How to Scam-Proof Your Business When a prospective tax scheme or business strategy sounds too good to be true, it usually is. Here are four of the most common cons that target business owners.
By Mark J. Kohler •
Opinions expressed by Entrepreneur contributors are their own.
I see it too often: A client became caught up in an elaborate business ruse, and as an accountant and lawyer I have to sort through the resulting disaster for them.
They never had to needlessly lose money in this way. Many of us are looking for cash. We're all looking for ways to create wealth and save taxes. But when a prospective tax scheme or business strategy sounds too good to be true, it usually is.
That's especially true in these trying economic times, when the wolves come out in sheep's clothing. There are more crooks out there, and they're looking for an edge. It's a recipe for disaster.
Related: Don't Fall for a 'Vanity' Scam
Here are some of the most common scams you should watch out for:
• The corporate credit "shelf corporation." I have had numerous clients come through my office wondering what they might do with a "shelf corporation" they paid $5,000 to $15,000 for. They were sold on flashy terms like Dunn and Bradstreet numbers, Paydex scores and unsecured credit, and how they would somehow win larger loans by using the shelf corporation name. The truth is there is no short-cut process. Building corporate credit takes time.
• The "I have a deal for you guy." It's called "affinity fraud." A friend or relative tells you that someone in their neighborhood or church has found a "great new business" to invest in, and you should chip in big money, too. On its own, investing in a start-up can be a great idea if you can stomach the risk, but watch out if someone says you don't need a lawyer or makes big promises. Be realistic, and make sure you use a lawyer to properly document the investment. Suing to recoup losses can often prove too costly to make a lawsuit worth it.
• The nonlicensed business coach, or tax adviser. "Coach" is a title someone often uses when they weren't smart enough to finish school and get a graduate degree. Now there are great reasons for "coaching" in certain areas of business, but when they start giving tax and legal advice, watch out. There are a plethora of call center operations that rope would-be entrepreneurs into paying money to talk to someone wearing sandals and a headset who has no business offering tax and legal advice, or doesn't know anything about running a business.
• The bogus state filing fee bill. You register a corporation or LLC in your state, or make the other required filings. Then, all of a sudden you get a piece of mail with a state insignia on the envelope, telling you that you owe another fee. Plain and simple, these can often be a scam. There are so many times I've had clients call me and say, "We got this piece of mail about a state fee. What's this all about?" And I say, "It's a scam. Don't pay it." And they say, "Really?" Don't ignore any notice you receive that looks official, but make sure you get a second opinion.
Unfortunately the list could go on and on. So what's the best way to avoid a scam? Ask for credentials, make sure you understand who is actually going to be doing the work for you or giving advice, perform due, and get a second opinion from a trusted licensed adviser when tax and legal matters are at stake.
If it's too good to be true, it is.
Related: Cutting Out Small Business Attorneys' Fees
