In a desire to be own boss and operate your own business, you may be compelled to take shortcuts in the startup process. A franchise or established business may be a quick fix to supersede market research or business planning. Often sellers of these franchise or business opportunity sellers have a pre-fabricated business model that promises to generate income immediately through systematic marketing and sales.

As a new entrepreneur, you may also be approached with new business opportunities at any time. Once you make it known that you are interested in your own business, you enter a different culture in which people are open to working with you or even bartering their services or products in exchange for what you have to offer.

At the same time, many of these “opportunities” may be fraudulent. Even if professionally or authoritatively marketed to you as a legitimate business, franchise or other startup, they may be complete scams designed to separate you from your startup funds.

At the very least, they may not be commercially-viable businesses, or have low success rates. Business writer Patricia Schaefer notes many of these easy startup opportunity and franchise scams target those interested in “working from home” doing easy work with “no experience necessary”. In the end, however, they amount to little more than a would-be business owner getting scammed and left with materials, supplies, and other useless items in exchange for their startup funds. Some of the fraudulent opportunities include:

• Envelope stuffing/marketing material creation: There are no envelopes to stuff or marketing materials to make; instead, you will be recruiting others to take part in the same scheme into which you bought
• Product/craft assembly: After paying for materials up front, the company will refuse to accept the items you produced. Schaefer notes you will be left to sell the toys or gifts yourself
• Medical billing: a very expensive startup, your individual output will rarely surpass the costs of obtaining physician client information (only potential clients) and billing software (that is out of date)
• Pyramid Schemes: Unfortunately, pyramid schemes do a disservice to many multi-level marketing companies that do legitimate sales of products or services. However, you can identify a pyramid scheme when there is no discernable product or service being sold, or the main task of your business is to recruit other business owners. 


The Federal Trade Commission “Rule” is to obtain a detailed disclosure document at least 10 days before you invest any money into a business opportunity or franchise, which should include:

• Personal information on at least 10 previous purchases of the business or franchise that live closest to you
• Audited financial statements
• Background of the parent company’s executives
• Costs of startup and maintenance
• Obligations between you and the seller once you buy into the business or franchise

In the end, it is best to take your time deciding in which business opportunity you will invest. Even with the high pressure of a seller pushing you to buy, always trust your own judgment before putting startup funds into a new business.

Even after you establish your business, or buy into a legitimate opportunity or franchise, you may still be the target of a scams or other unscrupulous activity. Please see “Business Owner Scams” for more information.

References

Patricia Schaefer. Home Business and Self-Employment. Steer Clear of Home Business Scams
FTC Facts. Franchise and Business Opportunities