Buyer, Beware

Check It Out

If a work-at-home opportunity requires buying goods or services upfront that cost more than $500 (less in some states), the program meets the legal definition of a business opportunity. "Generally speaking, a business opportunity is the sale of goods or services enabling the purchaser to begin a business, and where the seller makes certain statements, representations or guarantees in the course of the sale," says Andrew A. Caffey, an attorney in the Washington, DC, area who specializes in franchise and business opportunity law.

These statements, he explains, usually refer to the seller promising to help find accounts, guaranteeing income in excess of the business opportunity's purchase price, and offering to buy back any unsold products assembled or grown by the purchaser. "Last but not least," adds Caffey, "the seller claims that a market exists for the products or services to be sold by the purchaser."

Companies that meet the legal definition of a business opportunity are easier to investigate than companies that simply offer you a job working at home. In either case, however, there are still ways to find out if the opportunity is legitimate.

The best advice? "Do your homework," says Barry Goggin, president of the Better Business Bureau of Northeast California in Sacramento. People tend to invest in work-at-home opportunities "without doing the things that would be automatic if they were going to open a retail store," says Goggin. "You've got to ask questions, get information, evaluate what you know and then make your decision."

Follow this seven-step plan to figure out whether a work-at-home opportunity is on the level:

1. Evaluate the advertisement. Before you send any money to buy a program advertising "$2,000 a week, no experience necessary," check the ad for other details. Is there a phone number you can call for further information, or must you respond to a post office box? If you can speak with an individual, is the person a company representative or simply someone hired to take telephone orders?

Legitimate companies make it easy for you to ask questions. They'll give you the information at no cost, and they won't pressure you into buying their program before you've checked them out.

2. Ask plenty of questions. Before you send any money, get answers to the following: What is the total cost of the seller's program, including training, supplies, equipment and any special fees? What materials and support services will you receive in return for your investment? Are you responsible for finding your own customers, or will the company find them for you?

If you'll be making or assembling products, ask what the company's standards are in order for your work to be accepted. When and how will you be paid? If you're buying products for resale to the general public, ask whether the company will buy back products you can't sell.

"Find out if the market for the product or service you'll be selling has been tested and what your competition is," advises Goggin. "If you're paying for marketing support, what is the company's level of
expertise? Do they have a [well-thought-out] marketing plan, or will they just send you a few tips and expect you to do the rest?"

Finally, if you'll be enrolling in a company's training program to learn certain skills, like how to run a travel agency or do medical transcription, evaluate the quality of the training. Ask to see a list of program graduates. Call several to find out if the training was adequate in helping them start working at home.

3. Be aware of state requirements. If the initial investment for the opportunity exceeds $500, call your state's attorney general's office to see if your state has a business opportunity law. If so, has the company registered with the state and met other requirements? (In California, for example, sellers of business opportunities that require a total initial payment of more than $500 are required to register, pay an annual fee, and file disclosure statements about income or earnings potential with the attorney general's office.) Are there any complaints about the company on file?

In situations where you sign a contract to purchase a business opportunity, you have the right to cancel the contract within three business days. The contract is voidable by fraud or deceit, and you can demand your deposit be returned.

4. Do a background check. Call your local Better Business Bureau or visit http://www.bbb.org to obtain a reliability report on the company you're considering. Also check with the U.S. Postal Inspection Service in your area to see if any complaints have been filed. The Postal Inspection Service is a good resource because it actively investigates promoters who might be in violation of mail-fraud or false-representation statutes.

"If just one person has filed a complaint and the amount the individual lost is as little as $30, for example, we'll have the complaint on file," says postal inspector Kevin Koscki at the U.S. Postal Inspection Service in Sacramento, California.

5. Get it in writing. If the seller makes promises--about delivery, satisfaction or money-back offers--get confirmation in writing. The more written evidence you collect, the more proof you'll have if you later have a dispute with the company.

6. Read the fine print. If you receive a disclosure statement from the seller or are asked to sign a contract, be sure to read it carefully. "You may want to take it to an attorney or a financial advisor," adds Caffey.

7. Keep your cool. "Don't lose your head to the allure of easy profits. There are no easy profits," warns Caffey. "If it sounds too good to be true, it probably is."

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This article was originally published in the December 1998 print edition of Entrepreneur with the headline: Buyer, Beware.

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