Administration

From the Mailbag… Final Reports and Security…

Here is a recent question from blog reader regarding client reports:

I’m looking at moonlighting, and have been enjoying digging through your blog. So far I have one quick question – did you have to deal with securing your data or reports?

Was it was ever a concern for you? Did you just send any documents you created as Word or something similar?

Here is my response:

While I sent reports in PDF, I never encrypted them. But not a bad idea to do so if sensitive data is involved. My accountant does so with any financial or tax information.

For security, both Bill and I shredded client files three years after filing taxes. Our lawyer advised this to protect both us and clients from legal “fishing” if lawsuits were involved.

If sensitive, we would immediately ship the files to the client upon project completion. The sensitive cases were for “expert witness” cases (very few) and medical devices,

When we started in 1987 (pre-Internet) we sent typed reports, which usually ran 5-10 pages. We had a cover page, a single “Executive Summary” page (for management,) followed by the “Technical Details” with as many pages as needed.

These reports were on our letterhead and spiral bound. We then placed them in a presentation folder, which also included our brochure and business cards.

We followed the same format with PDF reports, and used electronic letterhead. If the client requested, we would also send a bound hard copy. In recent years, reports were electronic.

Although many consultants do not enjoy writing reports, in my opinion this is a very important final step in any consultation. You charge for your time, of course, but the reports are a final touch in marketing. They often lead to repeat business, even years later.

Be sure your contact information is on every page!


 

© 2022, https:. All rights reserved.

Five Tips to Avoid Being Sued…

Good advice from Craig Thompson, JD/EE/PE, an engineering colleague turned attorney. I first met Craig many years ago as an engineer in Minnesota. He now practices patent law in Texas.

These five tips are from a recent mailing (comments are mine.)

(1) Create – and Use – Strong Contracts.

We used a few simple two page agreements, vetted by our attorney. One page of “boilerplate” and one page with specifics. Simple, but with enough details to clarify responsibilities and protect both us and our clients.

As such, we could turn out a engagement letter/agreement in minutes.

(2) Incorporate your business

Always a good idea, both for legal and marketing reasons. In the latter, is shows you are serious. But don’t do this yourself — use an attorney to make sure it is right.

(3) Standardize Policies and Procedures

We kept ours simple. Many were incorporated in the one-page “boilerplate” attached to our agreements. Since every client received a copy, we were consistent.

(4) Provide Top-Quality Customer Service

No need to say more. Do a great job — happy clients don’t sue. Address misunderstandings immediately. And if you screwed up (it happens) apologize and fix it.

(5) Purchase Liability Insurance 

Two types – general and professional liability (errors and omissions.) Discuss with your attorney, along with incorporation options. Both types are available from professional societies.

First, a disclaimer… Do NOT consider this legal advice. Rather, contact Craig (ThompsonPatentLaw.com) or your attorney of choice for professional help.

For more details… and Craig’s take on each tip, download his FREE REPORT here. It is short, sweet, and filled with good ideas.

Finally… Bill Kimmel and I had the pleasure of meeting Craig over lunch many years ago about the time he was starting out in patent law. It has been a pleasure to watch his firm grow. Although we never used his services for patents, he did provide a good referral for some trademark work. I’m delighted to pass Craig along as a resource.


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© 2021, https:. All rights reserved.

Take care of your vendors…

Vendors and suppliers are part of your business team. Take care of them, and they will take care of you.

Too often businesses go for the lowest cost, delay payments, and generally abuse their vendors. And then they complain when they get in a pickle, and nobody wants to help them out. I’ve seen it, and I’ve been on the receiving end as a vendor myself.

Better to treat vendors with respect. This includes paying your invoices in a timely fashion — your vendors are not your personal bank. Here are some quick examples:

Printing company – A significant part of our consulting business was training, which we promoted by direct mail. We often printed 50,000+ mailing pieces each year. We also printed brochures and other sales collateral. We even self published two books.

All of these were projects done by the same printer for over 25 years, until I stopped doing public classes after my business partner died. We often had offers from other printers to do the job cheaper, but always declined. And we always paid their invoices right away.

Why? Because our printer was a valued part or our business team. More than once they bailed us out of a crisis. We knew we could depend on them, and they knew they could depend on us. Over the years, we even became good friends with the owners. It was a pleasure doing business together. (They are now successfully retired.)

Training company – Contrast the above with a company for whom we did contract training years ago. Invoices were often delayed for months, even though they had been paid in advance. It got so bad, we put them on payment in advance (a C-client.)

