WHEN CONSIDERING BUYING into a prepackaged home-based business opportunity, tread lightly upon reading such incendiary phrases as "be your own boss," "work at home" and "earn between $5,000 and $10,000 a month."

In an effort to target work-at-home scams, the Federal Trade Commission and other federal and state agencies brought more than 100 law enforcement actions in 2006 alone. The FTC says work-at-home schemes, which can range from stuffing envelopes to assembling trinkets, cheat consumers and investors out of hundreds of millions of dollars each year.

Most recently, the FTC settled charges with two businessmen in Minneapolis who allegedly duped more than 1,300 investors into paying between $5,000 and $25,000 for dealerships to sell business cards and other materials.

According to court documents, the defendants—who used Internet and classified advertisements, telemarketers and income-projection spread sheets—claimed that dealership purchasers could recoup their initial investments within three to five months and earn $150,000 in their first year. In reality, according to the commission, "the vast majority of dealers fail, and do not earn significant profits from their business ventures."

The FTC's biggest complaint in this case, and numerous others, dealt with the amount of earnings that dealership purchasers could "reasonably" expect to return. People need to think: "If it is that profitable, why would they share it with you," says Virginia Wilson, a business development counselor for the Small Business Development Center at the University of Missouri-St. Louis.

Many home-based business opportunities are perfectly legitimate. Business owners offer to supply representatives with real products and train them to sell their quality goods effectively. They do exactly what their advertisements claim and provide proper disclosures along with comprehensive business and company information. Some, however, peddle nothing but fake products and empty promises. To avoid home-based business scams—which are plentiful, especially on the web—be skeptical of would-be business offerings and proceed only after taking the necessary precautions.

Here are a few pointers:

Inspect ads carefully. If an ad claims that purchasers can earn a specific level of income, by law, it must also provide a number and percentage of previous purchasers who achieved similar earnings.

Get earnings claims in writing. According to the FTC, if the business opportunity costs $500 or more, then the promoter must supply a written document containing both an earnings claim and the number and percentage of recent clients who've earned at least as much as the promoter suggests.

Look for disclosures. If the business you bought into is considered a franchise, under the FTC's Franchise Rule, promoters are required to provide a franchise disclosure document to potential purchasers. This document should contain a statement about previous purchasers as well as information regarding lawsuits alleging fraud.

Meet previous purchasers face to face. Business-opportunity promoters are required by the FTC to provide the names, addresses and phone numbers of at least 10 prior purchasers who live in proximity to potential purchasers. "Don't just call previous purchasers," warns Martin Lehman, a New York-based adviser for SCORE, a group that assists small-business owners. "They could send you all their friends." Instead, try to interview previous purchasers in person.

Research the company. To find out if a company has a record of unresolved complaints, go to the Better Business Bureau where you live and where the business opportunity is based, says Dan Lohrmann, chief information security officer for the state of Michigan. Also, head to the state or county consumer protection agency or contact the attorney general's office. Joining a local chamber of commerce and various other organizations that have expertise in your field of interest might also be helpful, suggests Lohrmann. "They may know who the players are in your respective industry" and what to look out for, he says.

Get wise to fake products. If the business involves selling products from well-known companies, find out if that company and the business-opportunity promoter have a relationship or any trademark disputes. One way to do so is call the legal department of the company whose merchandise you'll be promoting. Otherwise, "if you're selling fakes, eBay [or some other shopping outlet] will shut you down," says Lohrmann.

Consult experts. If the opportunity does require an upfront payment consult an attorney, accountant or other business advisor before you put any money down or sign any papers. If you can't pay via Visa or MasterCard, for example, that might be a red flag, says Terri Murphy, general manager of MoneyFromHome.com, a screening service that filters out home-business and work-at-home scams. "Maybe the company couldn't get approved as a regular Visa or MasterCard merchant," she says, which could be a sign it's not legitimate.

Be patient. As you investigate the company, take your time and let business promoters know what you're up to, says Lehman. If they really are unscrupulous, they may back off if they know you're investigating," he says.