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.  

Warning Signs

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.