Too good to be true?

Many people heading into retirement look to home-based businesses to supplement their retirement income or to generate extra cash to invest before retiring. Some people start their own, while others look to larger organizations for income-generating opportunities.

If you’re considering investing in a home-based business led by a larger organization, here’s what you should consider.

Is this too good to be true?
It sounds like a simple enough rule, but hundreds of people still respond to scammers who offer quick cash or thousands of dollars for few hours of work. Consider each opportunity from a business perspective. Who is paying high wages for this level of work and why? If you can’t answer those questions, it’s probably not a legitimate business.

If the company offering a home-based business opportunity appears to be calling from a 1-900 number or requires you to send money in order to receive more information, don’t waste your time and money. It’s almost always a scam.

Pyramid scheme or MLM?
MLMs, or multi-level marketing businesses, are popular choices for home-based business Some are legitimate business opportunities. Unfortunately others are pyramid schemes, where only a few people make money.

MLMs generally work on a commission basis: you sell a product or service and in return you keep a portion of the sales. So does your immediate manager or the person who recruited you, and sometimes so does the person above them. This allows people to make money not only on the items or services that they sell, but on the items that people they have recruited sell as well.

As long as most of the money is made from selling the actual product or service, the business is probably legitimate. But if most of the money comes from a “signing up,” “opportunity,” “investment,” or large “training” fee, then it’s likely a pyramid scheme. Do your research into the company before you get involved. And be very skeptical of any company that requires an investment of thousands of dollars in inventory, or a fee for the opportunity.

Some resources around MLMs and to avoid pyramid schemes:
MLM Watch: http://www.mlmwatch.org/
Pyramid Scheme Alert: http://www.pyramidschemealert.org/
Competition Bureau of Canada: http://www.competitionbureau.gc.ca

Do you believe in the product or service?
The siren call of cash can lead people into all sorts of things. Don’t just look at how much money you can make – look at what you will be spending your time doing or selling. Although it’s possible to be successful at something you don’t enjoy, the chances are much lower than if you are investing your effort into something that you think is valuable.

Is training and support provided?
Although you don’t want to have to pay big bucks for it (as in a pyramid scheme), training and ongoing support is important in many, if not most, businesses. What start up training is provided for new members? How does the parent company communicate with its staff/franchise owners? How will you find out about promotions and new products or services?

Is there a market you can access?
Also consider the long-term viability of your business. Many people start a business, but once they’ve sold the product or service to their family and friends, they are at a loss. How does the company support you in marketing, and how will you acquire new customers? How many other people in your area are doing the same thing?

What are the start-up and ongoing fees?
Take the time to really crunch the numbers. Do you need to buy a sales kit every time a new line comes out? How expensive are the “tools of the trade?” and do you need to keep buying official supplies going forward? Will you need additional space in your home, or special equipment? How much will transportation cost? All of these costs are important.