Consumer Protection

How to Protect Yourself: Business Opportunities

Source: The Florida Attorney General's Office


A business opportunity involves the sale of goods or services that enables the novice entrepreneur to start a business. Generally, a promoter may supply marketing plans, training or other guidance for the entrepreneur while the entrepreneur is responsible for the day-to-day operations of the business. When thinking about pursuing a business opportunity, consider the following:

Proceed with extreme caution.

If you detect any warning signs in a business opportunity you are reviewing, you should proceed with extreme caution. If you have concerns about how you are faring with an existing business opportunity and believe there are problems present in your deal, it may be time for you to complain to a regulator. In Florida, this area is regulated by the Florida Department of Agriculture and Consumer Services. The agency can be reached at 1-800-HELP-FLA or online at www.800helpfla.com.

Be skeptical about earnings claims that sound too good to be true.

The truth is that making money almost always requires a lot of hard work, so promises of earning $50,000 or $100,000 per year with no experience necessary while working only a few hours a week are almost certainly scams.

Exercise caution when it comes to ads.

Exercise caution when considering newspaper and online ads that contain little more than glowing promises and an “800” number. This is very likely a pitch to lure you into calling a high-pressure telemarketing boiler room operation. Keep in mind that just because an ad appears in a reputable newspaper or magazine does not mean that the information it contains is accurate or legitimate. The con artists pushing bogus business opportunities will make any statement necessary to separate an unwary individual from his or her savings.

Review the disclosure document.

Obtain and review the required disclosure documents before money changes hands. Keep in mind that business opportunity and franchise promoters are required to present you with a disclosure document before you sign a contract or pay a fee. If this document is not made readily available, beware! Carefully review the document, particularly the portions dealing with risks, the business experience of the company and directors, the history of any lawsuits, fees to be paid and conditions under which fees and deposits will be returned, audited financial statements containing balance sheets for the three previous years and substantiation for any earnings claims made to you.

Check compliance with state laws.

Make sure that the business opportunity is compliant with applicable state registration laws. However, even if a business opportunity promoter complies with the laws in your state governing such deals, there is no guarantee that you will make money.

Talk to current investors and watch out for “singers.”

You should always take the time to speak with several people who are current investors in the business opportunity that you are considering. The disclosure document must contain a list of the business opportunities’ current operators. However, be cautious – a scheming promoter of a bogus business opportunity may line up “singers,” who provide phony testimonials to assuage the concerns of would-be investors. Be suspicious if you cannot reach references by phone. In one case investigated by the FTC, a promoter used three aliases to pose as an investor.

Interview at least five references and ask the following questions:

Are you happy with your investment?
Has the promoter come through for you?
Are you making the money you thought you'd be making?
Would you make this investment again?
What do you like and dislike about this business opportunity?

Research the business and the market.

Make sure that you have a clear grasp of how the business opportunity will work and what demand (if any) there is likely to be in your territory. Don't rely on glowing promises from telemarketers who claim consumers are clamoring to get your product.

Get professional advice if you need it.

Don't lose the entirety of your savings just because you failed to spend a few hundred dollars to speak with a lawyer, an accountant or another expert. These professionals will sometimes be able to spot key details that you are missing. Outsiders are sometimes in a better position to review a business opportunity from a neutral vantage point.

File a complaint.

If you believe you are a victim of a business opportunity scam, file a complaint with the Attorney General’s Office online at www.myfloridalegal.com or by phone at 1-866-9-NO-SCAM. Additionally, you may file a complaint with the Federal Trade Commission online using their complaint assistant portal at www.ftc.gov/complaint.