Truth in advertising: the basics every small business should know

You don't need a law degree to advertise honestly. But it helps to know the handful of rules that trip up small businesses, because a careless line on a flyer, a listing or a website can turn into a real problem. This guide covers the core of what the Federal Trade Commission expects, using its own small-business FAQ.

The three big rules

Under the Federal Trade Commission Act, according to the FTC:

1. Advertising must be truthful and not deceptive.
2. You must have evidence to back up your claims.
3. Ads can't be unfair.

On top of that, every state has its own consumer protection laws covering ads that run there. So the federal rules are a floor, not a ceiling.

What makes an ad deceptive

The FTC calls an ad deceptive if it includes a statement, or leaves out information, that's likely to mislead a reasonable consumer and is "material," meaning it matters to the decision to buy.

A few things about how the FTC looks at this are worth knowing:

• It looks at the whole ad, not just individual words. Pictures and context count.
• Implied claims count too. The FTC's example: "kills the germs that cause colds" implies the product prevents colds, so you'd need proof of that.
• What you leave out counts. If leaving something out creates a false impression, that can be deceptive.
• Proof comes first. The FTC says advertisers must have proof before the ad runs.

How much proof you need

Before you run an ad, you need a "reasonable basis" for the claims, which the FTC describes as objective evidence. At minimum, you need the level of evidence you say you have. If you say "two out of three customers recommend us," you need a reliable survey that shows it.

Two points from the FTC's FAQ surprise people:

• Letters from happy customers usually aren't enough to support a claim that needs objective evaluation, like a health or safety claim.
• A money-back guarantee doesn't replace proof. You still need evidence for what you claim.

The FTC pays closest attention to health and safety claims and claims people can't easily check for themselves. "Our water filters remove harmful chemicals" or "this will cut your energy bill by 25%" need solid backing. Subjective claims people can judge themselves, like "great taste," get less attention.

Claims local service businesses commonly make

Think about the lines that show up on trucks, listings and websites:

• "Licensed and insured." Make sure both are true and current, and that the license covers the work you advertise.
• "Certified." Name the certification if you can, and keep it current.
• "Best price guaranteed" or "lowest prices." You need a basis for that, and if there's a guarantee, its terms need to be clear.
• "Same-day service." If that's only sometimes true, say so.
• "Removes radon," "eliminates mold," "safe water." Health and safety claims get the most scrutiny. Be precise about what your work does and doesn't do.

Fine print can't fix a misleading headline

The FTC is direct about disclosures. When you need qualifying information to keep an ad from being misleading, it must be clear and conspicuous, so people actually notice and understand it. A tiny footnote, a disclaimer buried in unrelated text, or one that's easy to miss online isn't likely to work. And fine print can't contradict the main claim.

The FTC's guidance for effective disclosures: plain language, placed close to the claim it qualifies, without tiny type or distractions. The same rules apply online as in print.

"Free," sales and guarantees

• "Free." If a free item depends on buying something else, the FTC says you shouldn't raise the price of the thing being bought, and the terms should be clearly disclosed near the offer.
• Sales and comparisons. The same truthfulness standards apply to "sale" prices and price comparisons. A "going out of business" sale, the FTC notes, is only for businesses actually going out of business.
• Guarantees and warranties. If an ad mentions a guarantee or warranty, the FTC says it should clearly tell people how to get the details and disclose major conditions, like time limits.
• Bait and switch is illegal: advertising something you don't intend to sell so you can push something pricier.

Testimonials and endorsements

The FTC says endorsements must reflect the honest experience or opinion of the person giving them. Customer testimonials should reflect what customers typically experience. If a testimonial shows unusual results, you need to clearly disclose what people can generally expect. The FTC specifically says "results may vary" isn't enough.

You also have to disclose any material connection, like an employee, relative or paid endorser. Since October 21, 2024, the FTC's rule on reviews and testimonials adds civil penalties for things like fake testimonials and undisclosed insider reviews. See how to ask customers for reviews the right way.

If you hire someone to do your ads

The FTC notes that advertising agencies can be held responsible for misleading claims too, and should independently check the support for what they write. That doesn't let you off the hook. Read what's going out under your name.

A pre-flight checklist for any ad

1. Could a reasonable customer take away something that isn't true?
2. Do you have evidence for every factual claim, express or implied, before it runs?
3. Are any needed disclosures clear, close to the claim and easy to understand?
4. If you say "free," "sale" or "guaranteed," are the terms clear?
5. Are testimonials real, typical and connections disclosed?

Frequently asked questions

Will the FTC review my ad before it runs?

No. The FTC says its staff can't clear ads in advance, but it publishes guidance at ftc.gov.

Does the FTC go after small local businesses?

The FTC says it concentrates on national advertising and usually refers local matters to state, county or city agencies. That means your state attorney general or local consumer office is often the one that acts locally.

What happens if an ad is found deceptive?

Remedies can include orders to stop, civil penalties, refunds and corrective advertising, depending on the case.

This guide is general information, not legal advice. For specific claims, especially health or safety claims, talk with a lawyer.