Netting a Winner

Protect Your Money

One reason business-opportunity investments are high risk is that you pay a substantial sum of money upfront for the seller's promises of future delivery of equipment or inventory. With your money in the seller's pocket, you may have no realistic recourse if the seller disappears on you, the shipment is delayed or lost, or the contents disappoint you for some reason. Consider negotiating a payment structure that protects your position.

Yes, just about every aspect of the transaction is negotiable. What if you offered to pay one-third upfront and the balance upon delivery? Try even paying nothing upfront. Treat the price quoted as the seller's opening offer, and counteroffer with a lower price bid. Not everyone is comfortable negotiating, but let this be your first introduction to real business dealings. What have you got to lose?

Check Out the Seller

You can certainly check with your state agencies to see if the seller is registered to offer business-opportunity packages in your state. The 26 states requiring registration or filing are Alabama, Alaska, California, Connecticut, Florida, Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Nebraska, New Hampshire, North Carolina, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Utah, Virginia and Washington. The state agencies will readily tell you if a particular company is registered in the state. They can also provide general information regarding business-opportunity investments.

You should also check in with the Better Business Bureau and inquire about any consumer complaints that might be on file for the company. Also, visit the company's headquarters. This is a perfect opportunity to get all your questions answered, to look the president in the eye and to size up the home office team. Don't be too swayed by swank appearances at the offices or the sincerity of the senior management. Almost everything at the office can be rented, and, as my favorite college professor taught me, sincerity is one of the more cosmetic virtues.

Don't be discouraged by the search for a solid business-opportunity investment. If you take your time, make thoughtful decisions, gather the right information and protect your money, you'll get past the sizzle and bring home the bacon.

Do Your Homework
If you're considering purchasing a package that is regulated as a franchise (the usual giveaway is the licensed use of the franchisor's trademark), you are most likely to receive a disclosure document known as the Uniform Franchise Offering Circular (UFOC) at least a few weeks prior to your purchase. That document will detail the basic investment information, but it isn't everything you need to know about the franchise.

As with business-opportunity packages, the key to franchise research is visiting current owners and operators. The UFOC will contain a list of current owners and their contact information. Visit them. Ask them questions: How competent is the franchisor? Was the training done well? Did the UFOC give them an accurate idea of the costs of setting up the business? How much money did their businesses gross last year? Knowing what they know now, would they buy the franchise again?

If you live in one of the 14 states that requires a franchisor to register its offering (California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin), you can check with the state agency handling that statute, usually the offices of the attorney general. They can tell you whether the franchisor is currently registered to offer and sell franchises in your state.

Andrew A. Caffey is a franchise attorney in the Washington, DC, area and an internationally recognized specialist in franchise and business opportunity law.

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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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