Laura was a new hire, alone at the office of a flooring firm. She received a call saying the power bill was unpaid and service would be disconnected imminently. She was instructed to rush to a particular convenience store and pay the bill in cash. She phoned her manager, and together they quickly mapped out how to handle the payment. The bank recognized this familiar utility scam pattern and flagged the transaction when cash was being withdrawn.
In hindsight, the warning signs were obvious to Laura and her manager. But fraudsters intentionally create panic so people don’t pause and evaluate the situation.
Launching a business often demands enormous time and attention. There are countless small tasks to manage, and scammers exploit that. Schemes aimed at small firms and entrepreneurs have siphoned off billions in recent years.
Scams cost consumers and businesses nearly $8.8 billion in 2022, a 30% rise from 2021, which itself had jumped 70% from 2020. While the total number of incidents fell, the dollar losses soared. Every business proprietor must stay vigilant.
On average, small companies lose about $150,000 and nonprofits around $75,000 to fraud and scams.
How to Prevent Small Business Scams
There are many widespread schemes targeting small businesses. Below we’ll explain common scams, how to spot them, and steps you can take to avoid most of them.
Scam Terminology
Understanding a few key terms will help you recognize scams.
Phishing and Smishing: Fraudsters aim to obtain personal details like Social Security numbers, passwords, and bank account data. Phishing uses email to trick people into revealing this information, often by pretending to be trusted individuals or organizations. Smishing is the mobile version (text messages), where tapping links can also infect your device.
Spyware and Malware: Clicking links in suspicious emails or texts can install spyware or malware. Spyware records keystrokes and activity to enable identity theft. Malware can corrupt or lock your data, enabling hackers to extort you or gain access to accounts.
Spoofing: Scammers alter the caller ID so the call appears to come from a familiar or legitimate source.
Fake Profiles: Scammers create phony online identities to make you believe they are someone they are not.
Types of Small Business and Entrepreneur Scams
Scammers exploit inattention and trust, manufacturing urgency and fear so people act without thinking. They also make offers that seem irresistible, preying on vulnerabilities.
One motive is to steal your business’s identity. With that information they can access your bank and credit accounts or open new accounts in your company’s name. Be cautious about sharing your TIN (tax ID) and other financial identifiers. Some scammers even attempt to undermine your business to give competitors an edge.
Below are several prevalent scams you should watch for.
Imposter Scams
Imposter scams come in many forms — email, bogus invoices, fake Docusign prompts, phone calls, or texts. They can approach you from any angle.
Here’s an excerpt from an email that included a $360 Bitcoin invoice:
We sincerely appreciate your confidence in our products and services, and we will use every effort at our disposal to make dealing with us a positive experience. You’ll feel more at ease when you know that our devoted support staff is available to you if you have any questions, require further details, or require any other help.
Let’s break this down. Multiple red flags appear — the tone is overly effusive for typical business correspondence, the sender’s name doesn’t match the email, and the support phone number traces to Australia.
Document Scams
A rising variation of imposter fraud is the Docusign scam. Here’s the scheme: you receive a document allegedly sent via Docusign. Links may look legitimate, but if you hover over them (don’t click!) the URL can reveal a different destination. If you suspect a Docusign message is fraudulent, contact the company directly and report it.
Fake Invoice Scams
Scammers send invoices that appear to come from a trusted company or familiar email address. While the display name may seem right, subtle differences usually exist. For example, an email might come from @thepenyhoarder.com instead of Penny Hoarder.
How does this happen? Scammers identify businesses you partner with via social media or educated guesses, then build a website that imitates the legitimate vendor. When you pay the bogus invoice through that fake site, they capture your credit card or bank details.
They may also send merchandise you didn’t order and demand payment. You are not obligated to pay for products you didn’t request, nor to return them.
Utility Scams
One of the fastest-growing fraud types, utility scams typically take two forms. The most common is the call warning that services will be shut off unless immediate payment is made at a specified location.
Another variation involves scammers posing as government or private assistance programs offering to pay utility bills. They’ll ask for credit card info, account numbers, or passwords to “help.”
Phishing, Ransomware and Other Email Scams
These attacks can devastate a business. Since much of your operation is digital — communication, accounts, billing — criminals target that infrastructure. Be cautious when opening messages and clicking unfamiliar links. Phishing is like fishing: scammers cast out emails instead of bait to see who bites.
Scareware
Scareware presents false popups claiming your computer has issues and urging immediate help. If you call, you’re connected to a scammer who will steal money or personal data.
Ransomware
Ransomware locks or encrypts your files and demands payment for release. Maintain backups of critical data on separate devices to reduce risk.
Pharming
Pharming installs malicious software that redirects you to counterfeit websites designed to steal your login credentials. You may think you’re visiting a legitimate site, but you’re not.
Fake Directory Scams
You might receive a tempting offer to list your business in a directory but must act quickly. Often it’s a scam: the offer may be “free” yet they request credit card details to process it. The directory might not exist, or the people contacting you may not represent it.
Fake Reputation Repair
Scammers promise to fix bad reviews, boost social media followers, or improve search rankings. (Reputable reputation management firms can help with some tasks, but claims of altering reviews are a red flag.)
These fraudsters will take your payment and perform little to no work, potentially seize your domain for ransom, or create issues then charge exorbitant fees to fix them. Always vet reputation management services thoroughly.
Investment Scams
Investment fraud accounted for $3.6 billion of the $8.8 billion lost in 2022. Entrepreneurs need to be especially careful.
Investment cons often begin with offers to teach you tricks for quick profits in real estate or financial markets. They use fabricated success stories and false testimonials.
They may lure you into a free seminar, then pitch paid coaching that supposedly enables you to quit your job and live off investments, or promises an instant real estate income surge with their “unique” training. The FTC provides solid resources for spotting these scams.
Scam Prevention Tips
There are common warning signs for scams. The simplest defense is attention to detail. Establish policies to reduce scam risk and curb internal fraud.
Never comply with requests to pay via cash, gift cards, wire transfers, cryptocurrency, or other untraceable methods. Be suspicious of anyone creating urgency or pressure to pay immediately. Business emails should follow the CAN-SPAM Act rules: label ads, avoid deception, offer opt-out choices, and include a valid postal address.
Legitimate government agencies and companies will not request passwords or account numbers by email. Never send sensitive information like passwords or Social Security numbers over email.
Imposters can mask their true email addresses. Inspect the actual sender address, not just the display name. Only enter information on websites that begin with https — not http.
Never click or download attachments from emails or texts asking you to verify information.
Carefully review invoices. Is the bill genuinely from a vendor who provided goods or services? Are all line items accurate? If payment or account details change, verify the update using previously known contact information.
Don’t provide a credit card for a so-called free product. Offers that seem too good to be true usually are.
Billions in scams occur annually, but many are preventable. A healthy dose of skepticism can save you significant money. Be aware of consumer-targeted schemes too, such as rental scams, Marketplace scams, and many others.
Savinly contributor JoEllen Schilke writes about lifestyle and culture. She previously owned a coffee shop in St. Petersburg, Florida, and has hosted an arts program on WMNF community radio for nearly 30 years.
