November 1996
Produced in cooperation with the North American Securities Administrators Association
***** Business Opportunity *****
Service a company-established vending
machine/display rack route. Part-time.
No experience required. No selling.
Earn $5,000+ per month.
***************************
You may find newspaper advertisements like this appealing, especially if you're looking
for part-time employment to supplement your income. But be cautious. Although some
business opportunities servicing vending machines or display racks are legitimate,
many are not. These are
risky investments, for which there are no guarantees.
The FTC has charged some companies with misrepresenting the earnings potential and the
ease
and speed with which machines can be delivered, maintained, located, and repaired. In
addition,
the FTC has charged companies with providing phony references and failing to provide key
pre-investment information the agency requires.
There's no mystery to how vending machine and display rack business opportunities work,
what
you should look for when you consider such an investment, and how you can avoid
unscrupulous
business opportunity promoters. And several organizations can help if you think you've
been
defrauded.
What is a vending machine or display rack business opportunity?
A business opportunity may involve food vending machines, fax machines, amusement games,
or
racks with items for sale such as small toys, greeting cards, or cosmetics. The machines
or racks
may be in malls, airport terminals, bowling alleys, or other public facilities.
Typically, your responsibilities involve cleaning and restocking the machines or racks,
making
sure they're in good repair, and collecting the money from the machines. You may earn a
portion
of the proceeds from the products or services. Some promoters may tell you that you'll
earn a
specific level of income or guarantee a minimum revenue. Others may claim their income
projections are averages based on incomes of current distributors.
Promoters may promise to help you operate the business opportunity. For example, they may:
Provide vending machines or display racks already in established locations, or find
locations for you; Offer repair services to fix damaged machines, or replacements for
damaged racks; or Relocate the machines or racks to more profitable locations at your
request.
What problems may come up? Some consumers have had problems related to
misrepresentation of earnings and support services. Consider the following complaints
received by the FTC about some vending machine and display rack business opportunities:
A fter investing thousands of dollars in vending machines, display racks, and products for
resale, some investors discovered that the promoters did not deliver the equipment they
promised.
Some promoters did not provide support services as represented in their
sales pitches. For example, some promoters did not make good on their promised locations
for vending machines routes; others relocated machines to different -- but not more
profitable -- locations.
Some promoters would not hire a repair service to fix broken machines or
were not willing to replace damaged racks. In these instances, investors paid for repairs
or bought new display racks with their own money. Some investors did not earn the promised
level of income. Some promoters refused to honor requests for promised refunds.
When is a business opportunity a franchise?
A business opportunity is considered a "franchise" if:
1. You will sell or distribute goods or services that are supplied by either the
company or a designated supplier.
2. The company will help you by securing locations or sites for the vending
machines or display racks.
3. You are required to pay the company $500 or more when you sign the contract
or within six months after you begin operations.
If the company's business opportunity constitutes a franchise, the company must give you a
disclosure document before you sign an agreement or invest any money. Required by the FTC
Franchise Rule, the Franchise Disclosure Document provides important information about a
business. Pay special attention to the sections detailing: the business experience of the
company and its directors; any lawsuits brought against the company or its directors by
franchisees, and suits alleging fraud; fees you will have to pay and the conditions under
which any fees or deposits will be
returned to you; the total number of franchises, the names and addresses of franchisees in
your area, and the number of franchises terminated or not renewed during the previous
year; the company's balance sheet for the most recent fiscal year and an income statement
and statement of changes in financial position for the three most recent fiscal years; and
substantiation for any claims about your potential earnings or the earnings of existing
investors.
This information may help you decide whether the company is likely to stand behind its
promises.
It also may help you determine the probability of your success.
How can I protect myself? Taking certain precautions can minimize your
risk of investing in a fraudulent vending machine or display rack business opportunity:
Check out the company with the Attorney General, consumer protection agency, and the
Better Business Bureau where you live and where the business is headquartered. These
organizations can tell you if there are unresolved complaints about the company
representing the business opportunity. While complaints may alert you to problems, the
absence of complaints does not necessarily mean the company is legitimate. Unscrupulous
companies may settle complaints, change their names, or move to avoid detection. Try to
verify claims made by the company and the company's references. Visit existing locations
and the anticipated locations for your machines or racks. You may be able to determine
from conversations with shop owners and managers whether the machines and racks are, or
will be, successful. Ask them how many people come through their
establishment daily and what these customers are interested in buying. Ask other investors
in your area about their experiences with the company.
Call the Secretary of State where the company is headquartered to
determine how long the company has been in business. Ask the company to substantiate in
writing all earnings claims. Be aware that investors' incomes vary with location, usage,
products sold, and demand for the products. The fact that investors have earned a
"high" income in one community or state is no guarantee that you'll do as well
in your territory.
Entering into any business opportunity may require a substantial financial
investment. You may wish to consult an attorney, accountant, or other business advisor
before you sign any agreement or make any upfront payments. Your attorney can review the
company's contract and advise you on how best to proceed. If the company requires a
deposit, you may want your attorney to establish an escrow account where the money will be
maintained by a neutral third party.
Where can I complain or get more information?
If you think you've been defrauded in a vending machine or display rack business
opportunity, contact the company and ask for your money back. Let the company know that
you plan to
notify officials about your experience. Keep a record of your conversations and
correspondence. If you send documents to the company, make sure you send copies, NOT
originals. Send correspondence by certified mail, return receipt requested to document
what the company received.
If you cannot resolve the dispute with the company, several organizations may be able to
help
you. Your phone book will have the complete names, addresses, and phone numbers for these
organizations.
The State Attorney General's (AG) office where you live and where the company is
headquartered. The AG staff can tell you if you are protected by any state laws that
regulate business opportunities. Your local consumer protection office. Your local Better
Business Bureau (BBB) and the BBB where the company is located. Your local Postmaster. The
U.S. Postal Service investigates fraudulent mail practices. The advertising manager of the
publication that ran the business opportunity ad.
You can file a complaint with the FTC by contacting the Consumer Response Center by phone:
202-FTC-HELP (382-4357); TDD: 202-326-2502; by mail: Consumer Response Center,
Federal Trade Commission, Washington, DC 20580; or through the Internet, using the online
complaint form. Although the Commission cannot resolve individual problems for consumers,
it
can act against a company if it sees a pattern of possible law violations.
The FTC publishes free brochures on many consumer issues. For a complete list of
publications,
write for Best Sellers, Consumer Response Center, Federal Trade Commission, Washington,
D.C. 20580; or call (202) FTC-HELP (382-4357), TDD (202) 326-2502.
(Back to Newsletter) |