Consumer Tips

Business Opportunities

Before investing money in a business opportunity or franchise offer, investigate the offer carefully.

Note the following warning signs: high pressure sales tactics where the promoter does not want you to take the time to investigate the offer; representations of extraordinary profits with very little risk; evasive answers about the plan; excessively high start-up fees; and lack of communication or evasive answers about the plan.

Consider the possibility that area saturation could exist. Learn how many sales people are in your area and whether you will have an exclusive territory.

Check the US and Canadian business opportunity classifieds to see where the business opportunity seller is advertising. You can review business opportunities on the search engines for reviewing business opportunities at http://www.abracat.com/c2/bizops/search/index.xml (Canadian) and www.classefind.com/catindex.lasso?cat=50 (American). If the business opportunity is advertising in one of 20 states, then it has to register its business opportunity disclosure document. Phone up the state agency and check whether the seller has registered or not. This test can also be done online. The state agency websites and addresses are listed at www.bizop.ca. If the business opportunity seller is not registered, then DO NOT BUY. The FTC site for Tips on Screening Ads is http://www.ftc.gov/bcp/conline/pubs/busubs/adscreen.htm.

For further information on this subject, contact DIAL-A-LAW at (604) 687-4680.

FRANCHISES

You should look into any experiences of existing franchises. Again, take into consideration area saturation and the rights to exclusive territory.

In the case of all franchise operations, the Bureau suggests before signing any contract you have it reviewed by a lawyer and/or accountant who is familiar with franchise operations. Be sure you understand who owns what in the agreement.

TIPS FOR PEOPLE INTERESTED IN BUYING A FRANCHISE ARE:

- Understand what self-employment is all about. You have to work long and hard when you're self-employed.
- Draw up a model of what you need the business to do for you. For example, what return are you looking for? Where do you want to be in five years? Does the usual future-projection work?
- Buy a business able to demonstrate it can give you what you want, based on the models and brainstorming you've done earlier.
- Read and understand the contents of the franchise agreement and other documentation.
- Talk to existing franchisees. Do some basic research into the franchise system. Most existing franchisees are quite willing to talk about the business.
- Confirm any oral representation made by the franchiser. Get it in writing.
- Get professional advice.
- Visit the franchiser's corporate office.
- Meet the franchiser's operational staff.
- Demand to see a Uniform Franchise Offering Circular (UFOC) and review it carefully. This prospectus-like document lists current franchisees, those who have left or quit and gives financial statements of the business. It should give you the true picture of the franchise operations beyond the glossy sales brochures. UFOCs aren't legally required in B.C., although there is a version in Alberta, and tough ones are the law in most parts of the U.S. But demand one anyway, and run away - fast - if the franchiser refuses.
- Carefully go over the nuts and bolts of the franchise system, probably with the help of professional advisors. There are a lot of rip-offs built into some franchise systems essentially making a franchisee a captive customer forced to pay high prices for everything. Always question where the franchise company makes its money.
- Capitalize the business properly. It's the first thing franchisers look at. It's also important to lenders.
- Get the most out of the initial training. It's when you learn the system, and it's also often when you make or break it.

VENDING MACHINES:

When considering the purchase of vending machines, examine the past performanceof the company; the quality of the machines and its products; where and by whomthe machines will be located; how the profits, if any, will be divided; if yourealistically have all the necessary skills to maintain the equipment. Ask foraccounting records to substantiate any stated earning claims and checkreferences. All oral promises should be included in the written contract.

The BBB cautions you on the following:

- If the company claims to be a distributor for a major name brand, call the corporation directly to determine if the vending company is authorized to sell its products.
- Be wary of a company that asks for a substantial start up fee, and doesn't accept credit cards. Paying by cash or cheque is riskier in case the product is not delivered.
- Watch out for promises of high income from this type of venture.