Want to be your own boss? A franchise or business opportunity may sound appealing, especially if you have limited resources or business experience. However, you could lose a significant amount of money if you don't investigate a business carefully before you buy. The Federal Trade Commission's Franchise and Business Opportunity Rule requires franchise and business opportunity sellers to give you specific information to help you make an informed decision.
The Federal Trade Commission (FTC) has a variety of information on franchises on its website. Among the helpful information is Buying a Franchise: A Consumer Guide (business.ftc.gov/documents/inv05-buying-franchise-consumer-guide) plus cautionary information about scams and multilevel marketing opportunities (ftc.gov/bcp/menus/consumer/invest/business.shtm).
You can avoid getting hit by the pitch. Here's how:
- Take your time. Don't be rushed into buying anything at a franchise or business opportunity seminar. Avoid high-pressure sales pitches that require you to buy now or risk losing out on the opportunity. Remember, solid opportunities are not sold through nerve-racking tactics.
- Investigate the business you're considering investing in. Talk to experienced business people and experts in the field before spending your money.
- Be wary of "success stories" or testimonials of extraordinary success. The seminar operation may have paid "shills" to give glowing stories.
- Be cautious about purchasing from seminar representatives who are reluctant to answer questions, or who give evasive answers to your questions. Remember that legitimate businesspeople are more than willing to give you information about their investment or sales opportunity.
- Ask about how much money you need to qualify for the investment or sales opportunity, and ask about the company's refund policy. Get this in writing. Keep in mind that you may never recoup the money you give to an unscrupulous seminar operation, despite the operator's stated refund policies. Taking precautions before you invest is a more effective way to safeguard your money than trying to get a refund after the investment's been made.
Use the FTC rule
A franchise or business opportunity seller must give you a detailed disclosure document at least 10 business days before you pay any money or legally commit yourself to a purchase. You can use these disclosures to compare a particular business with others you may be considering or simply for information. The disclosure document includes:
- Names, addresses and telephone numbers of at least 10 previous purchasers who live closest to you;
- A fully audited financial statement of the seller;
- Background and experience of the business' key executives;
- Cost of starting and maintaining the business; and
- The responsibilities you and the seller will have to each other once you've invested in the opportunity.
- If the seller doesn't give you a disclosure document, ask why. Verify the explanation with an attorney, a business advisor or the FTC by calling its toll-free helpline at 877-382-4357. Even if the business is not legally required to provide a disclosure document, you still may want one for your own information.
The Franchise and Business Opportunities Rule will provide you with complete information on rules and regulations affecting franchises: ftc.gov/bcp/franchise/netfran.shtm
Get all the facts
Before you buy a business:
- Study the disclosure document and proposed contract carefully.
- Interview current owners in person. (They should be listed in the disclosure document.) Visiting them in person may help you identify any that are "shills"— people paid to give favorable reports. Don't rely on a list of references selected by the company because it may contain shills. Ask owners and operators how the information in the disclosure document matches their experiences with the company.
- Investigate claims about your potential earnings. Some companies may claim that you'll earn a certain income or that existing franchisees or business opportunity purchasers earn a certain amount. Companies making earnings representations must provide you with the written basis for their claims. Be suspicious of any company that does not show you in writing how it computed its earnings claims.
- Sellers also must tell you in writing the number and percentage of owners who have done as well as they claim you will. Keep in mind that broad sales claims about successful areas of business-"Be a part of our $4 billion industry," for example-may have no bearing on your likelihood of success. Also, recognize that once you buy the business, you may be competing with franchise owners or independent business people with more experience than you.
- Shop around. Compare franchises with other business opportunities. Some companies may offer benefits not available from the first company you considered. The Franchise Opportunities Handbook, published annually by the U.S. Department of Commerce, describes more than 1,400 companies that offer franchises. Contact those that interest you. Request their disclosure documents and compare their offerings.
- Listen carefully to the sales presentation. Some sales tactics should signal caution. For example, if you are pressured to sign immediately "because prices will go up tomorrow," or "another buyer wants this deal," slow down. A seller with a good offer doesn't use high-pressure tactics. Under the FTC rule, the seller must wait at least 10 business days after giving you the required documents before accepting your money or signature on an agreement. Be wary if the salesperson makes the job sound too easy. The thought of "easy money" may be appealing, but success generally requires hard work.
- Get the seller's promises in writing. Any oral promises you get from a salesperson should be written into the contract you sign. If the salesperson says one thing but the contract says nothing about it or says something different, it's the contract that counts. If a seller balks at putting oral promises in writing, be alert to potential problems and consider doing business with another firm.
- Consider getting professional advice. Ask a lawyer, accountant or business advisor to read the disclosure document and proposed contract. The money and time you spend on professional assistance, and research-such as phone calls to current owners-could save you from a bad investment decision.
The FTC website has practical information about some common business opportunity scams; how to spot, stop and avoid them; and how to file a complaint if you think you've experienced a fraud. business.ftc.gov/selected-industries/franchises-and-business-opportunities.
More information about business scams or schemes is available.
Contact your local (county, city, township) government offices for specifics regarding local licensing and regulations.
