Unfortunately there is no simple answer to the question of how to identify sound business opportunities. For one thing, a business opportunity might be good in the hands of one person with certain skills and aspirations, but a disaster in the hands of another. However, this article is concerned with the general attributes of good business ideas compared with downright scams.

When you are looking for a business opportunity you need to do a lot of work. Unless you have an obvious passion for something, and see no alternative but to set up a shop or service serving that passion, you need to carry out extensive due diligence to see if a business is worth investing time and money into for a long time into the future.

The first thing to examine is how the business is being marketed. Is it a very hard sell? If so you have to look behind the marketing to see the bare bones of what is on offer. Promoters of a sound business idea will not be afraid to give you facts and details which you are free to check. Ignore the long list of comments and praise from previous customers – if the opportunity is one of mass appeal, such as Internet Marketing. Better to find independant viewpoints from real people who have been developing the particular business and ask some searching questions. Look behind the glamour and easy promises – try to find verifiable data and if you are unable to do so, steer clear!

So you are satisfied with the presentation and ethos of the business idea. You have determined that it is suitable for your needs – it may be part time, full time, scaleable etc. The next and most important step is to carry out some testing.

Testing a business opportunity

Any offer of the ideal money making opportunity that wants a significant payment up front, such as a franchise or Internet business offer, needs testing before you part with any real money. Promises of refunds if not completely satisfied are not enough. How then do you test a business without committing yourself. This does vary on the type of business – but here are some common methods:

• Internet Marketing – dont pay up front for a course. The best ones will want a monthly subscription and one month of committment is easy to bear. Try a system for a month and if you are happy you let it run.
• Franchises – the best franchises are always the ones that are clearly visible – on the high street, in Yellow Pages etc. A good franchise company will let you spend time at the outlets to get to know the business before committing.
• An established  business advertised in an estate agency or other online agent – this is the hardest, you cannot try out such a business before you buy and the seller is going to want to paint as rosy a picture as he can in order to sell to you. In this case you really need to take professional advice and hire an accountant to carry out proper due diligence once you have gleaned as much basic information as you can.
• Business Opportunities found on the Internet – generally. Unless you can find some way of backing up the offer, some way of finding word of mouth recommendation or reference to the idea in the “real world” you would be safer to back away. There are no easy ways to make money and any that do work with determination, investment and perseverance – can usually be seen to be working anyway.

So spotting a good business opportunity is not easy! Things always sound good when somebody wants to sell you something and a clever pitch is used. I would advise caution always, be a cynic and fear the worst. Try to get involved a bit at a time to reduce your financial risk and wherever possible accumulate as many independant views and opinions as possible. Please remember that I would be happy to supply the main areas to look out for, for any business idea – for nothing. The quid pro quo is that you let me add an article to Business Opportunity Market’s archive database!

Before I start adding posts covering my research into business opportunities that do and do not work, I want to publish one more warning about how easy it is to fall for simple scams if we are not totally on the lookout at all times.

I was watching the old film Paper Moon last night, with Ryan and Tatum O’Neal. I remember watching this film at school when it first came out in 1973 and being as fascinated by the simple scams being conducted as I am now by the supposedly complex frauds that we suffer today.

Bust has anything really changed? Apart from the theft of some illegal alcohol there were propbably three different scams in the film:

1. By reading the obituary column of a local paper, the con merchants were able to turn up at a widow’s house and pretend that the deceased had ordered an expensive bible for her before the untimely death. So taken aback by the thoughfulnes of the former husband the widow was only too willing to part with $10 or $20 for the cheap $1 book.

2. The scam merchant buys something for a few cents in a shop and pays using a $20 bill. Shortly later his accomplice visits the shop (in the film an endearing 9 year old Tatum O’Neil) and buys some ribbon for a few cents using a $5 note. On being given her change of $4 and some coins she promptly burst into tears claiming that she paid with a $20 that her Aunt had given her for her birthday – which she could prove because it had “Happy Birthday” written on it. Of course there it was in the till (left by Ryan previously) and who could refuse to reimburse the little girl?

3. “Dropping some ones” – swapping dollar notes for fives with the confused shopkeeper was not so much fraud as sleight of hand.

Simple tricks against unsophisticated people perhaps, but we still fall for similar cons perpetrated on much larger scales. Have you ever had a call from a publisher wanting to know if you would support a good cause, a charity perhaps, and obtain valuable business exposure at the same time. This is what support publishing is all about. Con men are simply playing on the heartstrings, very few people reject charitable requests easily.

