Succeeding in Your Business: What you need to know before you start your business opportunity (Part 1 of 2)

Cliff Ennico

“We have operated a successful service business for many years.

“We no longer want to run the business ourselves, but we think this type of business is an excellent opportunity for other people. So we have come up with a training program to teach other people how to build a business like ours.

“Customers will pay $10,000 up front for the training program (a one-week live program at a local hotel), and an additional $1,000 a year for a ‘refresher’ course, which we will deliver online. The training program will include an entire section on marketing, but we won’t be giving attendees lists of customers or otherwise guaranteeing that they will have customers. They don’t have to use our name, and they can sell their services anywhere they like. (They won’t be given exclusive territories.)

“We’ve done some homework and we don’t think we are selling franchises. But we are seeing lots of references online to ‘business opportunities’ that seem to be regulated in some way.

“Are we setting up a ‘business opportunity’ with our training program, and, if so, what do we have to do to comply with the law?”

First, the good news: Your training program is almost certainly NOT a franchise under federal regulations. You are not requiring trainees to use your brand name, you are not assigning them exclusive territories, and you are not asking for periodic “royalty payments” for the privilege of running the business. Yes, customers will pay for training, but they can elect not to participate in the annual “refresher” course, in which case they owe you nothing.

Now for the tricky part: You may indeed have a “business opportunity” on your hands.

The definition of a “business opportunity” is somewhat slippery. The Federal Trade Commission and about 25 states regulate business opportunities, and the definitions vary from state to state because there are different types of business opportunity.

Florida, which has one of the most comprehensive regulatory schemes, defines a “business opportunity” as the sale or lease of any products, equipment, supplies or services to enable customers to start a business for a price or fee that exceeds $500 and the seller promises that it (or anyone affiliated with or referred by it) will do any one of the following:

• Provide locations, or assist you in finding locations, for the use of vending machines, racks, display cases or other similar devices, or currency-operated amusement machines or devices, on premises that neither you nor the seller own or lease (Type 1).

• Will buy any of the things you make, produce, fabricate, grow, breed or modify using supplies, services or goods sold to you (Type 2).

• Guarantees in writing that you will earn income exceeding the price or rent you pay (Type 3).

• Will refund all or part of the price or rent paid (Type 4).

• Will repurchase any of the products, equipment, supplies or goods supplied by it, if you are unsatisfied (Type 5).

• Will provide a sales or marketing program enabling you to earn income (Type 6).

Your training program does not appear to come under the definitions for a Type 1, Type 3 or Type 5 business opportunity. If you do not offer your trainees a money-back guarantee on their initial training program, you should not be viewed as a Type 4 business opportunity.

Because you are providing a training program designed to help people run businesses of their own, there’s a risk that your program may be considered a Type 6 business opportunity, even if you do not guarantee that following your marketing program will lead to success.

Marketing is the key to success in any small business, as I’ve written endlessly in this column. If you are buying a small business “package,” you will want advice on how to sell the product or service, who the customers are, where they are, how to get your message across to the customers and so forth. A business training program that doesn’t have a marketing component is pretty much worthless.

Yet it’s precisely that component that may put your program under the Type 6 definition of a business opportunity.

The FTC does have certain requirements for business opportunities, but their definition is not broad enough to cover Type 6 situations like yours. Here’s what you need to do:

First, hire an attorney who is experienced in franchise and business opportunity regulation. Check your state bar association’s website and look for attorneys who are members of the “franchise and distribution law” committee. Those are the folks you should contact.

Next, have your attorney tell you which states regulate business opportunities, whether or not their regulations extend to Type 6 situations like yours, and what you will have to do in each state before you can offer your program to their residents.

More next week.

Cliff Ennico (crennico@gmail.com) is a syndicated columnist, author and former host of the PBS television series “Money Hunt.”

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