When a big client suddenly offered him $20,000 over lunch to hide a tax evasion scam, accountant Doug Wamsley, 61, knew what he had to do. “I left that lunch and went straight to my attorney’s office,” recalls the owner of Wamsley Accounting in Athens, Georgia.
Wamsley’s attorney helped him come up with a plan to cut off contact with the client immediately, sending letters by certified mail and Federal Express that day to the client, the client’s wife, and his sons, in which the accountant said he was withdrawing his services and to address further communication to his attorney.
Wamsley was fortunate that he had the presence of mind to “fire” the scammer before any damage was done. However, it’s easy for business owners – even those with decades of experience – to get taken by surprise by dishonest clients who hide their wrongdoing and to get hurt by association. While most of us check out potential clients through the usual methods, like Googling, looking at credit reports, asking for references or making subtle inquiries among industry contacts, that isn’t always enough.
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As Wamsley found, sometimes a longtime client can make mistakes that even a seasoned pro would never predict. In others, dishonest types might deliberately deceive you. “Probably the most difficult to perceive is a psychopath,” says Ingeborg Hrabowy, a Cleveland-based business psychologist. “They’re brilliant, charming con artists by nature.”
Fortunately, there’s plenty you can do to protect yourself.
Screen clients carefully. Wamsley meets with each potential client in person and requires them to bring in the last two years of their tax returns for his review. “I go over them in detail and can pretty much assess what someone’s personal situation is,” he says. “I’m interviewing them as a client as much as they are interviewing me to be their tax guy.”
Of course, asking for a prospect’s tax returns probably won’t fly if you’re not an accountant. Kristine Tanzillo, 47, and her husband, Kevin, 61, who run Dux Public Relations in Canton, Texas, do an initial interview to ask potential clients about their needs—and listen carefully for any subtle signs that prospects are giving them inaccurate information or changing facts in their stories. After ending a relationship with a client whom they discovered was citing one set of sales figures to potential franchisees and another to other audiences (and then getting stiffed on the client’s last $20,000 bill!), they won’t take a chance on those who don’t provide consistent information. “We have very high standards,” says Kristine Tanzillo. “We don’t want to be associated with those that don’t match our standards. It hurts our reputation.”
Examine your own mindset. You may be more vulnerable to questionable clients if you feel desperate for business—as many new business owners do—or are eager to prove yourself by winning a big client. Make sure you take an honest look at your own motives before making decisions on whether to work with anyone, so you aren’t tempted to compromise your own values for the sake of money. “Any time you put dollar signs above anything else, you’re going to get hurt at some point,” Tanzillo says. When in doubt, wait before making a decision.
Slow down. In the daily hustle of running a business, it’s easy to skim emails and other documents from clients or prospects and miss out on warning signs that something is fishy. Simply taking time to read new communications from prospects carefully can prevent a lot of damage. Mark Kronenberg, 44, founder of the New York-based tutoring and test preparation company MATH 1-2-3®, once received a faxed exam from someone who wanted help with it. “I thought it must be the previous year’s final,” he says. “Then I looked more closely and it was the current year’s final. It was apparently a take home exam. Of course I told them we couldn’t work with them. We don’t want that reputation.”
Listen to your gut. It’s easy to brush aside concerns that something isn’t quite right with a regular client who’s never caused any trouble. Don’t fall into that trap. Wamsley had worked with the client he fired since 1994 without problems, even becoming friends outside of work, and could easily have gotten blindsided. Fortunately, he paid attention when the client started experiencing turmoil while traveling to Asia frequently for business. “Things started to get wacky in his personal life,” Wamsley recalls. “He got married and divorced twice in about a five-year window.” The final warning sign came the day before the lunch, when the client’s CFO stopped by to say he couldn’t make sense of the firm’s financial records—and that he was leaving to take another job. Because Wamsley had been paying attention to the signs that something was amiss all along, he didn’t hesitate when the time came to act decisively and sever the relationship.
Unburden your employees. Even if you’re wise to the ways that dishonest clients can cause trouble, your team may not be. And in some cases, there are gray areas. In accounting, for instance, it’s possible to take an aggressive approach to filing taxes that is not illegal, Wamsley notes. To open the lines of communication, Wamsley requires his four-person team, which includes his accountant son Jess, 30, to come to him any time they have a concern about any client’s account. “That goes a long way toward having them advise me about questionable stuff. I take that issue away from them and I deal with it.”
Elaine Pofeldt is co-founder of the $200KFreelancer, a site that aims to help independent professionals earn a good living.
Photo credit: John Lund/Sam Diephuis/Blend Images/Getty Images