Business Scams
Most home-based businesses are legitimate. However some are
just interested in promoting a scheme. Learn what precautions
will help you avoid a scam.
Prevalence
Throughout the United States, thousands of individuals are starting
home-based businesses every day. Estimates of home-based businesses
in the United States today range from 25-30 million businesses.
It is forecast that by the year 2000, one out of every two households
in the United States will have someone working from home.
Because of the growing interest in home-based business, a large
number of individuals and companies have organized to meet the needs
of budding entrepreneurs. Many of these are legitimate companies,
however, many are simply interested in promoting a scheme. While
such schemes are not new, the use of telecommunications has provided
the means for new business opportunity scams to develop over the
past few years The main targets of work-at-home schemes are people
with young children at home, the elderly, the unemployed and individuals
with disabilities. Fees for work-at-home schemes range from $5 to
$30 on the low side, to more than $30,000 on the high side.
Types of Scams
Two holdover schemes we have seen over the years involve envelope
stuffing/mailing services and assembly/craft work. Typically, when
someone responds to an ad for envelope stuffing, all they receive
for their investment are instructions to place a similar ad. Think
about it. With modern equipment and mailing techniques, there is
really no demand for workers to stuff envelopes in their homes.
Assembly/craft work are also frequently advertised opportunities.
These often require an investment in equipment or supplies. When
the investor completes the work, they often find that they are expected
to sell the finished goods on their own or they are told that the
workmanship is not up to "standard." Unfortunately, no
work is ever "up to standard."
"Business opportunities" which have become popular recently include
products and services such as the sale of business and trading cards,
medical billing, website design and hosting, vending machines, Internet
marketing and prepaid phone cards. The Federal Trade Commission
has investigated many of these opportunities. Often the violation
which is cited involves the "misrepresentation that purchasers could
reasonably expect to achieve a specific level of earnings." You
can easily access cases the FTC has investigated.
A number of companies travel throughout the United States selling
home-based business "opportunities" such as the sale of distressed
merchandise, discount travel memberships, T-shirts, vitamins or
scholarship search services. They usually sell the opportunity for
a special price only at the time of the seminar and they are almost
always are from out of state. Federal Trade Commission investigations
suggest that "few, if any, consumers who purchase the business ventures
make any substantial money."
In the past six years the Federal Trade Commission (FTC) has taken
law enforcement actions against more than 200 business opportunity
schemes. It is estimated by the FTC that losses due to these scams
are conservatively valued at $200 billion per year. The lost per
investor averages between $5,000 and $10,000.
Evaluating a "Business Opportunity"
An individual looking at a home-based business opportunity should
ask the following questions before moving forward:
- Does this offer sound too good to be true?
- Am I being pressured to buy today? Can I afford to lose my investment?
- What do I really know about this individual or company?
- If any of the answers to these questions are negative; buyer
beware!
The Federal Trade commission has developed these seven basic precautions:
- Study the required disclosure statement and proposed contracts
carefully.
- Consult with an attorney or other professional advisors before
making a binding commitment.
- Be sure all promises made by the seller are written into a contract.
- Talk with others who have already invested in the business.
- Investigate all earnings claims carefully and insist that earning
claims be in writing.
- Comparison shop other franchises or business opportunities.
- Request information from consumer protection agencies and the
Better Business Bureau in your area.
Recourse
If you have invested money in a company that you feel is not legitimate,
contact the company and request a refund. If they refuse, you can
seek assistance from the following agencies: the Attorney General's
office in your state or the state where the company is located;
the Better Business Bureau; the U.S. Postal Service; the manager
of the publication that ran the ad or any other local consumer protection
offices. For more information, visit the Federal Trade Commission
web site at www.ftc.gov
 or the U.S. Postal Inspection Service web site at postalinspectors.uspis.gov
Authored by: Barbara Cunningham, Business Specialist
with University of Missouri Extension and Missouri Small Business
Development Centers and Carole Bozworth, State
Consumer & Family Economics Specialist
Source: Home-Based Business
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