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How to Spot Bogus Business Opportunities

Perhaps you have come across those ads that you can quit your regular job and stuff envelopes or assemble crafts at home. Maybe a company says it can help you set up a vending business.

Well before you before you put your John Hancock on the dotted line or send them your hard earned money; find out about the Business Opportunity Rule, enforced by the nation’s consumer protection agency, the FTC (Federal Trade Commission). The Rule has safeguards in place to make sure you have the information you need to determine whether a business opportunity is risky business.

The Business Opportunity Rule requires potential business opportunity sellers to give you a one-page statement disclosing important facts about the opportunity and secondly, if there are claims about how much money you might make, they have to give you a separate report with the specifics of that claim.

There are certain claims that business opportunity sellers cannot do:

  • It is against the law for sellers of business opportunities to say anything that opposes what is in their disclosure and earnings statements.
  • Under the Rule, sellers cannot advertise that they are giving you a job when in reality they are promoting a business opportunity.
  • The Rule also makes it illegal for sellers to falsify the nature of the investment – for example, if they claim they’ll help you line up locations, accounts, or customers or that you’ll have an exclusive territory if it’s not absolutely true.

Even though the Rule is designed to protect you the buyer, take the time and due-diligence to make sure the seller is providing you with what is required by law.  Make sure they provide you with the disclosure document that includes the five key pieces of information required by law. If they make earnings claims, be sure they give you a separate statement with the specifics.  If you come across a seller who isn’t complying with the law, your radar should be going off: You could be dealing with a business opportunity scammer.

Here are a few things you can do to protect yourself when it comes to business opportunities:

— Be sure to carefully read, or have your attorney look over, the disclosure statement and the earnings claim statement in addition to the proposed business contract.

— Demand proof, real written proof, of the claims of earnings.  If they claim “Make up to $50,000 a Week!”  the “up-to” bit isn’t their way out.  This is an earnings claim therefore make them show you the proof.

— Find people who are doing the same business and talk to them.  Ask if they are indeed making the amount of money that advertising states.  Ask if the information that the seller provided in the disclosure document has been typical of their experiences.

— If a seller of a business opportunity fails to provide you with the disclosure and earning statements that you request, move on it’s likely a scam.

— If there is anything you are unsure of or don’t fully understand the contract, disclosure or earnings statements, seek the advice of an attorney, accountant or business advisor.

— Check with the Better Business Bureau to see if there have been any negative claims filed against the business opportunity or the seller.

— Hop on the ‘ole internet and do a few searches by entering the company’s name and “complaint” or “scam.” You might be surprised by what you get. But be cautious: Just because there are no complaints it doesn’t necessarily mean the company is legitimate. And remember, scammers have no problem making up phony testimonials and posting them online.

If you come across a possible business opportunity scam, be sure to report it.  Here are a few of the places that you can make your report:

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