California Small Business Blog

Is Auto Insurance Required for Your Small Business?

The easy answer is no. You are not required to carry insurance to own a small business. It is recommended, but not required. (There are some exceptions for businesses that must carry insurance, but if you are in one of those businesses, you know it.)

Of course, there are no hard and fast rules. If your business owns a car, you need to have auto insurance. If your employees are going to drive for you, you SHOULD have auto insurance. If you drive your own car for business, you SHOULD have auto insurance.

Why? The first one is easiest. If the business owns a vehicle, you must insure it because California law requires the owner of a car to insure the car. So, you must insure it. If your employees are going to drive for you, you do not need insurance, but if they drive their car, and they are not adequately insured, the person they hit may sue you. If you drive your own car, and it is insured, you should have auto insurance because your personal policy may not cover you for damage that occurs when you are in an accident while working.

Insurance is one area where you may want to hire someone to help you figure out what insurance is required, what you should have, and what you do not need.

Another Reason to Hire A Lawyer

I received an email over the weekend from someone who needed help with a legal issue. His problem was pretty straight forward and I probably could have helped him resolve it. But..................you knew there had to be a but.

In this case, he hired a non-lawyer to help him with his issue. The non-lawyer has not done what needed to be done. And now to clean up the problem, its a lot more work. I can probably get it done, but what would have cost  $1,000 or so, is now going to cost $5,000 or so.

Moral of the story: When you need legal work done, hire an attorney.

Workers Comp Fraud

No, you wont see any videos on Dateline NBC or 20/20 or any other news show. This is not your typical worker caught on tape fraud. This is workers comp fraud by an employer.

A Marin County, Calif. roofer failed to accurately report his payroll. He was charged with insurance fraud as a result. How is this insurance fraud?

This is a bit different. Workers compensation insurance rates are set by your payroll. As your payroll goes up, so does your workers comp premiums. But, it requires self reporting. You may be audited by your insurance company, but they cannot audit everyone.

In this case, the roofer underreported his payroll. This kept his premium artificially low. The insurance company caught on and the charges followed.

The moral of this story is to make sure you are accurately reporting your payroll.

Employees and Cell Phone Usage

Many of you may have field reps, some who sell, some who do repairs. They probably carry a cell phone to keep in touch with the office, call for back up help, order supplies, and get their jobs done. The cell phone, it appears, is a vital part of business in the 21st Century.

Now, not surprisingly, along comes a report from the Insurance Institute for Highway Safety that cell phone users are 4 times more likely to be involved in an accident. And, the interesting part, "The report also noted that, contrary to public opinion, using a hands-free phone did not reduce the risk of injury." That's right - the hands-free does not reduce the risk of injury.

What is a business to do? First, you may want to have a driver's safety program. Even if your employees use a cell phone, you may be able to limit your exposure to punitive damages (not covered by insurance) if you have a driver's safety program. Second, encourage your employees not to use a cell phone while driving. They should pull over to use the phone. Third, if you do not have employees using the cell phone, ask your insurance company for a discount. Now their research supports the decrease in accidents and that should save money for you!

Employee Fraud - and steps to minimize your risk

I read this story tonight on BusinessWeek's SmallBiz page. Its about a guy who had spent his life building up a small business. Turns out he was being defrauded by his bookkeeper. He lost $70,000, had to pay late fees, hire 2 attorneys, a forensic accountant, and ended up alienating his employees. You have to feel for him.

While you can never prevent something like this from happening, there are some steps you can take to reduce your risk:

1. Put money controls in place. One person should not be responsible for keeping the books and writing the checks.
2. You, and no one else, needs to look at the books at least quarterly.
3. Your bookkeeper and accountant should be two different people - even if you have to outsource it.
4. All bills should be reviewed by you prior to payment.
5. Your credit report should be pulled quarterly, and if you have a Dun and Bradstreet report, pull it every 6 months.
6. Background checks, and thorough ones, should be run on all new hires who may be involved with money or bookkeeping.
7. Make sure your insurance covers you for employee dishonesty.
8. At the first sign of a problem, hire a forensic accountant to review your books.

When a small business suffers a loss like this, its terrible. These steps may help you limit your potential losses.

Bankruptcy Laws may hurt small businesses

Interesting article from Arizona. It looks like the new bankruptcy laws that took effect this month may limit people investing in new small businesses.

The argument is that since it is now harder to file for bankruptcy protection, people may not be willing to start a small business or buy an existing small business. People will be afraid that they will get "stuck" with the debt. It does make logical sense - why take on a risk if you may be stuck with a lot of debt after?

But how many of us actually think about this before starting a small business? I never thought "Hmmmmm.....what happens if I fail?" While failure is always a possibility, its just not likely that we think about it a lot. My experience is that small business owners open small businesses for a variety of reasons, but all of them want to be successful at their business. I just dont think that bankruptcy becoming harder to file is going to be an issue to keep people from starting a business.

If you are thought about bankruptcy and its effects before starting your business, I would love to hear from you!

A primer on contracts

My friend and colleague Lynn Roberts sent the following email to a listserve that I am on. With her permission, I reprint it in its entirety below. Its a great primer on contracts.

