Every year, thousands of consumers find themselves on the receiving end of fraudulent business practices despite showing extreme caution when meeting promoters and verifying their legal portfolios.
The Federal Trade Commission (FTC) consistently ranks business opportunity fraud as the leading reason for consumer fault complaints.
To avoid being the victim of financially draining biz opp scams, here’s how you can develop a keen eye for shady business practices:
Make Sure The Franchise Rule Is Religiously Followed
The FTC has devised a franchise rule to help potential business owners weed out fraudulent promoters. According to the rule, promoters peddling business opportunities worth more than USD$499 have to give consumers a detailed introduction of their services.
For example, if the promoter claims that the buyer will earn a specific return on investment, data supporting this claim must be made available.
Moreover, promoters must also reveal a history of lawsuits from past clients in a special document called “franchise disclosure.” As an additional safety measure, the FTC also makes it obligatory for promoters to provide contact details of at least 10 past clients situated near the prospective buyer’s permanent residence.
The FTC has provided guidelines to help consumers identify fraudulent business fronts, a summary of which includes the following:
- Study the ad. If it doesn’t mention the number of people who’ve achieved an earnings claim, look elsewhere.
- In the franchise disclosure document, if the business hasn’t disclosed the names and contact details of past purchasers, and furnished a list of references instead, don’t move ahead with the business opportunity. The references are probably made up.
- Go the extra mile and have an extended interview session with past buyers to make sure they aren’t in on the scam.
- Promoters harboring false intentions often try to rush the buying process. A legitimate buyer will never try to pressure you into investing. Make sure you’re not being pushed against a corner.
- Consult a legal or financial professional before signing any paperwork.
- Get in touch with the promoter’s local business bureau or attorney general’s office to make sure the biz opp promoter doesn’t have any pending lawsuits or complaints.
Familiarize Yourself With Various Scams
Scammers use a slew of manipulative and deceptive tactics to get their way. Understanding the red flags is important to keep you and your finances safe.
Here are some of the most common marketing scams and their indicators making rounds in black marketplaces:
- Multilevel Marketing (MLM) Scams: Of all the business opportunity scams, MLMs are the most sophisticated and misunderstood. The most prevalent example of these types of frauds is found in suspicious healthcare companies. Products are sensationalized to convince consumers into believing they can provide miracle cures for their conditions. A network of distributors that masks the true origins of a company is also an integral component of fraudulent MLM organizations. Often, people are misled into thinking that these products could shoot their investments through the roof, removing the drudgery of a daytime job from their lives.
- Work-at-Home Scams: In this type of scam, individuals are tricked into paying money for non-existent work-at-home opportunities. One such modus operandi was to run ads with fake stories and celebrity endorsements, and use them to fork out USD$97 in upfront fees from its target market.
- Fake Social Media Likes: The fake social likes scam is commonplace on websites like SoundCloud, Pinterest, Instagram, Twitter, and many other social media platforms. Companies employing this tactic promise “organic traffic” and increased social media influence to help social media users and businesses further their prospects, but in reality, these hits are untraceable and artificial.
- Business Coaching Scams: Business coaching scams often function under different names, swindling millions of dollars from people by giving them wild hopes of turning a big fortune by buying their business coaching programs. In turn, people are tricked into thinking that they can set up a successful online business following these programs.
Be Thorough In Your Research
It’s always the right move not to blindly trust Internet advertisements. Especially, when you come across ads for fantastic business opportunities, you shouldn’t pounce on their unbelievable benefits. Instead, you should always do your research first.
Conduct research on the industry the biz opp belongs to. Find out what the average returns on investment are in that particular industry and compare them with those displayed in the biz opp ad. Also dig into other things, such as market variability trends, to understand the long-term implications of availing the offer. If something doesn’t add up, opt out.
This research will play a pivotal role in identifying whether a business opportunity is a scam or not. Moreover, many websites also offer services to gauge the legitimacy of a business opportunity. Government and non-government platforms offer services to verify the operations of a company. For instance, you can also check whether a company is publicly listed as these are mostly transparent and have little risk of turning out to be fraudulent.
Fake business opportunities can inflict major financial losses and adversely affect your mental health. You must do your due diligence and dig deep into your business opportunities before finalizing any moves. Recognizing the warning signs and tactics used by fraudulent companies can go a long way in dodging a bullet and starting a business the right way.
Check out my guide on how to start your business right with tons of useful tips I learned by successfully starting, building, and selling multiple companies.