In a recent press release, the Federal Trade Commission (FTC) is considering an expansion to its Business Opportunity Rule to include coaching services, e-commerce merchants, and investment opportunities.
As an online coach, you must provide potential customers with a disclosure document that outlines key information about your business. Failure to do so could result in legal action being taken against you. The rule is meant for consumer protection against making bad investments, but does it do more harm to business owners than good to consumers?
Keep reading to find out what this new franchise rule entails and how it may affect your business.
What is the Business Opportunity Rule?
The Business Opportunity Rule is a federal trading law that requires sellers of certain types of business opportunities to give potential customers specific information about money-making opportunities before they buy. This includes details about the company’s products and services, as well as earnings claims.
The key elements of the rule include:
- Disclosure document: Sellers must provide potential buyers with a disclosure document that contains information about their business and the risks associated with it.
- Earnings claims: Sellers must provide potential buyers with specific information about earnings claims made by the seller or other people promoting the business opportunity ventures.
- Cooling-off period: Buyers have three days to cancel their purchase and receive a full refund.
- Connection to FTC: Sellers must provide potential buyers with contact information for the FTC and/or their state attorney general’s office.
How does the rule affect coaching businesses?
The FTC is now considering an expansion of this rule to include coaching services, e-commerce merchants, and investment opportunities. This means that if you are a life coach, business coach, health coach, etc., you must provide potential customers with a disclosure document that outlines key information about your business.
Failure to comply with the rule could result in legal action being taken against you or your business. Additionally, it could lead to penalties and other sanctions from regulatory agencies like the FTC or the IRS.
The pandemic brought about many new work-from-home or work-at-home businesses to fruition, but the gov agency is now seeing how unregulated those business models are. The amendment of the rule is designed to provide a level of substantiation (on a reasonable basis) for prospects from established and new business opportunity sellers.
Benefits for Coaching Businesses
First, let’s go through a list of potential benefits coaches may see if the rule is expanded to include this merchant category.
- Establish trust with potential customers – Ensuring that potential customers have full disclosure of the details of your business and any associated risks is likely to make them more comfortable with investing in your services.
- Mitigate risk for consumers – The rule allows buyers to make informed decisions about investing in a coaching business and protects them from possible scams or other fraudulent activities.
- Encourage transparency – The rule encourages coaches to be transparent and honest about their services, which is an increasingly popular request from consumers and quarterly review services.
- Foster a competitive market – By encouraging transparency and providing information on risks associated with investment, the rule also creates a more competitive market for coaching businesses.
Drawbacks for Coaches
The rule may be more detrimental to coaching businesses, namely newcomers to the market.
- Barrier to entry – The Business Opportunity Rule can create a barrier to entry for new businesses, preventing them from competing with more established companies since they don’t have the documentation to backup their success yet.
- Expensive to comply – The rule can also be expensive and time-consuming to comply with, making it difficult for small businesses to participate in the market.
- Misguided information – The rule may limit the amount of information businesses can share with potential customers, potentially hindering their ability to make informed decisions about whether or not to invest in a business opportunity.
- Focus on negative results – Consumers may ignore the positive results and information in the documentation and focus too heavily on the few previous negative investments other customers may have made.
What should coaches do to prepare?
If the expansion of the commission’s Biz Op Rule does lead to the inclusion of coaching businesses, you don’t want to wait until that announcement to start preparing. Transparency is always met with praise, so why not start now?
Create a Top Sheet
Just like when you applied for a merchant account, you should create a top sheet or a cover sheet of your business that acts as one big friendly disclaimer. This single page contains succinct information regarding your business. In this case, it should include bullet points of the Business Opportunity Rule’s requirements.
- Company Name
- Business Address
- Phone Number
- Owner’s Name
- FTC or legal violations in the last 10 years (deceptive practices, etc.)
- If you have a cancellation policy, refund policy, or buy back policy
- How much money a prospective buyer can earn (if stated in marketing material)
- 10 real customers that you will allow to be contacted as a designated person representing the quality of your business opportunity.
This is most, but not all, of the disclosure requirements necessary. But this will cover the main points and give prospects an idea of what they’re getting into.
You should aim to update this document every month to avoid misrepresentation as per the trade regulation rule (if it goes into action).
Prepare an Earnings Claim Statement
After you have determined your total income and expenses, you can prepare a Statement of Earnings. This statement summarizes the profit or loss for a given period of time.
Steps to prepare a Statement of Earnings are as follows:
- Beginners should start by creating a spreadsheet that includes total income, total expenses, and the net profit or loss for the period being reviewed.
- List your sources of income on the left side of your spreadsheet, such as sales revenue, interest income, dividends earned, etc. Add up all these amounts to get your total income for the period.
- Now list all types of expenses incurred during the same period on the right side of your spreadsheet. This may include payroll costs, rent payments, taxes paid, marketing costs etc. Add up all these amounts to get your total expenses for the period.
- Subtract the total expenses from your total income to determine your net profit or loss for the period.
- If you have more than one type of asset or activity, such as investments in stocks or owning a rental property, then keep separate columns for each type of asset and its related income and expenses. This will help you see how profitable each activity is during the specified period of time.
- After calculating the net profit or loss for all activities, create a summary statement that shows your overall earnings performance across all activities.
- Finally, review your Statement of Earnings carefully to ensure accuracy and make any necessary corrections before submitting it to the relevant party.
Put Aside Resources
Complying with this rule can be costly, especially for new business owners. Coaches should start putting aside funds to comply with this rule. Otherwise, you risk not being able to comply and losing a prospective purchaser.
Promote 3rd-Party Reviews
If you have it available, direct potential customers to sites like TrustPilot or GlassDoor. Promote customers to do their own research on your company before investing in your services.
Reading public comments that are completely outside of your reach will help to create a positive atmosphere around your business (if public sentiment is positive).
Doing so also promotes your compliance with the Advanced Notice of Proposed Rulemaking (ANPR), which is an FTC act that helps to combat fake reviews and endorsements.
You can also guide prospects to the Federal Register, where they can search for your business to find any public documentation (good and bad).
The FTC’s Business Opportunity Rule can help you bring in more profit. Are you prepared?
The biz op rule puts a lot of pressure on businesses currently affected as well as coaches and other investment opportunity providers, if added. But it doesn’t have to be the end of your business or a barrier to entry. View this expansion as an opportunity of your own and reap the benefits it grants.
Customers may want to know what they’re getting into before making a purchase, but they can easily drop out of the buy if your checkout process sucks. Perfect it with DirectPayNet.