Top 10 Scams and False Promises Small Businesses Must Watch Out For
[This article was written by Jane Koval.]
Running a small business is hard at the best of times. There is a multitude of challenges you have to overcome in order to become successful. And those challenges will never stop because you have to keep the business growing and evolving to stay at the top. Unfortunately, it’s not only common startup mistakes you need to watch out for. There are quite a few scams and traps that can crush your small business fast. You should know what those are so you don’t get ensnared in these false promises and outright lies.
1. Out of the blue small business awards
Being an award-winning business increases your credibility. Therefore, this can help you both attract more customers and increase conversions. Moreover, this factor can influence customer loyalty.
This considered, you definitely should work hard to win awards relevant for your industry and gain recognition through them. However, you also need to be wary of award notices that appear in your inbox out of the blue.
These are usually a type of email scam. You’ll be presented with an e-documents package that states your company won some award but that you need to pay some fee before you receive it. This request can be presented in many different ways, but the point is always the same. Someone will demand you pay money to get an award and the credibility boon it offers.
Realistically, you will just waste your money on a scam.
One of the most efficient methods to avoid this particular lie is to research industry awards relevant to you. This way you’ll know exactly how you can get them.
2. Insurance that’s too good to be true
Good small business insurance isn’t cheap. For example, the average yearly premium for general and professional liability in 2021 is around $1,660 and workers comp is $3,085.
However, quite a few business owners will see promises of much more affordable policies. These are what you should be wary of. In the business of insurance if a deal seems to be too good to be true, it really is too good to be true. Even a company that looks completely legitimate and trustworthy might sell you a policy that will leave you wide open when a disaster strikes. Reading the fine print on any insurance contract is a must.
3. Small business loans with guaranteed approval
One of the false promises that often attract small businesses are offers of loans with the so called “guarantee” for approval. These claims state that even businesses with bad credit scores can apply and they will definitely get the financing they need.
However, the truth is that no legitimate lender will offer guarantees for granting a loan prior to considering your application. It’s true that some lenders can offer unsecured loans even to businesses with poor credit. But these loans will have insanely high interest rates and often rather restrictive payment terms.
Overall, a loan like this might be able to bankrupt your business. Therefore, you should always focus on finding a legitimate lender that gives you reasonable terms. If it’s not possible, reconsider your business plans.
4. Office supplies that you’ve supposedly forgotten about
Calls to your office with a request to pay for a delivery of office supplies that you’ve somehow “forgotten” are a common scam. These scenarios can be rather creative and conmen who pull them off are experts in confusing people.
A way to guard against those is to ensure that people managing your bookkeeping and authorizing payments know exactly what must be paid and to whom.
5. Unsolicited online directory updates
Another con small business owners might fall for comes from sources that seek to add your business to their online directory. These offers come with a list of advantages that being listed in the directory can bring you. Admittedly, some of these offers are very tempting.
But this offer will require some important information from your business. Disclosing it might give the scammers tools to steal your data and money. Be sure to avoid such offers unless you are 100% sure it comes from a legitimate source.
6. False invoices
Imagine a situation where a customer applies to you for a refund because they mistakenly made a larger payment than necessary. This can actually happen in real life. However, in the majority of cases this is a popular scam.
You will see the invoice and send out the difference to the customer right away. However, that invoice then will bounce and never turn into an actual payment. The way to avoid this scam is to be hyper-vigilant and always check the client’s ability to pay. Ideally, you should avoid making any refunds until the customer’s check has cleared.
7. Valuation for selling your business
Valuation fraud is another scam that relies on an offer of business evaluation and promises that your company can be sold for a hefty sum. In this case, the perpetrators will have you pay for an evaluation, which will be useless to you. Also, they might send you someone with legit-looking paperwork in regards to the offer of purchase. At this time, the frauds will try to get a large down payment from you.
Doing your due diligence is the way to go here. Never pay anyone without checking that the service they offer is legit and actually important for your business right now.
8. Marketing solutions that will make your business instantly popular
It’s true that there are short and long-term marketing strategies. And some of them can bring you some good results rather quick. However, there is no some kind of “miracle” solution that will make your business popular overnight.
Steer away from apps that promise immediate results. Also, avoid any agencies and content creators that “guarantee” provide you with viral content. Virality is rather rare and hard to achieve. Even if you should be lucky and have some piece of your content go viral, it won’t do you much good without a comprehensive marketing strategy.
9. Multi-tasking employees are the best
Small businesses often fall into the trap of believing they don’t need many employees. It’s true that hiring a lot of people is almost impossible for a startup. Therefore, you have no choice but assign multiple tasks and roles to your employees.
However, do not forget that multi-tasking actually decreases productivity. There’s evidence that it can even lower one’s cognitive abilities. Therefore, be sure to hire enough people to manage all essential tasks.
10. Using a legal app is enough
Finding a trustworthy and experienced lawyer is essential for any small business today. This doesn’t mean that you must have them on retainer. However, you have to know whom to turn to whenever you need a legal consultation.
It’s true that some websites and guides you can find online can be extremely helpful in understanding the legalities of running a small business. The same goes for legal aid apps that basically offer similar information.
However, no guide, regardless how good, can replace a consultation with an experienced attorney. Therefore, while you can and should use these solutions to expand your knowledge of legal matters, you also should make an appointment with an attorney for any serious issues. This will definitely help you avoid potentially devastating problems. Moreover, consulting a legal expert might help you develop a more efficient business plan. That’s because you will be able to use their understanding of the laws and benefits small businesses could get.
Jane Koval is a freelance writer. Her interests range from the latest e-Commerce trends to traditional folk culture and adventurous traveling. She always stays open to new ideas and expertise to make her writings handy and captivating for the readers.