Buying A Business: Common Scams To Avoid

The business opportunities arena offers many legitimate businesses; unfortunately you must also be aware of many scams before you decide to make any purchase.

You've heard these pitches a million times. "Fire your boss," "stop punching the time clock," "earn money quickly and easily from home," and maybe you're even considering putting the check in the mail and quitting your day job. But before you do anything, stop and take a moment to think about what each of these claims have in common.

Of course each one sounds wonderful, not to mention it sounds so easy to make lots of money -- and that's where the problem begins. For every legitimate business opportunity out there, there are at least a dozen that are nothing more than a scam. Purchasing a business is an important life decision, and one you can't afford to make overnight. Buying the right business can change your life, and even your earnings potential, but choosing the wrong business can cost you money and maybe even your dreams.

In the business opportunity arena there are many scams that have been around for years. You may have read that you can make money at home by stuffing envelopes, or assembling craft products, but don't believe it. These scams continue because someone is always willing to perpetuate the scam, and even if only one person falls for the bogus deal there is some money to be made. Become familiar with the common business scams below before you invest your cash, and remember that if something sounds too good to be true, it usually is.

-- Medical Billing Business

You've probably heard or seen advertisements that offer quick training and the software you need to get the job done. These ads claim that once you're trained, with nothing more than your home computer, and the provided software, you'll work for dozens of doctors performing medical billing right from your home. There is also an implication that anyone can do this job and those who respond to the ad will own a highly successful company.

The first thing you need to know about the medical billing business is that competition for this type of work is intense. Most doctors have staff that does medical billing right in the office, or they contract to an outside agency that's well established, having been in business many years.

The second thing you need to know is that the Federal Trade Commission (FTC) has brought charges against many promoters of this business opportunity because the promoter misrepresented the income potential of the business, as well as failing to provide important pre-investment documentation to interested buyers. Many who have written a check to purchase this type of business have wound up with software that doesn't work and out-of-date, or just plain false, lists of doctors who hire individual to process their medical billing. But there is that "money back guarantee," right? Unfortunately, to get your money back you'll have to stand in a long line behind thousands of others who also believed this was a legitimate company.

-- Coupon Selling Business

Coupons can provide money, but most if it goes to the scam artists promoting a coupon booklet business to entrepreneurs, charity groups, and consumers looking for extra income. The scam is usually worked from the Internet, where fraudulent promoters promise "hundreds of dollars per week" and even "thousands of dollars per month" that can be made by selling coupon certificate booklets or just merely clipping coupons at home.

Those who have been lured into these types of coupon business soon learn that it's very difficult to make their money back by selling worthless certificate books, or that the cost of postage to mail the clipped coupons eats up any type of profit they might have expected. There is only one way to make legitimate money with coupons: clip them and redeem them at the store while shopping. If you are approached with any type of business opportunity that involves coupons, you can safely assume it's a scam.

-- Multi Level Marketing Plans and Pyramid Schemes

Multi Level Marketing (MLM) has been around for many years, and MLM folks sell everything from soap to vitamins to pet care supplies. Sometimes an MLM plan may be called "matrix" marketing or "network" marketing, but it is still the same business.

MLM plans are nothing more than a way to sell goods or services through distributors who earn a commission on each sale. The distributor is also encouraged to recruit distributors who will sell the product and earn commissions for both him and the distributor who recruited him into the plan. This type of commission is called a "downline" commission, and it is promoted highly. The MLM wants you to believe that eventually you will do nothing and earn huge downline commission checks.

If the plan allows payout commissions for simply recruiting new distributors it could be illegal in your state. These types of MLM plans are called pyramid schemes, because eventually there will not be anyone new to recruit into the plan. This causes the plan to collapse and when the fall occurs most people, except those at the very top of the pyramid, will lose their money.

Not all MLM plans are pyramid schemes, and some do work with distributors that make a nice sum each year, but these MLM plans are generally difficult to find. Do your research on the company before investing by using the guidelines given below.

-- Internet Based Businesses

The most common Internet based scams fall into three areas:

1) providing internet access through the television

2) selling walk-up internet access

3) giving seminars that teach others how to make money on the internet

In each of these business the only one who makes large sums of money is the promoter selling the businesses. The problem with the first plan is that it is based on recruiter others to do the selling for you. This can easily be, or become, a pyramid scheme and most likely the promoter who signed you up is receiving "downline" commission from your sales work.

The second business opportunity appears sound enough, until you're ready to get to work. Usually the promoter will place your Internet kiosk in an area where there is very little demand for Internet service, instead of the high-traffic area he promised when you purchased the business.

Finally, the idea of giving seminars, of teaching something you haven't yet mastered, sounds ludicrous. The promoter understands this and assures you of eventually receiving excellent training. The training never materializes, however, and your seminars are nothing more than a high-pressure sales pitch to sell the promoter's own Internet advertising.

-- Work at Home Scams

The most common work at home frauds are envelope stuffing and assembly work. Both "opportunities" are usually advertised in the back of magazines or in the classified section of any number of free newspapers. Both promise a huge earning potential without you ever leaving home. Unfortunately, though each scheme works a bit differently, both will leave you with less money and in a state of frustration. When you see either of these ads, turn the page quickly. Don't assume that any of these opportunities are legitimate; it's not worth the time and money you'll lose to find out.

Promoters of the envelope stuffing "job" advertise that for a small fee, usually in the neighborhood of $25, they will share a secret with you -- how to gain employment stuffing envelopes at home. Once your fee is received a letter is sent to you, explaining how to place the same type of ad you responded to. There is no legitimate work. The only way you will make money is to defraud others in the same way you were victimized.

Promoters also use classified advertising to offer the business "opportunity" of assembling products or crafts at home. But before you can begin working, you are asked to invest hundreds of dollars to purchase the supplies or equipment you will need to perform the work. Once you've purchased these items (from the promoter), then assembled the product and sent it to the company, you'll be told that your work does not meet the company's "quality standards." Any work you submit will not be accepted, and you are left with the equipment and supplies, and the problem of what to do with them.

This article is not a comprehensive list off all scams and schemes out there, since it only addresses the most common cons. And not every business opportunities is fraudulent. If you really want to purchase a business, there are several things to consider before you spend any of your cash. You should be able to spot a scheme easily enough if you remember to ask these important questions when evaluating any business idea.

- Does the advertisement claim you can earn a specific income? If so, there also must also be a number and percentage of those who have achieved this income, or the seller of the business opportunity is in violation of the law.

- Can you get the earnings claim in writing from the seller? If you spend more than $500 for any business, the seller is obligated to give this information in a written document.

- If you are considering a franchise opportunity, look closely at the disclosure documents. Does it list others who purchased the business, or does it merely provide references? Keep in mind how easy it is to provide false references.

- Can you interview precious business purchasers, at their place of business? This is an important step in reducing your risk; don't settle for a list of names, take time to make the contacts.

- Is the business listed with consumer protection agencies, such as the Better Business Bureau?

- Can you take your time to think about the offer? Fraudulent business promoters often use high-pressure tactics, hoping you'll write a check before learning about their deceptive practices.

Next time you hear how you, too, can "easily make thousands a month with this guaranteed program of success," and do it all from your living room, remember that any program with these types of claims may be a fraud. Research the company, and try to meet and talk with others who have purchased the business before you send any money.

Anyone earning a good income from their own business will tell you it didn't happen overnight and it wasn't easy. Owning your own busy can be a dream come true, but the reward will correlate directly to the amount of work you are willing to perform. If you you want to work hard, work many hours, and truly be your own boss, there is a business for you. Just take your time to find the right fit for you and your dreams before you invest any cash.

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