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In this section we have:

Small and Home Business Scams Q & A
by Marian Owen, BA (Hons) Economics, FCCA

The Home Business Alliance and The B.O.A.R.D, now Business Opportunity Watch (B.O.W), are the UK's senior, private investigation source into
'business opportunity' style scams and have been in operation since 1993.

Below, we give a typical media question and answer session to help you sort the wheat from the chaff.

How can people tell a genuine legitimate business opportunity from a scam?

If it sounds too good to be true, then it probably is.

Business opportunities which promise that you will achieve a certain level of income are often dubious. Logically, it is not valid for a business opportunity promoter to promise that his business opportunity will achieve a certain level of income because the income which any operator will achieve depends upon the hours they put in, their level of ability, the level of their local competition from other businesses offering a similar product or service etc, etc.

Any particular tell-tell signs to look out for?

In addition to business opportunities promising a certain level of income, it's an even starker warning sign if the business opportunity also says that it's very easy to operate the business, and it doesn't take much time, and you don't need any particular skills or abilities.

If all these claims were actually true, then it simply does not make commercial sense for the promoter to be selling this opportunity. Instead, he would be keeping all the high claimed earnings for himself and employing part-time staff to carry out the little work required.

In general you need to work hard to generate a good income. Would you agree that if it sounds to good to be true it probably is? Have you found any scam-like too good to be true opportunities that actually were true?

Yes, you do need to work hard to generate a good income with just about any business. Unfortunately, if the business model is flawed and it doesn't work very well, then no matter how hard you work you are unlikely to be able to build a good business.

The best rule of thumb, once again, is that if it sounds too good to be true then it probably is. Business opportunity promoters know this, and those who can afford it employ the top copywriters to write very long sales letters which repeatedly press your psychological buttons to an almost irrestistible extent so that you forget about "too good to be true" and become swept up in the excitement of having at last found an easy and profitable opportunity.

Sales letters like these typically show you "proof" of earnings in an attempt to convince you. However, such "proof" is rarely reliable. Even if the screen shots of earnings coming into a PayPal account or the images of money coming into a bank account are genuine, the earnings may have come from the promoter's sales of the opportunity, rather than from his earnings from running the opportunity himself.

In fact, I would say that if someone promoting a business opportunity finds it necessary to include "proof" of earnings in his marketing material then this is another warning sign because it implies that the promoter knows that the rest of the information he gives about his opportunity is not credible and convincing enough without this "proof".

I have never come across any business opportunity which sounded too good to be true which turned out to be true.

How common are these scams nowadays: craft assembly, chain letters/emails, envelope stuffing/email processing/ad placing, MLM, calling premium rate numbers for more info, etc.? Are there any more common scams you could add to this list?

Thankfully, bogus craft work and envelope stuffing opportunities are on the wane, probably largely because of the wide publicity given to them by the Office of Fair Trading and other consumer organisations. Email processing and ad placing opportunities continue to proliferate on the Internet however, with misleading advertising suggesting that these are jobs where you are paid for processing emails or placing ads, whereas in fact you are simply operating as a self-employed person and you don't receive any money actually for processing emails or placing ads. Instead, you only receive money if you make a sale. Because you normally have to pay to place your ads, then you can lose money if you don't make sales.

Advertisements which ask you to call premium rate numbers for more information have now declined due to the legal requirement to show the costs of the calls and the policing of premium rate numbers by the regulatory authority.

One category of bogus job opportunity which has flourished on the Internet, however, comes in the form of survey jobs and mystery shopping jobs. There are many reputable companies who recruit people to carry out surveys and mystery shopping, and they don't charge you a fee to join. The bogus variety charges a fee.

MLM - would you agree that if the opportunity is more about finding recruits than selling products/services it's likely to be a pyramid scheme and not recommended?

Multi level marketing is a valid business model, and a number of multi level marketing companies are on our recommended list. However, it's also true that there are a large number of multi level marketing opportunities where the business model does not give the average new recruit a fair chance of building up a business. As you suggest, schemes which emphasise the need to recruit other people rather than to sell the products and services are generally to be avoided. Schemes like these are unstable and normally don't last long because, once the scheme has reached a certain size, the earnings of people in it start to drop because they no longer find it so easy to recruit other people, and these recruits were their sole source of income. Word of falling earnings spreads on the Internet and the scheme declines.

By contrast, it's a far better option to join a multi-level-marketing opportunity which emphasises the quality of its products and services and which tells its recruits that they need to make retail sales in addition to recruiting a team of people. This type of MLM is far more stable because its products and services are typically of good, marketable quality and recruits have two income streams - retail sales and recruitment. The typical recruit who is not a natural salesperson can concentrate on retail sales and will find it natural and easy in due course to talk to satisfied customers about joining the business, rather than approaching people cold.

What about legitimate Home-working opportunities such as Clickworkers, etc?

I have to admit that I had never heard the term "Clickworkers" before. I assume that you have in mind the website at http://www.clickworker.com. I've had a quick look at this, and it seems an excellent idea. They have 87,000 people registered with them. You can register with clickworker.com to offer your services on a self-employed basis to carry out tasks such as writing, translating, inputting data etc. There isn't any cost to join and, depending on your CV, you are notified of suitable projects which you can then apply for. Companies who have work that they need people to do send details to the site, and they pay a fee to Clickworker for the completed work.

Unlike Clickworker, all bogus "job" opportunities ask people to pay, often in the guise of a registration fee, or a fee for a start-up pack. It's simple to avoid bogus job opportunities - simply avoid any which ask you to pay.

