Bogus Business Opportunities on the Increase

What is a Business Opportunity?

A common way for an entrepreneur to begin a small business or provide themselves with an alternate source of income is to acquire or purchase a prepackaged franchise or business opportunity. Typical business opportunities involve vending machines, amusement games, pay phones or gift and novelty items sold from display racks. Ideally, the vending machine, phone, display rack or other item is located in a high traffic which helps attract customers.

The operator accepts the responsibility for the cleaning, restocking and collection of money. The promoter is responsible for supplying machines or racks, finding locations and providing replacements.

Bogus Business Opportunities on the Rise

While business opportunity scams are nothing new, recent economic conditions appear to be the impetus for an increase in consumers falling victim to aggressive marketing of over promoted or relatively worthless business deals.

Studies show that business opportunity scams are most often promoted at trade shows and through small ads that appear in the classified sections of newspapers and magazines. Most of the ads:

• Promise big earnings, possibly on a part-time basis.
• Contain references to vending machines, display racks or some other proven concepts.
• Promise that no selling or experience is necessary.
• Urge the reader to call an "800" number for more information.

How to Protect Yourself

There are risks inherent in any new business venture. However there are some things a potential investor should consider before entering into any business opportunity:

• Be skeptical about earning claims.  The "promise" of many business opportunities is the claim of a few hours a week of work will bring earnings of $50,000 ... $100,000 ... or more a year.  These promises rarely ever come true.
   
• Be cautious of ads that use "800" numbers.  An "800 number is often a tip-off to a scam operating out of a high-pressure telephone boiler room.  Just because an ad appears in the local paper does not assure that the company is reliable.
   
• Obtain and review the required disclosure documents before putting up any money.  Business opportunity promoters are required to provide a potential investor with a detailed disclosure document before you sign any agreement.  If this document is not available, beware.  When you obtain the disclosure documents, review the sections dealing with: risks; the business experience of the company; any administrative, civil or legal action against the company; fees and the conditions under which fees will be returned.
   
• Make sure the opportunity is registered.  Check with the Division of Consumer Protection to see if the opportunity is registered in Utah.  Be aware however, that registration is not an endorsement.  Even if a business opportunity promoter does comply with the law regarding registration, this is not a guarantee that you can or will make money.  To check on registration call the Division of Consumer Protection at (801) 530-6601.
   
• Talk to investors.  You should always talk to others already involved with the opportunity.  But even then, be suspicious.  Unscrupulous promoters have been known to provide "shills" to talk up the virtues of their scam.  The disclosure documents require names, addresses and phone numbers of investors in your area.  Use these as a place to start to find other opportunity participants.
   
• Do your own research.  Make sure you fully understand how the business opportunity will work and what the customer demand for the product or service there likely is.  Don't rely on the promoter's claim that consumers are out there just waiting for you.  Often, claims of net incomes from opportunities are either wildly inflated or are out right lies.
   
• Don't assume promises about the availability prime locations, quick repairs or ongoing support.  Remember, a bogus promoter will make any claim needed to get your money.  Be cautious when you sign up with a company that is supposed to identify prime sites for vending machines, pay phones, display racks or other business opportunities.  Remember, the most common way these opportunities to fail is from the promoter failing to live up to the commitments they made to you, not the other way around.