Five Strategies to protect your Small Business from Fraud

The great philosopher, Socrates says that no one knowingly commits an evil action: evil is turned into good in the mind. The thief, like the pedophile, who convinces himself the child really wants to make love to him, convinces himself that he has a right to the object he desires. He needs it more than the other does. It is rightfully his.

The Jury is still out on what the true verdict is on mankind's addiction to theft. The reasons are too varied to arrive at any common denominator. However, it is a contemplation we may have to have more frequently going forward; as instances of fraud and theft appear to be gaining momentum in Jamaica and the wider CARICOM community.

Our social construct has evolved to one such where thieves are now affectionately called "choppas" and praised for their fraudulent exploits or "chopping the line". This collective is now actively gaslighting the system (and its main actors) for not providing enough opportunities to advance the welfare of all, which in effect has given license for some to justify their fraudulent dealings.

Entrepreneurship, especially among micro and small business operators, is the engine of the developing world; and it must be protected at all costs. We must endeavor to create an enabling environment for our entrepreneurs to prosper, and continually make adjustments where necessary. I want to offer five strategies that, from my experience, should put you several steps ahead of fraudsters trying to undermine your business. Please note, that these will not guarantee absolute protection from fraud but should minimize instances of and/or improve your response to it:

1. Registering Your Business

This should be your first step after deciding you want to start a business. Being a registered business allows you to establish a legal claim to operate your business in your economy. Operating as an unregistered business is like defrauding yourself, as you are willingly putting your business at risk of being shut down by the State for non-compliance. When you're unregistered you also limit your capacity to build a reputation in your community, thereby limiting your own capacity to scale. Registering your business adds a layer of legitimacy that your customers will appreciate, and will also make it harder for fraudsters to unlawfully operate as agents of your brand.

2. Protecting your Intellectual Property

Intellectual Property (IP) manifests in many forms when it comes to entrepreneurship. Typically, a small business owner's main IP assets are their brands and any inventions related to their product/service portfolio. In Jamaica, the regulatory authority for IP protection is the Jamaica Intellectual Property Office. Through this agency, you can register your IP assets in a public registry, which legally recognizes the official owners of various IPs. But the point I want to emphasize here is the importance of your IP to your value proposition in the marketplace, and why the owner of it is the true power broker. Most likely the product/service you are selling is becoming commoditized, which means your customers are now buying the brands and experiences behind them. Owning your brand is truly owning your business. This is the ultimate protection and the only leverage you need against copycat entrepreneurs who may try to profit off your hard-earned social capital.

3. Drafting a Founder's Agreement

A founder’s agreement, also known sometimes as a partnership agreement, is an agreement signed between the founders of a venture or startup. The agreement is intended to define the relationship between the founders, and the terms and conditions of their partnership and work on the venture. When you start a business with co-founders there is normally an unspoken principle of good faith between you and your other founders. A principle that suggests neither party would ever make decisions for the business to jeopardize the equity and stake of other parties, unless under duress.

But here's the thing, people change as the business changes. It is therefore your responsibility to manage the risk associated with change. Your articles of incorporation or certificate of incorporation alone cannot protect you from this kind of fraud. A special document may be required to reflect unique instructions on how to handle certain events in the business such as death, conflict, or a major capital raise. If an event occurs that is not in your favor, having a founder's agreement helps to neutralize the emotions involved and provide a course of action that is mutually beneficial for all partners involved.

4. 'Dating' your Co-Founders

As the heading suggests, yes it's exactly what you're thinking but also not what you're thinking. When people get married, usually this is a culmination of a long period of dating to establish if strong compatibility is there to sustain the long-term commitment of marriage. Starting a business is almost like getting married, minus the amorous element. You should, at the very least like your business partner for who they are and respect what they bring to the business; and vice-versa. This requires an intentional effort to discover if something is really there. When you skip over this step, you create an avenue for con men/women to sell you the confidence they know you need, with no intention or capacity to deliver. I know this will be hard for my Caribbean readers, given our culture is not very amenable to dating. But this is also why entrepreneurship communities in the first world are doing better than us. They invest more in cultivating strong team dynamics.

5. Creating and Maintaining Contracts

Contracts are important because people are forgetful, yourself included. Imagine having multiple conversations with multiple people at the same time. That's the life of an entrepreneur. There is the social contract you have with your customers that needs to be maintained through consistent conversation with your customers through marketing and promotions to appeal to their wants and needs. Then there is the conversation you are having with your staff to ensure you are realizing the most return on your investment through their employment. But conversations with your suppliers must also be maintained because when you engage a supplier to produce for you there is an expectation that they can and will deliver.

All these conversations happening simultaneously can be a lot to manage and remember, and the moments you falter create opportunities for fraudsters to capitalize. Capturing your engagements through a contract helps to insure your future income from fraudulent employees, suppliers, or customers. It removes the element of hear-say in legal arbitration, making it easier to recognize the liabilities involved and award damages where appropriate.

This list is not exhaustive, as there are many more strategies you will have to consider the deeper you move into business. But I urge you, to consider these few if you haven't already. Entrepreneurship is hard work, physically and emotionally, and you deserve to eat from the fruits of your labor at the end of the season.

© Gerbry, 2023

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Germaine Bryan is an entrepreneur, trainer, and business development specialist with over five years of experience leading, advising, and coaching micro, small and medium-sized businesses in the Jamaican MSME sector. Germaine is a skilled tactician in strategic business planning and has helped hundreds of entrepreneurs optimize their value proposition to realize exponential growth in revenues and customer acquisition. Germaine is a Business Development Adviser with the Jamaica Business Development Corporation (JBDC) and an Adjunct Lecturer of Entrepreneurship at the Mona School of Business and Management. For enquires. please email gerbrybusiness@gmail.com.