Buying a business can be tricky whether it is online or not. There are many scammers out there that look to prey on naive individuals with fake businesses. While many think that they are too smart to fall for a scam, scammers have become far more innovative with their methods to deceive. They can fool even the most experienced business owners.
However, there are some telling signs that the opportunity presented to you is a scam. We highlight them for you to help you avoid investing in an online business that is more than likely to be a scam.
Sounds too good to be true
This is probably the first rule of not getting scammed; if it sounds too good to be true chances are it is. The individual pitching the business to you makes it sound like a dream investment. They will brag about how much money they have already made in the business and its potential to make even more. Well, think about it, if the business is such a smart investment and has made thousands, if not millions, then why would anyone want to sell it? When you ask them that question, they will give you a half-baked answer saying they’ve made plenty and now just want to travel or relax. No one will ever want to give up an opportunity to make more money, especially if it is easy money.
You need to be rational as you approach this. Don’t fall for the scammer’s tactics of enticing you to buy the business without proof of everything they claim the business is and can be. Ask them to see annual and projected sales, the growth of the business since inception, and so on. Be sure to cross-check each and every document provided so you can make a sound investment, rather than walk into the deal blindly and get scammed.
They constantly brag about what they have
The reason why scammers get away with their schemes is due to the fact that that they know how to toy with human psychology, just like how business use it to attract and convert clients. They go into meetings knowing how to get into your head. One way they do this is by bragging about the newly acquired lifestyle they have due to the business. They will tell you how expensive their car or home is and so on. What this does is, it shows potential buyers that they too can have this lifestyle if you were to purchase their business.
To avoid this, don’t fall for such mind games. Ignore such unnecessary talks altogether to avoid the scammer from getting into your head. Stick to talking business and go by what the facts and figures say on the financial documents of the business.
The offer is time bound
Investing in an online business is a big decision, you don’t want to rush it in any way. After all, you are spending thousands of dollars so you want to make an informed decision. A tactic used by scammers to sucker buyers into pulling the trigger is reducing the offer and making it time bound. Making the deal more enticing. But understand that since it is a scam, the person isn’t losing anything by dropping the price for you. The timeframe is added to the discounted offer to force you to make a rash decision and fall for their scam.
A seller of an authentic business will never drastically drop their asking price and attach a deadline to the deal. They have spent their hard earned money and a lot of time in building the business. Therefore, they want to get the most out of it.
Asks to skip the complexities of an agreement
If there was ever a red flag in a deal this would be it. If at any point in the interaction with a seller, they even hint at skipping signing an agreement of the sale by claiming they are saving you time and paperwork, you need to know it is a scam. There is no deal without the proper paperwork, and the agreement of sale is one of most important items. Don’t settle for just a letter from them handing the business over to you, it needs to be done properly through a M&A firm that is familiar with such complex documentation.
Besides these telling signs, you also need to be aware of which documents the Federal Trade Commission has set for sellers to provide buyers. These documents help buyers make an informed decision and avoid scams.
- The disclosure document: the document has a complete ID of the seller and discloses various information about the business such as ongoing legal actions or lawsuits, informs the buyer of any refund or cancellation policy, provides references, and states any earning claims. To prove the claim of earning, another document must be provided known as the earnings claim statement.
- The earnings claim statement: this document highlights all the earnings that individuals received from the business. It also mentions the period these earnings were received.
The reason why the FTC has made these documents mandatory is to help buyers make an informed decision of what they are purchasing. If a seller refuses to provide these documents chances are it is as a scam. The final word
When it comes to buying a business, you need to be aware that there are many scams out there. This means that when you settle on a few options, do your research. Don’t make any hasty decisions and settle for a business because you feel it is a once in a lifetime deal. You need to make sure that the seller has all the required documents in order. Only then can you avoid getting scammed.
Also published on Medium.