by Patricia Schaefer
Last Updated Wednesday, December 30, 2020
Work at home and business opportunity scams rob unsuspecting victims of millions of dollars a year. Con artists use deception, misrepresentation, and fraud to get you to part with your hard earned money. Use these guidelines to steer clear of fraudulent bizops and work from home scams.
Do you want to start a business but don’t know what kind of business to start? Or, are you looking for a work-at-home job? If so, be on your guard.
People seeking business opportunities and work-at-home jobs are prime targets for business opportunity scams. Typically, these scams promise that if you invest a sum of money, you’ll make easy money or big profits. The headlines often look something like this:
“Make $20,000 a month selling products on Amazon”
“Rake in a 6-figure income from home with no experience – Guaranteed”
“Start an Internet business. Make BIG $$$$$ on the web. No experience necessary!”
“Make thousands of dollars mailing letters from home. Call Now!”
Would you respond to ads like these? Unfortunately, many unsuspecting people do. Despite laws aimed at protecting consumers, business opportunity scams bilk the unwary out of millions of dollars each year in the US. Victims include stay-at-home parents, the unemployed and the under-employed. They include veterans, retirees, people who are disabled, people who are well-educated — in short a wide range of individuals who want or need to make more money.
Con artists employ deception, misrepresentation, and fraud to get their victims to buy into the bizop. They appeal to people’s desire to get rich, to get rich fast, or to make enough income to become financially secure. Some can be very convincing – particularly when they use shills to talk about how much money they’ve made once they invested in the program.
Not all business opportunities are scams, of course. There are legitimate turnkey businesses and franchises. But there are enough people perpetrating bizop scams or making unfounded or exaggerated income claims, laws have been passed in an attempt to protect consumers. Here’s what you need to know.
The Business Opportunity Rule
The Business Opportunity Rule requires opportunity sellers to provide buyers with specific information that will help them evaluate the opportunity and weigh the risks involved.
According to the US Federal Trade Commission (FTC), the rule applies “in commercial transactions where a seller solicits a prospective buyer to enter into a new business, the prospective purchaser makes a required payment, and the seller – expressly or by implication – makes certain kinds of claims.”
Companies whose opportunities fall under this rule are required to:
- Give the buyer a one-page disclosure document 7 days before the buyer signs a contract or pays any money
- Provide a written earnings claims statement if the opportunity includes income or earnings claims
- Conform to general truth-in-advertising principles, avoiding deceptive claims
The disclosure document
The disclosure document must be in the language (for example, English, or Spanish) used to present the biz op to you. It must:
- identify the seller;
- tell you about certain lawsuits or other legal actions involving the seller or its key personnel;
- tell you if the seller has a cancellation or refund policy. If so, what are the terms of that policy?
- say whether the seller is making an earnings claim. If so, the seller has to give you another document called an earnings claim statement; and
- give you a list of references
You should check it carefully to be sure that the information in the statement matches what you were told about the opportunity. In addition to contacting the listed references, be sure to search the web for information. Search the web and the FTC’s website for the name of the business opportunity and for the seller’s or owner’s name. Business scams can be very profitable for the promoters, so it’s not uncommon for them to start a new scam if a previous one they pushed got shut down.
The Earnings Claim Statement
The earnings claim statement must be provided if the seller makes a claim about how much money people can earn. Under the rule the earnings claim must include:
- the name of the person making the claim and the date;
- the specifics of the claim;
- the start and end date those earnings were achieved;
- the number and percentage of people who got those results or better;
- any information about those people that may differ from you – for example, the part of the country where they live; and
- a statement that you can get written proof of the seller’s earning claims if you ask for it.
Franchise Business Opportunities
If the business opportunity is a franchise that meets certain criteria, the rule that applies is the Franchise Rule. Franchises usually require more money to buy and usually include ongoing fees, the right to use the franchise’s logo, and require you to conform to certain methods of operating the business Under The Franchise Rule, a franchisor must provide you with a Franchise Disclosure Document (FDD). The FDD covers 23 specific points and must be provided to you 14 days before you make an investment in a franchise. The FTC’s Consumer’s Guide to Buying a Franchise provides useful information about buying a franchise.
The Franchise Buyer’s Guide, written by franchise expert, Ed Teixeira, contains more detailed information about how to buy a franchise, including information on how to perform due diligence, how to determine if franchising is right for you, how to understand the FDD, how to negotiate the franchise agreement. The book, which is in PDF format, can be purchased from the BusinessKnowHow store.
Avoiding the Scams
Many bizop scams can be avoided if you’re careful and evaluate any opportunity thoroughly. Here are some guidelines that will help you how to differentiate between legitimate opportunities and the scams.
If it sounds too good to be true, it probably is
There is no such thing as a free lunch and there is no such thing as a get-rich-quick home business, except maybe for the scammer. Home business opportunities that offer a lot of income in a short period of time with little work involved should be avoided like the plague.
Be wary of glowing reports and income claims
Testimonials from people who say they have succeeded by purchasing the business opportunity may not be true. Often scammers post testimonials that are phony,or exaggerated. If there are income claims, be very sure you see the income claim statement form and check it out before buying.
Be very wary of companies wanting money
Asking for money up front is a classic indicator of a con. Although it isn’t uncommon to invest money in a home business, if you’re looking for a job, rather than a business, you should know that legitimate employers never charge to hire you.
Watch out for pyramid schemes
Pyramid schemes are fraudulent money-making schemes in which people are recruited to make payments to others above them in a hierarchy while expecting to receive payments from people below them. Eventually, the number of new recruits fails to sustain the payment structure, and the scheme collapses with most people losing the money they paid in.
Be aware of lawful and unlawful compensation schemes in MLM businesses
There are legitimate Multilevel Marketing (MLM) and Network marketing companies out there, but over the years, there have been some bad players in the industry. This guide from the FTC can help you know what to look for or avoid in an MLM.
Pay with a credit card
If you do invest in a business opportunity, use your credit card instead of cash. Credit card companies offer greater ease of getting your money back if you are a victim of fraud.
Take your time researching and deciding
Don’t be pressured to “act now.” Any business that tries to force you into making a rushed decision isn’t a business you should be working with. Take the time to find out how long the company has been in business and whether or not there have been any complaints filed against it with the Better Business Bureau. Stay away from companies that provide no telephone number or use a PO Box rather than a full street address. Obtain and call references provided by the company but realize they may be bogus. Finally, be sure the opportunity seller in compliance with federal and state business and franchise opportunity laws.
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About the author:
Patricia Schaefer is a staff writer for Business Know-How.