Spotting a Scam

by Mary Juzkiw

PT Barnum once said, “There’s a sucker born every minute.”  And he’s right.  Especially when it comes to business opportunities. 

There are so many “opportunities” out there – how can you tell the legitimate ones from the scams?  Sadly, sometimes you can’t until it is too late. 

Here area a few things to look for to spot a scam.

1.  No products.  No business can succeed without the sale of some type of product.  And simply selling a website to promote the business is not a product.  It is just the internet version of envelope stuffing – where all you are doing is sending out more ads for people to pay money to do the same thing you are.

2.  More pay or focus on “signing people up” than promoting/selling products.  While Multi-level marketing and direct sales companies do offer incentives or pay for recruiting – they do not make that the top priority.  “Get in on the ground floor” is used in a lot of advertising for scams.

3.  Find out exactly what you get for your start-up funds.  If you’re just paying to have access to the company information, that’s usually a sign that you’re looking at a pyramid scheme. 

4.  Watch out for high returns for little/no work or money.  The money the company pays you has to come from somewhere – find out where BEFORE signing up.  NOTHING in life is ever truly free.

5.  Is there a buy-back guarantee for unsold inventory?  The Direct Selling Association (www.dsa.org) requires that companies must purchase back any inventory less than 12 months old for at least 90% of the purchaser’s original expense.  

6.  Is there an end user for the products marketed other than the person who joined the company?  Companies make money by selling their products.  If  a company focuses on sales volume of recruits instead of consumers it should send out a red flag.

7.  Do they resist giving you all of the details of the marketing plan, company officers and financials or products before you sign up?  RUN!  Sure sign of a scam is a company that is not up front with any information before having your money in hand.

8.  Are they making big claims, stretching the truth.  Often disguised as celebrity endorsements, big claims are often a sign that something is awry.  Do a search on the company, referencing the claim to find out the truth.

You can check out Direct Sales companies at www.dsa.org.  You can also check with the Better Business Bureau at www.bbb.org or the Federal Trade commission at www.ftc.gov.  There are sites out there to help you check out all types of scams like www.scambusters.org.