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With recent revelations of the K2 Systems Group debacle (see page 7) and the loss of thousands of dollars, printing businesses should be cautious when weighing decisions to purchase equipment, invest in a new business, or hire consultants or experts.
Although the vast majority of business opportunities are legitimate and reliable, there is an unfortunate element in society that seems to prey on many honest and reputable printing businesses. Here are ways to avoid scams in these transactions.
Equipment Schemes
There are many schemes associated with the purchase of equipment or machinery. Before entering into an agreement for the purchase of equipment or machinery, evaluate the source of the equipment. Check into the background of the supplier or manufacturer. Such an examination is essential if your firm has had no contact with the supplier, but the examination still needs to be undertaken with usual sources. This is necessary because even long-standing suppliers may have problems.
Consider obtaining publicly available information concerning the supplier or manufacturer. This process may sound intrusive and costly, but such information may be found on third-party public Web sites and through relatively inexpensive information providers, such as rating agencies like Dunn & Bradstreet and Moody's.
Further, contact available references provided by the supplier, as well as other information sources. This may be the least expensive part of the investigation, however, such information is only reliable if the reference is reputable. As such, using personal relationships is essential if you can.
There are also other ways printing businesses may protect themselves. For example, you may decide to lease equipment. Leasing is usually less expensive than buying, but you must review the lease for any hidden clauses that may create problems with the equipment.
Similarly, obtain equipment or machinery warranties with any purchase. A printing firm does not want to purchase or lease equipment where the manufacturer or supplier does not stand behind the product. If, in fact, the equipment is leased or purchased as is, this can lead to unknown expenses if the equipment needs to be serviced or repaired. Moreover, if the supplier or manufacturer is unwilling to provide a warranty, look elsewhere for service.
Check the Date
Additionally, as a way of ferreting out possible fraud, be keenly aware of any delivery date problems when purchasing or leasing new equipment. If there are problems with the delivery or the manufacturer or supplier cannot provide a definitive date for delivery, this may indicate problems with the supplier or manufacturer. Insist on a definitive date for delivery before making final payment.
You may even consider placing payment in an escrow account to protect yourself in the event the supplier or manufacturer does not ship the equipment. Business interruption insurance may also cover some of these problems.
Financial Fallouts
Many printing businesses are also sometimes the victims of financial fraud. That is, they are presented with business investments and other opportunities promising huge monetary rewards. The problem is that the rewards are non-existent, and no one discovers it until your money has disappeared.
There are several different ways a printing business may protect itself from these unsavory deals. Initially, you should follow Warren Buffet's advice: "If you don't understand it, don't invest."
Some business proposals may be legitimate, but you should delete all Nigerian oil and bank transfer e-mails. Similarly, ignore any investment proposal that requires you to bring in other investors or wants your money for a Prime Bank deal. These offers are typically illegitimate. If it sounds too good to be true, it probably is.
Expert or Consultant Retention
This area is the most difficult to defend against. There are many legitimate experts and consultants, who may add much value to a printing business. However, some so-called consultants and experts may obtain their retainers and then provide little or no service.
Research and decide your needs prior to the retention of any expert or consultant. Essentially, develop a plan before obtaining services, and then find these resources through referrals and business connections.
Once found, your review does not end, ask for references and follow through on this process. Further, if there is a retention, make the expert or consultant aware of your goals and expectations before he or she undertakes the task. If you do not feel the consultant or expert exhibits the requisite response, do not retain the person.
Finally, periodically review the work of the consultant or expert—this is critical in detecting possible fraud because if the consultant or expert is not performing, you may be able to end the arrangement without further loss.
Be ever watchful when presented with new deals for equipment, investments, or experts, because if you drop the ball the consequences may be disastrous.
Ernest E. Badway is a partner with the New York and Newark, N.J., law firm of Saiber Schlesinger Satz & Goldstein LLC, practicing business law where he advises and counsels printing clients on corporate, business, litigation, employment, and many other matters. Contact him at eeb@saiber.com, (212) 461-2323, or (973) 622-3333.
author: By Ernest Badway