Business owners are forever seeking new opportunities to expand their operations – a characteristic key to entrepreneurial success. However, where there are people seeking opportunities, you can bet there will be fraudsters looking to scam them out of their hard-earned funds. One only needs to do an internet search including the keywords “businesses scammed” to see how common this is.
Most recently, a host of new scams against businesses have begun to emerge, specifically connected to the COVID-19 pandemic. While veteran business owners have likely learned how to steer clear of these scams through experience, the warning signs may not be as clear for first-time entrepreneurs.
With this in mind, here are some of the most common warning signs that your latest “opportunity” might just be a scam.
1. The returns are too good to be true
Business owners are often presented with opportunities to invest in new ventures or products. One of the first signs that these opportunities are not genuine, is if they offer much bigger returns than any of their equivalents in the market. Another major red flag is if you are required to invest and encouraged to draw in more investors to the scheme or opportunity. These are some of the most obvious signs of a pyramid scheme and are best avoided at all costs.
2. Payments are transferred through countries you don’t regularly do business with
Embezzlers often rope unsuspecting businesses into their schemes through new partnerships or agreements between businesses. They then use these arrangements to transfer company money overseas to launder it, then return it to a personal bank account with a muddled trail. Being caught up in a scheme like this can end with you having to close your business, and even facing criminal charges.
Do your due diligence and have any new contracts thoroughly scrutinised. Also do not allow yourself to be rushed into signing new contracts – no matter how promising they look. Review your bank statements and books at least once a month, and if money is going to or from a source that you are not familiar with, ask questions, get clear answers, and ensure that your company is not being drawn into shady dealings.
3. Employees deal with vendors without going through the right channels
Internal fraud can be a business-ender, and fraudsters within your own company can end up stealing millions from you or your clients before they are caught. Often, criminally inclined employees can bypass normal checkpoints to set up deals with fraudulent vendors by going over the heads of management and pocketing the cash.
To avoid this, ensure you have the right policies in place. All business deals should require the approval of multiple managers, and invoices must be approved by more than one individual in the finance department. In addition, regularly check your books and confirm the bank account numbers that your payments are being made to and from.
4. Unrealistic franchising and expansion opportunities
If you are approached by a company that is offering you an opportunity to become a franchisee, ask the right questions and get to know their business. Otherwise, you could be duped into buying rights and/or assets at great cost, only to find that these are worthless to your business. Consult an expert or relevant industry body whenever you are approached for new business opportunities, and do not make any decisions hastily.
By nature, scam artists are extremely creative, and the above list is far from exhaustive. However, keeping an eye out for these common red flags is a great start to steering clear of business scams.