They eventually went bankrupt, stiffing many other contract instructors along with several hotels. Needless to say, they did not recover. Nobody wanted to work with them again. The sad part is their materials were good, and they could have owned their training niche forever.

As an aside, I’ve done contract training for another firm for the last several years. They pay promptly and are a sincere pleasure to work with (an A-client.) They are successful, and pretty much own their training niche.

Two training companies — two vendor philosophies. One long gone years go —  one still successful after many years.  

Test laboratory – Not a client, but a colleague who started his business a few years after we did. He slowly grew his company, always taking care of his customers, employees, and vendors. As a result, he had a sterling reputation with reciprocated loyalty.

Although he started on a shoestring, he recently sold his company for many millions of dollars. Many times I’ve cited him as an example of how to build and run a business, and could not be more pleased with his success.

It is really pretty simple… just follow the Golden Rule! What goes around comes around. 


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© 2018, https:. All rights reserved.

My top 5 mistakes as a consultant…

Making mistakes are part of starting and growing any business (including consulting firms.) In fact, if you’re not making some mistakes, you’re probably not trying hard enough — nor are you learning.

Here are five mistakes I’ve made:

(1) Not sticking to the knitting – Back in the late 1990s, we got caught up in the dot-com frenzy. When a colleague approached us about collaborating on a web portal, we jumped right in. After all, we didn’t want to miss the boom.

If didn’t take too long before the boom went thud. But not until we had spent thousands of dollars for a software developer, and hundreds of hours trying to sell ads to pay for it. We even took out a booth at a trade show, secretly hoping Microsoft might buy us out.

It became obvious this business did not fit with our consulting practice. We had no leverage. It really belonged with a magazine where they could add it to their advertising options.

So we sold it. Remember the trade show booth? One publisher had expressed interest, so we approached them about partnering. They countered with an offer to buy us out. Done deal, and everybody was happy. We even escaped with the shirts on our backs.

Lesson learned — stick with what you do best, and make sure anything new fits with your existing business.

(2) Not paying attention to receivables – When we started, we provided contract instruction for a training company (no longer in business.) They were a major client, and kept us pretty busy.

Everything went fine for a couple years. Then they started to slip in paying their invoices. Pretty soon they owed us a about $25K, which included both time (soft cash) and expenses (hard out of pocked cash.) About that time, we discovered they owed all of their contract instructors similar amounts.

After a brief panic, we got mildly aggressive about getting paid. We liked the work, and didn’t want to antagonize them, but we still needed to get paid. It took a year or more with continued pressure to get their account current.

Not long after that, the training company filed for bankruptcy, effectively stiffing many other instructors. As much we liked working with them, we no longer extended credit — all jobs were “payment in advance.”  It soured the relationship, but it saved our bank account.

Lesson learned — watch your receivables, and enforce payment. You are not a bank.

(3) Not getting a deposit – This one blindsided us, and cost about $10K in lost time and travel expenses. It was a small company, and they were in a panic. So we dropped everything to fight their fire.

Unfortunately, before getting paid they went bankrupt. Our invoice fell within a 90 day window, which meant the payment was denied by the courts. Had we been paid, it would have been “clawed back.” All completely legal.

The bankruptcy itself was a sham. The small company was owned by an equity firm (affiliated with a certain past presidential candidate from Utah.)

They put several firms in bankruptcy after shifting assets. It stunk to high heaven, but there was nothing we could do. We eventually got ten cents on the dollar, which paid our  lawyer.

Losing the travel expenses was really annoying. Not only did they steal our time, they stole our money.

Our lawyer suggested getting a travel advance from everyone, or even the full fee in advance. Apparently if you don’t extend credit, the advance payments can’t be “clawed back.” (Check with your own attorney on this.)

Incidentally, this has not been a major problem. In 30 years, we only lost money twice, and had one close call as discussed in Lesson #2. But I still get an advance deposit prior to travel (typically $2500.)

Lesson learned – get a deposit prior to travel.  If worried, get progress payments or full payment in advance.

(4) Not controlling our own training programs – After a few years of consulting, we decided to offer our own training programs, based on solving the problems we were seeing. Clients began asking for this to avoid future problems, and we decided to add classes to our services. It took several attempts to get this right.

We started by collaborating with a test lab with moderate results. Their emphasis was on testing and regulations, while our was on design. So we split the time for our first class.

The initial feedback showed much higher interest in how to prevent and fix problems, while the testing interest was more esoteric. It was bit touchy, but we decided to go on our own. We did, however, remain good friends with the test lab and collaborated on other projects.