It's advisable for people seeking business opportunities to get things in writing, contact references, avoid urgent requests to act now... anything else you can advise?

Sometimes, getting things in writing doesn't help, because sophisticated business opportunity promoters have contracts which are written by lawyers which, while they seem to be perfectly proper and correct, in fact give you very few rights. Because of the specific legal language used, the average person might not realise this and so it's a good idea to consult a lawyer before you sign any contract.

Apart from avoiding opportunities which sound too good to be true, there are two basic ways people looking for a business opportunity or a franchise can protect themselves.

Firstly, make sure that you ask to be put in touch with some people already operating the business. It's not a good idea to allow the promoter to direct you towards just two or three operators of his choice. Instead, what you want is a list of at least five operators from which you can choose the ones you want to contact.

Don't let yourself be put off by invalid excuses such as the promoter saying he's prevented from giving you these details by the Data Protection Act. The Data Protection Act does not apply where someone has given permission for their details to be used for a purpose. And, in my view, any decent business opportunity promoter should have already secured the agreement of his operators to take phone calls from prospective newcomers from time to time.

Secondly - and this is crucially important for any business opportunity which costs a lot of money, such as a franchise - ask for proof of earnings. This doesn't mean a screen shot of a PayPal account. It means being able to see the original bank statements of an operator of the business. Or, with a franchise, it means being given audited accounts of the pilot franchise, which all franchisors should run for at least a year before they market franchises to the public.

If you are pressurised to act now to join a business opportunity, then this should make you suspicious. If it's a genuine business, then the promoter's chief concern will be to get good people to join, and people who have had the time to carefully consider whether it is the right opportunity for them, so he won't pressurise you to make a quick decision.

How can people check online if a business opportunity is legit or not? eg contact your organisation?

It's difficult to get reliable information with an online search. Some business opportunity promoters, for example, advertise their opportunities on many sites and may also have written articles under different names extolling the virtues of their opportunity. Also, in the case of multi-level marketing schemes, recruits often set up their own web sites in an attempt to recruit other people into the scheme. Results like these are obviously not independent assessments.

It's particularly difficult to obtain an independent view about the viability of a franchise, because most franchise websites are simply filled with advertising from franchisors. It can often take a couple of years before problems with a franchise become apparent and, even then, nothing about these problems may appear on the Internet because a tightly-worded franchise contract may effectively gag the franchisee from publicising anything about the franchise.

Forums can provide a useful source of information, and other users of the forum often point it out if someone posting favourable comments about an opportunity seems to be from the company itself.

Also, our own Home Business Alliance website carries links to Business Opportunity Watch which carries out formal, independent assessments of business opportunities and franchises. There is a charge for these reviews.

Most other sites which provide reviews of business opportunities, often free, are either financed with advertising from business opportunity promoters or they are actually run by business opportunity promoters, so it must sometimes be difficult for them to give unbiased reviews.

Is there an up to date list of scams available anywhere?

Not that I know of. Scammers and promoters of dubious business opportunities never cease to amaze me with their creativity, and new ones are appearing all the time.

Can you tell me about any scams that target existing business owners such as overpayment scams, scams to protect domain names and evaluate businesses?

There are a number of scams which target business owners, such as the following:

- signing up for what you think is a free entry in a guide, only to later find out that it costs you several hundred pounds.

- high pressure selling to persuade you to advertise in publications produced for schools or charities, and the publications do not materialise as promised

- false charges for operators of CCTV systems, falsely claiming that they come from the Information Commissioners Office

- bogus invoices e.g for stationery or printer cartridges.

- bogus demands for payments for registration or training for health and safety

- bogus demands for large fees to register under the Data Protection Act

- cold calling to pressurise you into buying a domain name, falsely claiming that another person is interested in buying a domain name similar to your own and you need
to prevent this by quickly buying it yourself

- unscrupulous firms who charge large fees claiming that they can greatly reduce your business rates

- emails falsely claiming to be from HM Revenue and Customs which try to persuade you to hand over confidential information in order to obtain a tax rebate

- overpayment for business goods by cheque, with the customer then asking for a refund of the excess amount, but the cheque turns out to be fraudulent

In America people can check out a site's reputation/credibility by calling the Better Business Bureau. What organisations exist that are similar in the UK?

The Better Business Bureau in the USA fields complaints from US citizens about US businesses. It then invites the business to resolve the complaint, and for each business it publishes a report summarising the complaints received and whether they have been resolved and it gives the business a rating as a result. It's a very useful indicator of the credibility of a business, and it's a shame that we have nothing like it in the UK.

However, we do have the Advertising Standards Authority, which does a sterling job in exposing advertising which makes claims and promises which the advertiser can't back up with hard evidence. Recently, the remit of the Advertising Standards Authority has been extended to include the marketing content of companies' websites. So anyone who has doubts about the claims a business opportunity promoter makes on his website can make a complaint to the Advertising Standards Authority and they will ask the promoter to provide evidence to back up his claims.

How common are business scams? Do you know any figures about how many people are affected by them each year?

I don't have any recent figures on these scams, but in December 2006 the Office of Fair Trading carried out research and produced a paper entitled "Research on impact of mass marketed scams", which looked at various scams targeted at consumers such as property investor scams, high risk investment scams, premium rate telephone prize scams and also work at Home and business opportunity scams. On the basis of their research, the Office of Fair Trading estimated that UK consumers lost about £3.5 billion to scams in total each year. Of this total, they estimated that work at home and business opportunity scams cost the UK public £70 million a year and that 330,000 adults fall victim to these scams every year.

I doubt that these figures have decreased.



Home Business Alliance
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