Sniffing Out a Good Business Opportunity

Proceed With Caution

You should be suspicious of any Business Opportunity if:

  • They require a big upfront, nonrefundable fee, especially if it's an unusual amount (such as $5,725 or $6,950).
  • They require you to pay a fixed amount on a regular schedule (for example, $50 a month) regardless of whether or not you make money (a percentage of sales may be OK, because if you don't make money, they don't either).
  • They refer to you as an "affiliate" or "member" but prohibit you from mentioning their name when dealing with customers or suppliers.
  • They say they prefer to deal with "people who have never been in this business before."
  • Their brochures and Web site do not offer any background information about their top management.
  • Their brochures and Web site do not indicate an affiliation to a larger, well-known organization or a listing of endorsements from companies in the same industry such as Entrepreneur Media Inc. or Yahoo! Small Business."

When negotiating your deal with a Business Opportunity, make sure:

  • A lawyer reviews the agreement before you sign--if the seller refuses to permit this, or seems nervous about it, then you know for sure you are dealing with a fraud.
  • The agreement allows you to get out of the Business Opportunity at any time, without penalty, if you are not satisfied.
  • The seller agrees to refund your money if you quit the Business Opportunity during the first six months, less the seller's actual cost of providing you with training or other services in an amount not to exceed 10% of your total investment.
  • The seller says that it is in compliance with all material laws, rules and regulations, including the Business Opportunity registration law in your state (if any) and all federal antiterrorism and "money laundering" laws (you never know--your Business Opportunity may be forwarding your payments to Al-Qaeda).
  • The seller indemnifies you for any legal risk involved in the Business Opportunity (in other words, if anyone comes after you saying you're doing something illegal, the seller will defend you and pay all your bills).

Finally, use common sense, and remember that if it's too good to be true, it probably is. Ask yourself, If the Business Opportunity is that good, why do they have to use spam e-mail or comic book advertising to spread the word?

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Cliff Ennico is a syndicated columnist and author of several books on small business, including Small Business Survival Guide and The eBay Business Answer Book. This column is no substitute for legal, tax or financial advice, which can be furnished only by a qualified professional licensed in your state.

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