Later, we approached a test equipment vendor about adding us to their seminar program. Working with their field sales personnel, we presented two multi-day seminars which were well received.

We promoted via highly targeted direct mail, and that worked well. We then wrote a white paper with recommendations on how to proceed.

Unfortunately, their marketing department had their own ideas. They spent a ton of money on a fancy promotion with almost zero results. No second chance – they had blown the budget.

So after licking our wounds, we offered to run the program. We would pay for the direct mail promotions, prepare and print the materials, and present the classes. They would provide meeting space and local support, but at no cost to them.

If finally worked. We trained over 10,000 students with that project, netting us $12-15 million. Not too bad for a couple of goofy consulting engineers just having fun.

Lessons learned – take control when needed (and don’t give up.)

(5) Not appreciating barriers to entry – Already addressed this in a previous post, but it bears repeating.

This little adventure took place during out “part-time” consulting phase. It took place in 1981, in the early days of the personal computers. We were still very green about consulting, but willing to experiment and learn.

We developed a three hour seminar on using personal computers for business for a local vocational school. The initials offerings were highly successful, so with the schools permission we decided to do a full day version which we promoted at ran our expense.

But instead of the 80 people like our last class, 3 showed up. What happened ??? Unknown to us, a new computer store decided to promote their business with FREE seminars. How do you compete with free? You don’t.

Thus ended our computer seminar adventure. We learned about barriers to entry. As I groused to my business partner over beer, “We’re engineers. Never again will I go into a business where some kid in a computer store can eat my lunch.”

Our later training programs took an engineer with several years of experience, along with the ability to actually teach (another barrier.)

Lesson Learned – First figure out the barriers to entry. Then use them.

There have been other mistakes over the years, but these were the biggest ones. We always looked at our mistakes as learning experiences. As such, we paid our tuition and gained new knowledge in how to run our consulting firm.

Closing thought –  My late business partner often mused, “I never make the same mistake twice. It often takes me three or four times until I realize what I’m doing wrong.” And then we would laugh and move on.


RIP Herr Kimmel – It has now been three years since you left and stuck me with this crazy engineering consulting firm. So here is a toast – which I hope is wrong 🙂 

© 2018 – 2019, https:. All rights reserved.

Setting up your team of advisors…

As a consultant, you’re offering your expertise as a more efficient way to do things. Follow your own advice, and hire the expertise you need.

Years ago a new consultant (and fellow engineer) was grousing about how much trouble he was having with a fax program on his computer.

My response was “Why spend time on that when you could spend that time promoting your practice? Just go buy a fax. ” Sheepish, he agreed.

Done things like that myself. It is an easy trap to fall into, particularly when starting out and the budget is tight.

Here are my recommendations for setting up your professional team. Over the years, I have acquired eight that have all proven valuable to my consulting business.

(1)Attorney — Seek out an attorney who works with small businesses. If you brother-in-law specializes in divorces, move on. Better yet, ask him for a recommendation. If you don’t have a BIL, ask business colleagues.

That is how I found my business attorneys (MN and AZ.) They handled incorporations and also acted as “statutory agents.” The latter means they kept track of the annual corporate filings, for a very nominal fee.

They can also be very helpful if you are threatened with legal action. Yes, it happens, but having your attorney respond often nips things in the bud. (The voice of experience…)

(2) Accountant — Like your attorney, find an accountant who works with small business. I strongly recommend a CPA, which is very helpful if you are ever audited.

In addition to preparing your taxes, your accountant can set up your chart of accounts, and can handle payroll reports, retirement plans, and more. Trust me, it is worth it, and it leaves you free to pursue your business.

Accountants are also a good source of referrals to other specialists like financial planners (how I found mine.)

(3) Banker — As you should establish a separate business bank account, so should you establish a business relationship with a banker. The latter is very helpful if you ever need a loan for equipment or a vehicle.

While I’ve been with the same bank for many years, I’ve seen individual bankers come and go. As a result, I suggest an occasional short visit just to stay in touch.

(4) Computer — Unless you are a computer consultant yourself, find someone who can advise you and bail you out when thing go awry.

For years, we used by late business partner’s son for our PCs. When I recently switched to Apples, I found a local Apple consultant who was worth his weight in gold.

He accomplished in two days what might have taken me two months. Money well spent, and he is available if I have additional questions or problems.

(5) Internet – Planning a web site? Or have one that needs upgrading? Hire a web designer to both design and maintain your site. If you are blogging, you still provide the content, but you web consultant handles the rest.

Just today, I had a small problem with one of my sites. A quick email resolved the problem. Who knows how much time I might have spent trying to figure out what went wrong?