One thing that the film does illustrate clearly is that people do not always fall for the fraudster out of greed, as is often the case. They often fall because they think they are doing some good

There is no safe way to start a business. A good franchise however offers more security than starting a new business from scratch. It should offer a tried and tested business plan, using an established brand and using the principal’s expertise and experience to help establish the new entrepreneur.

However, comanies which offer franchises for sale (franchisors) are not all as reputable as might be expected. In fact some business owners that are doing poorly at their business may see franchising as a way to improve their fortunes and make some money. By using some clever marketing they can make their business look attractive and sell the right to establish branches (or franchises) around the region or further afield.

I undertook a forensic accounting investigation into a franchise for car valeting recently where a businessman had failed in previous car valeting company and was attempting to start again. For £17,500 and a percentage of ongoing income, some 5%, a person was supposed to be up and running with at least his first 30 clients ready and waiting for his services. Unfortunately after waiting around 3 months for training, then realising that the franchise fee did not include a fully fitted sign written vehicle – but only a down payment on one – there were only a handful of customers waiting. The customers, all with £20 money off vouchers, only wanted the basic £30 service – not the £200 full valet.

As a forensic accountant I always interview the victims in a scam to find out the full background – to see if it is a fraud or just sharp business practice. In this case it seemed that the person setting up the franchise had lost all interest when his previous business folded and had no enthusiasm for his new venture. Therfore he was unable to give the full support that the new franchisees needed.

Fortunately there were only three recruits, and all now have learned the business fully and are in the process of establishing thriving trades. The franchise company was closed down by the authorities (Companies Investigation Branch) and hopefully the message can be conveyed to prospective franchisees considering a similar venture:

• Check out the history of the franchise company – see if it is a long established provider or is it a fly by night fraudster.
• Is the franchisor a member of the Franchise Association (USA or UK or wherever the company is trading).
• Are you able to choose a number of franchisees to visit and discuss the business with or are you simply steered towards a flagship operation? You need to speak to as many recruits as possible – better if they have been with the franchise company for some time.
• Do all the due dilligence you would do setting up a non franchise business – for example do your own business plan and do not rely on one given to you.
• Use a solicitor who specialises in franchise law.

Although there are many frauds and scams in the franchise world, generally it is a more secure way of starting a business. Just do your homework first!

Mark Jenner

Not exactly a business opportunity, unless you are thinking of starting one yourself, the Ponzi fraud dates back to early last century when Charles Ponzi first brought the idea of using an investors funds to repay investors their interest, thereby seeming to be a successeful business and encouraging new investors, into public knowledge. As an experienced forensic accountant and fraud investigator I am willing to bet that he was not the first to see the potential in dishonestly circulating others’ funds to increase income in an investment fraud that is designed to enrich the perputrators.

Every year we hear of new Ponzi scams that have come to light, perhaps when the schemes begin to crumble when more than just a few investors want their capital back. The biggest recently was the Madhoff affair involving billions of dollars, pounds and every other currency, that had supposedly been invested for lucrative rates of return. But if you check the news archives, fraud blogs and other reports you will see that there are dozens of these scams emerging every year.

Now I am faced with yet another case this week where I am asked to look at the professional conduct of an accountant recruited by the opperators of an investment fund. If the fund was a Ponzi, should the professional have known about it and reported under Money Laundering Regulations to the Serious and Organised Crime Agency in the UK? Should he have known that funds he was holding were proceeds of crime?

Where Ponzi frauds might impact those seeking business opportunities are that there are some web sites and forums that report money investment schemes and promote a measured and careful involvement as a way for making money. It seems that if you monitor these advice forums (at a cost) you will learn of investment schemes that are in their early days and paying out to investors. Therefore if you get in quick, take a few months of high interest on your investment – then withdraw your capital before the scheme folds (as all Ponzis do eventually) you can make a profit. Moreover as there are so many of these schemes, you need only put a modest amount into several, thereby spreading your risk. It all sounds pretty feasible doesn’t it?

But how did I found out about this “secret” investment world? From a victim that had followed this business opportunity for about a year, lost some £40,000 in total using the methods being discussed on the secret forums and resorted to defrauding his employers to try and recover his losses! I was investigating the fraud when I discovered that the motive came from losses to these Ponzi business opportunities!

My work as a fraud investigator and expert accounting witness will undoubtably involve more Ponzi frauds over the coming years and months. Read my blog giving fraud advice and how I approach the frauds I investigate on a daily basis.