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Scammed!

Cons targeting homebased businesses are on the rise. Here's how not to get taken.
June 1, 1998
URL: http://www.entrepreneur.com/article/15774

Peggy Alderman knows the value of added spice. After all, she had been concocting salad dressings for 30 years before successfully starting a business marketing her homemade Russian, ginger and huckleberry salad dressings. But some spices in business life aren't quite so pleasant, as Alderman discovered when Coeur d'Alene Dressing Co., the Rathdrum, Idaho, homebased business she runs with her husband, Don, received an unwelcome little zing of its own.

Last July, Peggy received a call from a saleswoman who said she represented a Minneapolis-based Web site development company. Would the Aldermans like to have a presence on the Web? Certainly, Peggy said. She was interested, even though she had no idea how the saleswoman got her name or that of her business, which was barely one year old at the time. She was told to send a business card, and the company would create a rough Web page she could review.

Within a week, the Aldermans received a bill for $375, even though they had never given final approval for a Web page to be created and posted. They were also told that if they could get a check to the company by August 5, they would be eligible for a $50 discount. What's more, their homebased business didn't yet have Internet access. "I had no way of checking it out," Peggy recalls. "She said it looked really nice. I said I hadn't given the go-ahead."

The Aldermans refused to pay, even after receiving four bills. Finally, they told the company they would contact an attorney. According to Peggy, the company's representative indicated they would do the same. Only after threatening to alert their state's attorney general and a national consumer advocacy group did the Aldermans get the company to leave them alone. A call to the company in Minneapolis for its side of the story revealed the firm's number had been disconnected.

They Know You're Home

Scams and con schemes can come in the most innocent-looking packages, from a random unsolicited phone call or a fake invoice to an interesting offer of new work. Anecdotal evidence suggests scams targeting homebased businesses are on the rise. How can you protect yourself? Consumer advocates say the best way is to be assertive, vigilant and inquisitive when an unknown business entity comes calling with the prospect of a sweetheart deal.

"This is happening day in and day out," says Alice Bredin, a small-business advisor on the American Express Small Business Exchange, a community-based Web site. "A lot of homebased business owners have worked in corporate jobs where a lot of things have been taken care of for them. They're used to focusing on what they do well." When it comes to running a business, however, bookkeeping, client contracts, billing and new ventures all deserve equal attention, forcing homebased entrepreneurs to make decisions in unfamiliar areas.

"We're seeing more people starting homebased businesses," says Shirley Rooker, president of Call For Action Inc., a nonprofit consumer complaint hotline. "Any time there's expansion in an area, the potential for fraud rises."

According to a report from the Virginia Cooperative Extension, a joint program through which the state's universities help residents establish homebased operations, the National Consumer League estimates more than $200 billion is lost to homebased business scams and fraud each year. The Federal Trade Commission estimates the average individual who invests in such schemes loses between $5,000 and $10,000.

The Players

The problem is, the tricks often come fast and furious. Bredin says many scammers send fake invoices, often for an ad the entrepreneur never placed. "They're hoping the entrepreneur won't be looking closely at the bill," she says. "You'd be surprised how many of them actually get paid." The bills can be quite clever, too, including such items as fake copies of an ad.

The very nature of operating a homebased business can invite problems. Part-time workers, especially bookkeepers, might be con artists in disguise. "A lot of embezzlers pose as bookkeepers," Bredin says. "You might think they're sweet people with great references who seem to really care about you and your business, but they could very well be scammers." Check-forging and signature-tracing are among the methods such individuals employ.

Some con schemes are much more complicated. Frank E. Rudewicz, director and counsel at Decision Strategies/Fairfax International LLC, an independent investigative consulting firm in Hartford, Connecticut, tells tales of fraudulent operatives issuing letters asking for credit card numbers, con artists offering phony Yellow Pages ad opportunities, and schemes to get free merchandise on credit. Homebased business owners need to be on guard. "Just because you're enjoying the convenience of working at home doesn't mean you put your practical business [sense] aside," Rudewicz says. "Often, you have to be even more professional because you don't have the resources available to you that you may have had [while working at] some other company."

In a world where new offers and ventures pop up on the Internet daily and face-to-face contact is increasingly rare, consumer advocates and advisors suggest taking the time to investigate an offer before spending any money. "Don't conduct business with a new customer based on one source," says Rudewicz. "If they give you a reference, check it out. Don't take their word for it. If you get information over the Internet, don't take it at face value."

That means getting addresses and checking out locations. How long has the person or business operated at their current address? Is a party that claims to be a manufacturer setting up shop in a residential area? Is a thorough list of other customers available, and can they be contacted? These are obvious warning signs, says Rudewicz. Scammers, he adds, "don't like to give out phone numbers. They will beat around the bush to [avoid giving] out concrete information." Asking such questions takes such tricksters by surprise; the more specific your questions are, the less your chances are of becoming a victim.

To counteract potential fraud from new employees, have your accountant examine your accounting procedures for vulnerabilities. "It's a matter of asking, `If someone wanted to embezzle something from me, given my current system, what steps should I take [toward prevention]?' " Are checks stored in a secure place? Who has access to check listings and bank balances?

The Aldermans didn't think to take such precautions when they first considered selling their salad dressings on the open market. After the scam attempt, Peggy says she's grown more cautious. Never again will she let a fast-talking salesperson pressure her into striking a deal without allowing her the time to check things out.

Peggy says she's learned to be careful. Her experience with the Web site sales company "could have been an expensive lesson," she admits. "Fortunately, it turned out for the best."

Red Flags

Scams come in many forms--some come over the phone, others arrive via mail. Consumer advocates, security experts and the Council of Better Business Bureaus Inc. advise small-business owners to scrutinize solicitations before making any agreements or, more important, forking over any money or merchandise. Here's some other advice to follow:


Brian Steinberg is a New York City writer who has contributed to The New York Times and The Washington Post, among other publications.