PREMIUM LEGAL RESOURCES
ASK A LAWYER
***** 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 are looking for part-time employment to supplement your
income. But be cautious. While some business opportunities servicing
vending machines or display racks are legitimate, many are not and
you may lose your investment.
The Federal Trade Commission (FTC) has been investigating complaints
about vending machine and display rack business opportunity
promoters. The FTC has charged some companies with misrepresenting
the earnings potential; misrepresenting the ease and speed to which
machines can be delivered, maintained, located, and repaired;
providing phoney references; and failing to provide key pre-
investment information required by the FTC's Trade Regulation Rule on
Franchise and Business Opportunity Ventures.
This brochure explains how vending machine and display rack business
opportunities work, what you should look for when considering such an
investment, and how to avoid unscrupulous business opportunity
promoters. The brochure also lists organizations to contact for
assistance if you believe you have 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
placed in locations such as malls, airport terminals, bowling alleys,
or other public facilities.
Your responsibilities typically involve cleaning and restocking the
machines or racks, making sure the machines or racks are in good
repair, and collecting money. You may earn a portion of the proceeds
from the products or services sold to the public. Some promoters may
claim you can earn a specific level of income, or may assure you a
minimum income. They may claim that their income projections are
averages based on existing distributors' incomes.
The promoters may promise to assist you in operating the business
opportunity. For example, they may:
* Provide vending machines or display racks already in established
locations, or find locations for you;
* Relocate the machines or racks to more profitable locations at
your request; or
* Provide repair services to fix damaged machines, or offer to
replace damaged racks.
What problems should I be aware of when considering such a business
Some consumers have experienced problems related to misrepresentation
of earnings claims and support services. Consider the following
complaints received by the FTC about some vending machine and display
rack business opportunities.
* After investing several thousand to tens of thousands of dollars
in vending machines, display racks, and products for resale, some
investors discovered that the promoters did not deliver the promised
machines or display racks.
* Some promoters did not provide support services as represented in
their sales presentation. For example, the promoter may not have
found promised locations for vending machines routes, or may have
relocated the machines to different, but not more profitable
* In other cases, some promoters would not hire a repair service to
fix broken machines or were unwilling to replace damaged racks. In
these instances, investors had to pay out of pocket for repairs or
for the purchase of new display racks.
* Some investors found that they did not earn the promised level of
* In some instances, promoters refused to honor requests for
When is a business opportunity a franchise?
If the following three conditions apply, a business opportunity is
considered a "franchise."
1. If you will sell or distribute goods or services that are supplied
either by the company or a designated supplier.
2. If the company will assist you by securing locations or sites for
the vending machines or display racks.
3. If you are required to pay the company $500 or more at the time
you sign the contract or within six months after beginning
If the company's business opportunity constitutes a franchise, as
outlined above, the company must provide you with a copy of its
Disclosure Document before you sign any agreement or invest any
money. The Franchise Disclosure document, which is required by the
FTC Franchise Rule, 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 to be paid and the conditions under which any fees or
deposits will be returned;
* 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 own success.
How can I protect myself?
You can take the following precautions to help protect yourself from
fraudulent vending machine or display rack business opportunities:
* Check out the company with the Attorney General, a consumer
protection agency, and the Better Business Bureau in your state and
where the business is headquartered. These organizations can tell you
if they have any unresolved complaints about the company representing
the business opportunity. Complaints may alert you to problems, but
be aware that an absence of complaints does not necessarily mean the
company is legitimate because unscrupulous companies may settle
complaints, change their names, or move in order to avoid detection.
* Try to verify claims made by the company and the company's
references. To ensure that their representations are accurate, visit
existing locations and the anticipated locations for your machines or
racks. You may be able to determine from conversations with shop
owners andmanagers whether the machines and racks are, or will be,
successful. Ask them how many people come through their establishment
daily and what they are interested in buying. Also ask other
investors in your area about their experiences with the company.
* Call the Secretary of State in the state where the company is
headquartered to determine how long the company has been in business.
* Ask the company to substantiate all earnings claims. Be aware that
investors' incomes vary due to a host of factors, such as 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 will be able to do as well in your territory.
* Remember that entering into a business opportunity may require a
substantial investment. Therefore, you may wish to contact your
attorney, accountant, or other business advisor before signing any
agreement or making any upfront payments. Your attorney can review
the company's contract and advise you on how best to proceed. If the
company requires that you make a deposit, you may want to have your
attorney establish an escrow account where the money will be
maintained by a neutral third party.
Where can I complain and get more information?
If you believe you have been defrauded in a vending machine or
display rack business opportunity, first 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. This will document what the company
If you cannot resolve the dispute with the company, the organizations
listed below may be able to assist you. Look in your phone book for
the complete names, addresses, and phone numbers for those
organizations where this information is not provided.
* The Attorney General's (AG) office in your state and the state
where the company is headquartered. The AG staff can tell you if you
are protected by any state laws that regulate business opportunities.
* The National Fraud Information Center (NFIC) at 1-800-876-7060,
9a.m. - 5:30p.m. EST, Monday - Friday. NFIC is a private non-profit
organization that operates a consumer assistance hotline to provide
services and assistance in filing complaints. NFIC also sends
appropriate information to the Federal Trade Commission/National
Association of Attorneys General Fraud Database for investigation and
* 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
* The Federal Trade Commission. While the Commission cannot help
resolve individual disputes, the agency can take action if there is
evidence of a pattern of deceptive or unfair practices. Write to:
Correspondence Branch, Federal Trade Commission, Washington, D.C.
To learn more about the Commission's Franchise Rule, you may request
a free copy of Franchise and Business Opportunities. Contact: Public
Reference, Federal Trade Commission, Washington, D.C. 20580; (202)
326-2222. TDD call (202) 326-2502. You also may contact Publication
Reference for a free copy of Best Sellers, a listing of all the FTC's
consumer and business publications.
Facts for Consumers from the Federal Trade Commission
Brought to you by - The 'Lectric Law Library
The Net's Finest Legal Resource For Legal Pros & Laypeople Alike.