. Images of sudden wealth tantalize the imagination. Advertising text tells Horatio Alger-type stories of the rise from personal poverty to quick riches upon the discovery of that simple "secret"--and it can be yours!

The world of the American business opportunity sizzles with hope and possibility. The variety of business packages is staggering, and the promise of outrageous financial success is almost tangible. The challenge, of course, is to identify the real opportunities--the ones that will work for you--and to avoid weak or exaggerated (or worse) offerings.

The First Steps

The first task of any business--opportunity investor is to identify what you want out of the investment and what talents you bring to the business. For instance, if your priority is to be able to work at home, that limits the types of business packages that will fit your needs. Do you want to work part time only, or would you prefer to do seasonal work at a particular time of the year? Jot down your thoughts and plans; it will help you considerably when you plunge into the business-opportunity marketplace.

You should also give some thought to the type of work you want to do. If you want to get out and deal with people face to face, make a note of it. If you're seeking an ambitious sales program with an attractive line of products, this will send you in yet another direction.

Finally, figure out how much money you want to make. Be conservative in your estimates of what you can generate with the business opportunity, and by all means, pay no attention to any exaggerated revenue-potential claims your sales representative makes. Plan on a slow start as you learn the business, and a steady growth rate based on the time and energy you plan to commit to the effort.

Assess the Risks

How much money can you afford to put at risk? You'll find business-opportunity package prices that range from less than $100 to more than $10,000. Listen up: All business-opportunity packages are, without exception, high-risk investments. You have to be ready to lose your entire investment. Can you afford to lose $2,500--or whatever amount the package costs? Don't kid yourself that this can't happen to you. As easy and profitable as the program seems during the sales presentation, you may find it's not that easy to make money, for whatever reason. So go in with your eyes wide open, and, whatever you do, don't bet the rent money.

Law and Order

Twenty-six states and the FTC regulate the offer and sale of business opportunities. That regulation varies widely among these authorities--as does the definition of what constitutes a regulated business opportunity. In its 1979 Franchise Rule, the FTC adopted a narrow definition that actually excludes many business-opportunity ventures from coverage. The FTC staff is now in the process of rewriting the definition from the ground up. Variations among the state laws make it difficult to predict what will be required of any particular company in a given state. It's even difficult to generalize about the scope of business-opportunity regulation.

But we'll generalize anyway. When you boil down the laws, a business opportunity is generally defined as any set of goods or services offered by a seller (for more than $500 or as little as $100, depending on the state) that enables the purchaser to begin or maintain a business, in which the seller makes one of several specified representations about the package investment. Obviously, it's an extremely broad definition.

What does this usually mean in terms of legal compliance? Under the FTC Franchise Rule, the business-opportunity seller must deliver a full-disclosure document at least 10 business days before the purchase. Under most of the state business-opportunity laws, a regulated seller must register its offering with the appropriate agency. The seller must also provide each prospective buyer with a copy of the registered disclosure document a specified number of days prior to the buyer paying money or signing a binding contract.

Does this mean you'll receive one of these disclosure documents before you purchase a business-opportunity package? In some instances, you certainly will; in many others, you'll receive nothing in the way of disclosure. Some companies legitimately feel they are not required to provide disclosure; for instance, if their packages sell for $400 in a state that sets the definition at a $500 minimum investment. Others simply ignore the registration and disclosure requirements, banking on lax enforcement by state and federal agencies.

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This article was originally published in the May 2004 print edition of Entrepreneur's StartUps with the headline: Netting a Winner.

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