Consumer sometimes may be attracted to a business opportunity that offers extra cash for a modest investment of time and money. Such offers may include distributorships, work-at-home opportunities, franchises or other investment plans. Treat any such business opportunity with extreme caution, especially when you are promised a lot of profit for a small risk or little work.
There are several warning signs of business opportunity fraud. These include:
- Pressure to sign a contract quickly and pay a large sum of money before you can check out the offer.
- Promises of a large return on the investment with low risk.
- Evasive answers by sellers or an unwillingness to give disclosure documents required by law.
The FTC Rule
If you are considering buying a franchise or business, you should know about a Federal Trade Commission rule that requires people who sell franchise and business opportunities to provide certain information to potential investors.
Under the FTC rule, anyone who tries to sell a franchise or business opportunity must provide you with a detailed disclosure document at least 10 business days before you pay any money or legally commit yourself to a purchase. This document gives 20 important items of information about the business, including:
- Names, addresses and telephone numbers of other purchasers.
- Financial statement of the seller.
- Background and experience of the business's key executives.
- Cost required to start and maintain the business.
- Responsibilities you and the seller will have to each other once you buy.
Prepare for success
Be ready to fully research and prepare the groundwork for a new business so it can become successful. Even a legitimate franchise opportunity can fail if you are unwilling to make these commitments.
Tips before investing or buying a business
- Study the disclosure documents and proposed contracts carefully.
- Talk to the current owner if buying a business.
- Investigate earnings claims.
- Shop around. Compare investing with other available business opportunities.
- Listen carefully to the sales presentation.
- Be sure all of the seller's promises are in the contract or sales documents.
- Check to see if the investment is registered with state and federal agencies.
- Talk to a professional or someone you trust.