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Business Smarts: Startup Scams to Avoid

Business Smarts: Startup Scams to Avoid

There’s never been a business owner who doesn’t look for some edge over the competition. There are plenty of potential shortcuts out there, though, that offer more risk than reward — or that may be outright scams — just waiting for an opportunity-seeking business owner to fall victim.

The following are some business scams to avoid when you’re looking for a new business opportunity, ways to improve business performance, or even ways to reduce taxes. Engaging in any could end with you losing money, and some could even be red flags for the IRS or other government agencies.

The “Shelf Corporation.”

BBB advises against investing thousands of dollars in a pre-made corporation in hopes of gaining immediate corporate credit. Doing this the right way takes time. If anyone proposes to help you gain instant credit through a “shelf corporation,” it’s probably best to walk away.

Deal of the Century.

Be cautious when a friend, neighbor, or anyone you know offers you a too-good-to-be-true deal. Be especially skeptical if that person says that there is no need for an attorney to get involved in the process. It is generally advisable to consult a lawyer before entering into a business agreement.

Business Coach Services.

There are many reputable business coaches out there, but just because someone hangs out a shingle and claims to be a coach does not mean that they are qualified to give business advice. Be wary of anyone — especially people who are not attorneys or CPAs — who provides legal or tax advice. Ask for credentials and references to ascertain whether or not they have the expertise you need.

State Filing Fees.

In most states, you do have to pay a small fee to file incorporation papers and other legal documents, and that fee typically must accompany the paperwork. You probably won’t receive a bill after submitting your documentation. In most cases, if you haven’t included necessary fees or have done something incorrectly, the filing will be rejected and returned. If you do receive a bill after the fact, it could be a scam. You should contact the state agency directly, independently verifying the number or e-mail address you’re using.

Business Funding Kits.

It is generally not wise to invest in high-priced information on obtaining grants or no-interest loans for your business. You can usually find most of this information yourself at little to no cost using the internet or by visiting a public library. The information contained in these kits is usually too general and inaccurate to be of real use, and it’s often created from publicly available sources.

Phantom Investors.

Be extra cautious if someone approaches you unexpectedly offering to invest in your company.  In this scenario, scammers may “require documentation to verify the investment opportunity,” including financial information such as social security numbers and your bank account number. Scammers can use this approach to steal your corporate identity.

Advance-fee Loans.

Legitimate lenders do not require an upfront processing fee to determine whether or not you qualify for a loan.

Overpayment Retainer.

There are few cases when you should accept overpayment by a customer for your product or service, especially if it’s a customer you don’t know well. Overpayments of this kind can be the doorway to a business scam.


To report a scam or learn about scams trending in Mid-Missouri, get in touch with BBB Columbia.


Sean Spence is the regional director of Better Business Bureau Columbia. 

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