Anyone conducting business in the State of Missouri under a name other than
their own legal name (e.g., John Doe), must register the business name with
the Missouri Secretary of State. Missouri law allows businesses to operate under
four forms or organization:
- Sole proprietorship
- Partnership - general and limited
- Corporation - C-Corp; S-Corp; Professional, Not-for-Profit; Foreign Corporation
- Limited Liability Company - LLC
Each structure has its own advantages and disadvantages and there are many
modifications and variations within these forms. The key to selection revolves
around the concept of liability and taxation. You must decide which of these
structures best suits your business. In choosing your business structure, consult
with a qualified accountant and/or attorney who are familiar with your resources
A description of the forms of organization and some of the advantages and disadvantages
are discussed in Legal Structures, Licenses
and Taxes and Starting
a New Business in Missouri.
and Registration Checklist is a guide to help you with the licensing and
registration requirements for starting your new business.
You can download forms on the web at: www.sos.mo.gov/business/corporations/forms.asp
or request them from the Secretary of State's Office at (573) 751-3200.
Understanding the taxes that apply to your business and how to meet the legal
requirements of those taxes is critical. Consultation with an accountant or
attorney is advisable.
Tax considerations are essential during the formation of a new business and
during its entire life. When a business is just starting out, it may have little
or no income or assets and the choice of structure may not seriously affect
its tax liability. However, as the business grows, the tax implications become
Choosing a particular structure does not necessarily determine how the business
will be taxed. The table found in Starting a New Business in Missouri identifies the state and federal forms that must
be filed for different business structures and compares the tax liabilities
for the most common business structures.
Tax responsibility includes federal, state and local taxes. As a business owner
you will be responsible for income taxes, payroll taxes, property tax and other
Businesses making retail sales must obtain a Missouri Retail
Sales License from the Missouri Department of Revenue. A bond, based on projected
monthly gross sales is posted at the time of application. An application form
(Form 2643) can be obtained from the Dept. of Revenue on the web at dor.mo.gov/forms
or by calling (800) 877-6881. Those businesses buying wholesale or operating solely as a wholesaler should complete a Form 149 Sales/Use Tax Exemption Certificate (see: www.dor.mo.gov/tax/business/sales/forms/149f.pdf ) and provide it to their supplier showing the sale
is exempt from sales tax.
For more information on taxes and access to printable copies of the required
forms visit: Doing Business in Missouri: Taxes.
a copy of Employer's
Tax Guide from your local IRS office or call (800) 829-3676.
"Circular E" explains federal tax withholding and Social Security tax requirements
for employers as well as containing up-to-date withholding tables for you to
use to determine how much federal income tax and Social Security tax is to be
withheld from each employee's paycheck.
What is involved?
- Once you begin paying salary or wages to employees, you must collect taxes
from your employees. The primary taxes are: federal and state income taxes,
Social Security (FICA) and Medicare taxes.
- If you have not already done so, you must apply for a federal
employer identification number (EIN), Form SS-4. The EIN number is used
to identify your business on payroll and income tax returns, as well as for
other federal tax purposes. Corporations and partnerships must file Form SS-4
even if they have no employees. The IRS now offers an online
- Each employee completes an I-9
Employment Eligibility Verification Form and a W-4
- Missouri require that all employers in Missouri report each newly hired
employee to the Department of Revenue within 20 calendar days of hire.
For more information on your responsibilities as an employer, please contact
your local Missouri Career Center (formerly Job Service). To locate the nearest
office, check the phone book or call 1-888-728-JOBS or visit www.missouricareersource.com.
For a complete discussion on hiring employees, your responsibilities, and access
to the required forms, refer to: Doing
Business in Missouri: Hiring Employees.
You may also find the following information helpful as you begin your business:
- First Steps to Starting
a Business is a new online class offering an introduction of the critical first steps associated with starting a new business. The course includes advice on 'go' or 'no-go.' Participants will work online at their own pace to assess their strengths and weaknesses in terms of business ownership, learn about the importance of planning, discuss legal and regulatory requirements and identify sources of financing.
a New Business in Missouri is an excellent publication on the process of
starting and operating a business in Missouri.
Your Business Idea is a simple questionnaire-formatted document
that helps you think through the elemental considerations in starting a business.
- Guide to Writing a Business Plan provides a short, but thorough introduction to
the process of writing a business plan and provides a simple outline of the
contents of a standard plan.
- MissouriBusiness.net is a
network of key business resource providers in Missouri. The website contains
a vast array of helpful documents, links and information on starting and operating
your small business as well as a calendar
of upcoming training and educational events
throughout Missouri. To find a business counselor near you, refer to www.missouribusiness.net/sbtdc/centers.asp
- The Missouri Environmental Assistance Center helps businesses. improve business efficiency and save money through reducing or eliminating waste understand and navigate the complicated area of environmental permits and regulations. The website offers information on environmental compliance, pollution prevention and energy efficiency.
- Contact your local (county, city, township) government offices early in
the planning stages of your business. The requirement for local licenses and
permits vary by county and city. Most cities, and some counties, require businesses
to be licensed. Check with the city business/merchant license office and/or
the county collector's office for the requirements in your area. Be sure
to check with the local city and/or county planning/zoning department to make
sure that the site you have selected for your business is zoned to accommodate
the activities of your business. These offices can be found in your local
Lawyer Referral Service
- Kansas City: (816) 221-9473 (Clay, Jackson, Platte & Ray counties)
- St. Louis City & County: (314) 621-6681
- Springfield/Greene County: (417) 831-2783
- Rest of Missouri: (573) 636-3635
- Missouri Society
of Accountants (800) 959-4276
- The Missouri Society of CPAs (800) 264-7966