If you’ve ever investigated a franchise opportunity beyond the “kicking the tires” stage, you may have noticed a conspicuous lack of information regarding your potential to earn an outrageous amount of money.
Why is that?
Enter the Business Opportunity Rule, designed to protect consumers from fabricated and overstated claims regarding a specific business opportunity. Because this was becoming such a prevalent problem a few years back, the Federal Trade Commission (FTC) stepped in and basically said, “Here are the rules. Play by them.” The revised Business Opportunity Rule went into effect on March 2, 2012.
During this week’s blog edition, we’re going to take a look at exactly what is spelled out in the Business Opportunity Rule for franchisors (sellers) and franchisees (buyers).
By definition, the Business Opportunity Rule makes it easy for consumers to get vital information needed when they're considering the purchase of a business or franchise. But how exactly does it affect our industry? Well, if you’re a franchisor, here’s what you are required to provide to prospective franchisees…
For starters, the “seller” must distribute a one-page business disclosure document to a “buyer”, no less than seven days prior to a contract signing or purchase agreement. The franchisor must state the following in the disclosure document:
- Whether or not any legal action has ever been taken against the brand
- Terms regarding cancellation or refund policy for the business transaction
- Any earnings claims that the buyer will earn a specific amount of money through the franchise opportunity
- References of the franchisor brand
This disclosure document was necessary because, assisted by the rapidly growing Internet business world, fraud was becoming rampant in the industry. Outrageous claims about making unattainable amounts of money were commonplace. And people were falling for these scams. Reputable franchise brands have nothing to worry about when it comes to the Business Opportunity Rule’s disclosures. In fact, they’ve likely helped restore a measure of credibility and legitimacy to the small business industry as a whole. In reality, it’s created a uniform and smooth transition from offer to acceptance for thousands of new franchisees.
If it’s time to create a Business Opportunity Rule disclosure of your own—or your existing version needs a touch up, here’s some helpful advice:
- Always make sure you clearly state the offer of a refund or a full cancellation policy. Make the terms easily understood by both sides in the event the deal doesn’t go through for some reason.
- Stay in touch with buyers who complete signed contracts. They may become your future references necessary in the disclosure document.
- Most important – don’t ever make unsubstantiated claims about your brand’s earning potential. Never use the three words: get, rich, quick. Especially in that order!
With the advent of the Business Opportunity Rule, there is less of a “Wild West” feel out there in the world of business prospects. The rule even expands to cover work from home opportunities, of which there are several hundred in the franchise category. While most consumers can trust their “gut instinct” when reviewing a particular opportunity, we must be reminded that others may not be so skeptical. And those are the ones that need protection from fraudulent claims which have an adverse effect on the business community as a whole.
You can read the full version of the Business Opportunity Rule by visiting the Federal Trade Commission’s website.
Before you go distributing any official documentation, you’ll want to know which existing and potential franchisees best fit your business concept. Proven Match is the proven solution in determining those factors. Through our proven behavioral assessment techniques, predictive analysis becomes predictive success for your franchise concept. If you’re ready to show your leadership by getting started, give us a call and we’ll put you on the path to a more productive year in 2016.