(6) Insurance Broker — Sooner or later, you will need business insurance. As a minimum, you’ll need “General Liability”, and perhaps “Professional Liability” insurance. If you have a business vehicle or commercial office space, you’ll need insurance for those too.

While your personal home/auto/life agent may be able to help, I’ve found a broker very useful in locating specialized policies for business.

(7) Estate lawyer — Even if you are young, it is never too soon to think the unthinkable. A sad example is the entertainer Prince, who died suddenly without a will. Not only is there infighting among relatives, but his philanthropic wishes will likely never be realized.

Ask your business attorney for a recommendation — and then meet with him or her!

(8) Financial planner — Last, but not least, add this member to your team. Time flies by, and suddenly you are looking at retirement – or worse, wishing you could retire.

Although many people fancy themselves good investors, unless you are willing to put in a lot of time and energy, I suggest professional help.

My recommendation is for a fiduciary whose fee is based on your assets under management. That way there are no conflicts — both of you are on the same team.

I found my financial advisor through my accountant, and could not be more pleased.  I often joke that even when the market crashed, he lost less that I would have lost.

But the losses were on paper, and thanks to his advice, I am now very well positioned in my retirement. Which allows me time to spend on the JumpToConsulting project 🙂

 So those are the eight members of my team of professional advisors. An now, the standard disclaimer – this post is educational only and does not constitute professional legal or financial advice.

But do seek out that professional advice — you will not regret it! 

P.S. As an aside, most of my advisors are in small practices themselves – often one or two people. I prefer that — they provide a perspective often missing from larger firms.

© 2017, https:. All rights reserved.

From the mailbag – Do I need client insurance?

This question arrived today from a friend and engineering consulting colleague.  Once in a while a company will request a “General Liability” insurance certificate.

Hi Daryl,

I’ve run into this requirement (client insurance) a handful of times. Most companies don’t ask for it, but some are asking to be named on my insurance policy. Do you know the reason why they might want that?

Here is my response. The beautiful irony is that just today my “General Liability” insurance was cancelled, after 20 years with no claims, and zero probability of a future claim.

As far as I know, there is no good reason (but I’m not an attorney.)  Rather, it is the result of good lobbying by the insurance industry.

We ran into that a few times. The request was usually for “General Liability”, not “Professional Liability.” The former covers things like driving you car into their lobby. The latter covers “errors and omissions.”

If you have a GL policy, ask for a certificate naming the client. It’s just a piece of paper, and should cost nothing.

Do you really need a GL policy?  I don’t think so. We went without a policy for many years.

But after fighting it a few times and to save time, Bill and I caved in and got a GL policy — about $1000/year for both of us. Upon our attorney’s advice, we never carried PL, since EMC has such a low risk.

If we had been doing product safety, we would have carried PL too.

The IEEE has both, but when I last checked, they would not sell the GL alone. We got our policy through a broker.

When Bill passed away, they reduced the premium to $500, so I renewed it. A total waste of money in my opinion, but still easier than fighting about it. Haven’t had a request for several years now.

As a coincidence, just today I got a certified letter canceling my General Liability insurance.

Seems some underwriter visited my web site, and panicked when they saw “medical devices, vehicular electronics, military systems, industrial controls, etc.” Even though the web site clearly states I no longer consult, but only do training.

My guess is some bureaucrat with no common sense did this. Probably their chance to make a “big decision.” But a stupid decision, as it was easy money for them.

As an side, my older son started with Hartford (the carrier) right out of college. He left in less than a year. Like his dad, he has a low tolerance for petty bureaucrats.

My plan is to forget the insurance. If somebody insists on it, my response will be to either waive the requirement of find somebody else.

Before getting insurance, I did that several times with success. I found that engineering VPs/directors/managers can and will override purchasing if they really want you, and need to do so.

And if they don’t want you, do you really want to do business with them?

Don’t want you to think I’m a jerk about these things. As a rule, I go out of my to be polite and professional.

But at the same time, I don’t let petty bureaucrats intimidate me. Neither should you.

As always, check with your attorney and/or accountant.  We carried General Liability insurance for many years, simply because it was easier to do so than argue about it.

But other than saving time, it was a waste of money. We never lost any business when we did not have it.

© 2016, https:. All rights reserved.

