The FTC’s New Business Opportunity Rule: What It Means for You

“Make thousands stuffing envelopes!  Unique work at home business opportunity!”

It’s statements like these which often lead to bogus business opportunities that have spurred the U.S. Federal Trade Commission into taking action to protect people who think they’re buying a legitimate business. Called the Business Opportunity Rule, this new requirement states that any individual who sells a business opportunity to another is required to disclose more information than in the past.

A business opportunity is simply a comprehensive business investment that lets the buyer start a business immediately. It’s “out of the box,” so to speak. It’s different from a franchise.  A franchise is a business opportunity, but not all business opportunities are franchises, says Joel Libava, author of Become a Franchise Owner.

“Sometimes, people confuse a franchise business opportunity with a business opportunity, or bizopp. The major differences include upfront costs, (which are almost always significantly lower with a bizopp) support, and  the rules. In a business opportunity, there aren’t that many rules to follow as an owner. Business opportunities are generally looser in nature; you buy the opportunity, learn how to run the business, and then you’re pretty much free to market it and run it as you wish.”

What’s Required if You SELL Business Opportunities to Others

Anyone selling a business opportunity or bizopp must now provide information on a one-page disclosure document (PDF file) at least seven days before the buyer pays money or signs a document. The seller must state the following:

• Whether legal action has ever been taken against the seller
• Whether there is a cancellation or refund policy for the business transaction
• Any earnings claims that the buyer will earn a specific amount of money through the bizopp
• References for the seller

Because of the rising number of business opportunity scams over the past few years, the FTC wanted to step up the measures taken to ensure the safety of buyers.

If you’re selling a business opportunity, understand that this new rule is meant to help you and the buyer perform a smooth transaction. Here are some tips to minimize the stress on your end:

• Never make unsubstantiated claims. Be prepared to back up any income potential your business opportunity can provide.
• Offer a refund or cancellation policy. It’s good business. Outline what the stipulations are for the buyer to be able to cancel.
• Stay in contact with your buyers so you can use them for references down the road. Even if you don’t promise support in your contract, it’s good customer service to be available should your buyer have questions.

What You Need to Know if You Are BUYING a Business Opportunity

If you are buying or considering buying a business opportunity, then know that the Business Opportunity Rule is to designed to help protect you from potentially bogus deals. Armed with the information the seller is required to give you, you should be able to get a better sense of whether a deal is legitimate. If it’s not, you now have ammunition for legal proceedings.

Pay attention to the earnings claims. In the past, companies have claimed that you could retire off of what you make stuffing envelopes, or make thousands of dollars off a work from home opp. These claims must now be substantiated in writing, and the buyer must list how much other buyers have made, and where they were located (since results may vary depending on many factors).

“The revised Business Opportunity Rule is long overdue,” says Libava, “The most positive change has to do with research. Business opportunity buyers will now have access to a list provided by the business opportunity seller of at least 10 people who have bought their business opportunity. And, if fewer than 10 people have bought the business opportunity, every person that’s bought it must be listed.”

Libava says that buyers should know that they will have to sign a document stating that the buyer can share their personal contact information with future buyers.

Here are more tips to ensure you find a trustworthy business opportunity from the Business Opportunity blog:

• Ensure that the seller has filled out the disclosure document thoroughly, and has provided supporting documents.
• Contact the references the seller lists and ask questions about their experiences with the business opportunity.
• Look for bizopps that illustrate how you’ll make the money, rather than drawing you in with promises of  big financial rewards.

You can read the complete Business Opportunity Rule document on the FTC website. The Rule will go into effect March 1, 2012.

Envelopes Photo via Shutterstock

The FTC’s New Business Opportunity Rule: What It Means for You

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