For more information on contracts in California, contact me for my free FAQ sheet on contracts. Your Contract is Your Roadmap to Success

Foundation for Win-Win and Success If you are in business, the foundation for each and every ‘deal’ is your contract with the other party.  This contract will be your roadmap to success.  It is not a form that you slide across the table and say ‘here sign this.’  It is a codification of what both parties agree is in their best interest to make the deal a success for both.  Your contract is your ‘win-win’ in writing. Prevent Problems.  What many business owners don’t realize until it’s too late is this:  you can avoid attorney fees and litigation with preventative maintenance by hiring your attorney to draft a simple contract that details the details of your deal.  By working directly with your attorney, you learn to clarify your goals, and then translate those goals into an understandable and agreeable framework for success.  Large attorney fees and litigation result when your contract is either nonexistent or doesn’t address the crucial points of your deal.  Remember, your contract is your foundation.  If it is rock-solid, you will have better bargaining power when something unexpected occurs or misunderstandings surface, and you will have thought ahead therefore you will be prepared for worst-case scenario. 

3 Contract ‘Keys for Success’.  In my business litigation practice, I found that all cases that ended up in court were due to nonexistent or faulty contracts.  There is not a one-size-fits-all contract.  It is a tailor-made suit that precisely fits that particular deal.  So, your contract is your roadmap to success.  As a tool for success, then note that there are 3 overall goals for your contract:  to detail what we have to do, to detail how we will get paid, and to give us a way out of the deal.  What do we have to do? How will we get paid?  How do we get out?

Scope of services (detailed list of services/products with timetable and payment for each step - who does what and when and for how much), contingencies (is one act contingent on another, or is the service contingent on weather or market conditions or price), amendments to the contract (must be in writing, approved by what procedure, what if disagreements about amendments?), what happens when performance is late or insufficient, what if performance is contingent on subcontractors or what if you are the subcontractor and your performance is contingent on the contractor doing something, insurance (what do you need, how and when do you prove, who pays for additional insurance if required), notice of default (how and to whom?), opportunity to cure default, provide professional certifications, alternative dispute resolution, hiring of experts, when is performance complete (for service companies, it is especially important to clearly state when performance is complete), venue and choice of law (important to use what is most beneficial for you). 

If you are subcontractor and must accept pay when paid (example: construction), make sure you have provision for payment if contractor is not paid.

Installments (tie installments to project phases as defined in Scope of Services)

Upon completion of project (again, define exactly when performance is completed)

Who pays attorney fees if litigation or default (many cases are not pursued because the business cannot afford litigation. Avoid this with prevention by having your solid contract that allows for attorney fees and costs, as well as having service on registered agent by certified mail.)

Define default in detail (very important!)

How do we get out:

Default defined?

Failure to perform?

Anticipatory breach?

Performance is complete?

Every single case I've handled has been due to a lack of a good contract that would have protected the business if they called me BEFORE the deal rather than after the blow up.  Most businesses don't realize the importance of a good, solid contract, not only as protection but also to use as a roadmap for the working relationship between the parties.  Your contract will decreases misunderstandings, give both parties different methods and options for working out problems, and will define the exact working relationship.  This common sense yet sophisticated tactic will be your best shot at no or minimal damage if and when things go awry.

Lynn Roberts, Attorney at Law

913.385.9522

Overland Park

,

KS

lynn@lawyerlynn.com

copyright 2005, iThinkSuccess, LLC

For more information on contracts in California, contact me for my free FAQ sheet on contracts.

Small claims court

I went to small claims court today with a client. The client runs a successful small business. She had a client who did not pay her. I tried to collect the money, but to no avail. So the client sued in small claims court. I went with her and she won today. Why do I tell you this story? Because I watched a lot of small businesses come before us and lose.

Some tips for small claims court:

1. Be prepared. Have a copy of your file. Make sure it is in order. Have one for you and one for the judge. Use tabs or dividers to keep the different sections, ie payments, the contract, attempts to resolve the dispute, separate.
2. File the rules. Small claims court is relatively simple, but there are rules. Three businesses that showed up today had problems. One used an unlicensed process server and paid $50. There is a statutory cap in California and this led the judge into a discussion over whether service was proper because of this mistake. One never served the lawsuit. And the last one had a bounced check and sued for treble damages under California law. However, California requires you to send a letter via certified mail before you can collect treble damages. Thus, this person ended up with the face value of the check only.
3. Consult a lawyer. While you cannot be represented by a lawyer in small claims court, you can consult with one before the hearing. It pays to have the piece of mind knowing that someone else has reviewed this, has given you an opinion, and has given you advice to make sure you do it right.
4. Remember, getting a judgment and collecting a judgment are two different things.

Small claims court can be an excellent way for small businesses to resolve smaller legal matters. And with a little planning, it can be very successful for you.

Small Firms for Small Businesses

My law practice is a one man operation. Its me. You call and you get me or my voice mail if I am not in. You have a problem and you deal with me. You need someting done, I get it done. My point?

Very simple. I run my law practice like you run your small business. 7 days a week, 10 or more hours per day. Its not just a law practice, its part of me. Your business is part of you.

Is this a commercial? Not at all. I believe, however, that small business owners make a mistake when they do not consider hiring small firms and sole practitioners to help them with their legal issues. For example, here is a blog by a friend of mine, Grant Griffiths: http://gdgrifflaw.typepad.com/home_office_lawyer/

Grant runs a great blog about home office lawyering. For his clients, it doesnt matter where he practices. For you, it shouldnt either. Your language is results. Next time you have a legal issue, try hiring a small firm or sole practitioner. See if they get you the results you desire.