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Avoiding Business Scams

computer-767784_1920 (2)The buyer is responsible for investigating business opportunities and their sellers and weeding out any questionable ones he or she discovers.

By Sandy Larson

Is the fear of getting ripped off preventing you from starting your own home-based business? Don’t let this be a roadblock to business success.

Many people do worry about getting mislead or deceived as they search for the perfect work-at-home opportunity. It’s unfortunate that some business opportunities turn out to be scams, but this is a small number and not a reflection of the home business industry in general. You can find a profitable business opportunity.  Just keep in mind that you are responsible for investigating business opportunities and their sellers and weeding out any questionable ones you discover.

You will make the best business investment decisions when you understand your rights as a consumer and do all of the necessary research, just as you would research any other investment.  Also be familiar with the courses of action you can take if a business opportunity appears to be a scam.

Knowing Your Rights

According to the Federal Trade Commission’s (FTC) Franchise and Business Opportunity Rule, most franchise and business opportunity sellers are required to provide you with certain types of information to help you make an informed decision. More specifically (and depending on the sales price), a seller must give you a detailed disclosure document 10 business days before you pay any money or legally commit yourself to a purchase. If the seller is not legally required to provide a disclosure document, you should request one if the level of investment is significant. A disclosure document typically contains the following:

  • Names, addresses and telephone numbers of at least 10 previous purchasers who live closest to you.
  • Audited financial statement of the seller.
  • Background and experience of the business’ key executives.
  • Cost of starting and maintaining the business.
  • Responsibilities you and the seller will have to each other once you have invested in the opportunity.

Twenty-three states have business opportunity laws in addition to the FTC’s rule. Most of these laws prohibit the sale of a business opportunity unless the seller gives the potential purchaser a disclosure document that has been filed with a designated state agency. Even if a seller is exempted from issuing a disclosure document under the FTC Franchise and Business Opportunity Rule, the seller might have to provide a disclosure document under the state laws.

Doing Your Research

Before signing contracts or making an investment, several sources can provide you with good information including the Better Business Bureau, consumer protection agency, and Attorney General’s office in your state and in the state where the business opportunity seller is located. Find out if any complaints about the seller have been filed. Even if no complaints on file, the seller could have resolved earlier complaints, moved to a new location, or changed the company’s name. Here are steps you can take:

  • Study the disclosure document and proposed contract.
  • Interview others who have invested in the business opportunity.
  • Investigate claims about potential earnings.
  • Find out the number and percentage of people who have succeeded, and by what measure of success.
  • Determine the total investment cost including supplies, equipment, and start-up fees.
  • Compare investment costs with those of other comparable business opportunities.
  • Consult with a lawyer, accountant or business advisor.

Submitting a Complaint if Necessary

If you invest in a business opportunity and find out it’s a scam, first contact the seller and try to get a refund. Remember, however, that if you fail to make the business work, be careful about saying that the business is a scam.  If you are unsuccessful, report the seller’s fraudulent business practices immediately. You may not be able to get your initial investment back, but you can prevent others from falling into the same trap. You can file a complaint with the following organizations:

  • Federal Trade Commission. Call 1-877-FTC-HELP or visit www.ftc.gov.
  • Better Business Bureau. Visit www.bbb.org to find an office near you.
  • Attorney General’s office in your state or the state where the seller is located.
  • The National Fraud Information Center. Call 1-800-876-7060 or visit www.fraud.org.
  • Local consumer protection offices.
  • Your local postmaster. The U.S. Postal Service investigates fraudulent mail practices.

Source: The Federal Trade Commission, website: www.ftc.gov

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