Small Business

How Not to Buy a Bridge


By Karen E. Klein Q: I own a small graphic-design firm that recently was defrauded by a woman "selling" her services as a copywriter/PR person. All her references checked out, but after I paid her bill upfront, she ran. I did an independent background check that found she was an unlicensed business practitioner who had pulled this type of scam before. As a small-business owner, how do I protect myself from being scammed? What are the free services that I can use to do a reference check? -- V.C., Seattle

A: While there's no way to be 100% immune from fraud, experts say that there are some basic business practices that you should implement to safeguard against similar incidents in the future.

First, never pay someone in full before the job is done, particularly when you're working with a company or individual you don't know all that well, says Marsha Bertrand, the author of Fraud!: How to Protect Yourself from Schemes, Scams, and Swindles, published in 1999 by the American Management Assn.

Not only does paying upfront hurt your cash flow, it is dangerous, Bertrand says. The fact that this woman asked you to pay in advance should have made you suspicious, since that practice is highly unusual. The typical subcontract may call for some money in advance -- up to one-third of the total -- with the remainder due on specific dates during the course of the project or upon completion. Even if this woman had been legitimate, paying her in full upfront would have given you no leverage to demand changes if her finished work was late, sloppy, or otherwise off the mark.

UNKNOWN QUANTITY. Second, you checked her references, but you don't say whether you were familiar with the individuals or companies she listed. Were they local firms whose existence and positive experiences with her were verifiable? "Obviously, you should have done that independent background check yourself before hiring her," Bertrand says, "or stick to working with people you know or who come recommended by someone you know."

In order to confirm that someone is properly licensed, check with your local or state licensing agencies. If you're unsure which agency to check with, contact your local Better Business Bureau (you can find it by going to the Council of Better Business Bureaus, www.bbb.org, and clicking on "locate a BBB"). If they can't confirm the license, they can probably provide contact information for the agency that can, says Holly Cherico, the council's vice-president of communications.

Another precaution is asking the businessperson if he or she is affiliated with an industry association, certified in his or her particular field, or accredited by a national association. Says Cherico: "Some associations do extensive background checks and their members must be in business for several years. They also hold members to professional codes of conduct."

CREDENTIALS, PLEASE. In your case, if the woman who approached you was legitimate, she probably should have been affiliated with the Public Relations

Society of America (www.prsa.org), which does have an accreditation process. Do double-check with the pertinent association to confirm that the businessperson is certified or accredited as they claim to be, Cherico says.

Another question: Is the business or individual you're contemplating hiring a member of the BBB? If they say yes, confirm that fact with your local BBB by entering the company's Zip Code and viewing a list of the members in that area. "BBB members must meet and abide by good business practices and have satisfactory records with the BBB," Cherico says. "If a business has generated complaints to the BBB, it would not be able to qualify for membership and we'd have an unsatisfactory report on that business."

If the outfit is not a BBB member, you can still check it out with the BBB, which keeps information about more than a million businesses across the country, including records on company owners, managers, and their histories. "BBBs report on members and non-members alike, and our information is often an early warning sign" of a problem, Cherico says. Click the "check out a company" button on the bureau's Web site and you'll be able to pull up any existing reports on that company. If there have been complaints filed against that individual or business in the past, there should be a record of the complaint there. Have a question about running your business? Ask our small-business experts. Send us an e-mail at smartanswers@businessweek.com, or write to Smart Answers, BW Online, 46th Floor, 1221 Avenue of the Americas, New York, NY 10020. Please include your real name and phone number in case we need more information; only your initials and city will be printed. Because of the volume of mail, we won't be able to respond to all questions personally.


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