Some comments on travel expenses…

Had a recent inquiry on how I handle travel expenses. Here are my policies:

  • Travel expenses are billed at cost – no markup. Some consultants mark up the travel, but I feel this is cheesy.
  • Air fare purchased is normally refundable/changeable. Saves problems if the schedule changes.
  • Out of town travel time is billed at one day anywhere in the continental US. Keeps it simple. Overseas travel time is negotiated, usually two or three days.
  • Local travel time is billed portal-to-portal for less than a full day. Four hour minimum. No extra travel charge for a full eight hour day.
  • I make my own travel arrangements. If the client does, they are subject to my approval.
  • A $2500 advance is required prior to any travel. Lost money once on a bankruptcy – won’t happen again.

These details are included in my “Terms and Conditions” – a  single page of boiler plate attached to quotations. Here is the verbiage:

Expenses – All expenses will be billed at actual cost, with no markup. These expenses include all travel costs, test lab and subcontractor fees, and other expenses incurred for the client.

State or local withholding taxes, if applicable, will be treated as an expense and added directly to the invoice.

Travel – Travel time is charged at our regular rates, as follows:

-Local – No travel charge for full day consultations. For less than a full day, time will be billed portal-to-portal.

-Out of town (Air Travel) – One full day labor is added to consultation fee for travel within the contiguous 48 states.

-Outside Contiguous United States – To be determined.

-We normally make our own travel arrangements, but if made by client, they are subject to approval. Overseas travel is “business” class.

Hope this helps.

© 2016, https:. All rights reserved.

Do you need a public office???

It depends… If your clients come to your office, it probably makes sense… If you go to your clients, it probably just wastes money.

In the first case, a public office adds a level of professionalism, and keeps you out of trouble with home owners associations or zoning boards. But don’t get carried away – a modest space will do just fine for the solo practitioner.

In the second case, a spare bedroom works fine. You should, however, set aside a dedicated space for your office. Working on the dining room table gets old very fast. It can also be disruptive to family life.

Some people, however, simply need a separate place to work – regardless of client contact. And some need the outside human contact that an office brings. This is often true for those migrating from the larger corporate environment.

The most important thing when starting out is to conserve resources. You don’t need fancy digs with a prestige address — you just need a safe quiet place to work with adequate resources (desk, computer, telephone, file cabinets, etc.) You are selling your capabilities, not fancy brick and mortar.

Here are some examples I’ve seen over the years:

(1) Kimmel Gerke Associates (yours truly) – Since we almost never had clients visit us, my business partner and I set up separate offices in spare bedrooms.

While we once considered sharing an office, we were both traveling so much it didn’t make sense. Besides, the telephone and the Internet worked fine to stay in contact. And we both liked our twenty foot commutes.

Our “office managers” were our wives, so we truly ran a “mom and pop” operation. Not for everyone, but it worked very well for us.

(2) Advertising A one person agency, this consultant leased about 100 square feet of space from a print shop. I used her services with good success many years ago after a misfire with a fancy downtown agency. Hire the person, not the office.

That was all the space she needed, plus the shop provided a phone line with a receptionist. It was mutually beneficial, as the print shop now could offer additional services. Besides, she did all her printing with her landlord.

(3) Sales consultant – Another one person firm, this friend leased space in a restaurant, which I found quite clever.

His office had a separate entrance on a lower walk out level. The rent was very attractive, as this was bonus income for the restaurant, and parking was never a problem. And he always had a place to take clients for lunch.

(4) Attorney – My estate attorney is located in building with other small professional firms.

He has about 300 square feet, divided into two rooms. The back room is his legal office, with the appropriate lawyer’s desk, credenza, and meeting table. The front room is the reception area with the requisite legal library, with a desk for his office manager (his wife.)

The office is nicely appointed, but not pretentious. His fees reflect the lower overhead too. I discovered him after being gouged by a large law firm with fancy digs and high overhead.

(5) Web design My web designer is also located in a building with other small firms.

He has about 200 square feet with a couple of desks for he and his office manager (once again, his wife.) He has a back office in Nepal (where he grew up) so this space is modest but more than adequate. He recently became a US citizen, and is doing very well – the classic immigrant success story.

He started out working from home, but with the birth of two children, he got “kicked out” of his office. He is still close to home, but is not distracted by family activities.

(5) Consulting engineer – Now, a not so successful example story from many years ago.

When we started out as consulting engineers, this refugee from a large government agency told us we MUST get an office. After all, HIS office was located downtown with a prestigious address. He even chided us for working out of our homes.

Within the next year, he went bankrupt.

So, as you consider YOUR JumpToConsulting, do YOU need a public office? Weigh the decision carefully. Unless you are seeing outside clients (or you simply need the private space,) I generally advise against it. But if you do decide on a public office, I’ve shared some clever (and inexpensive) solutions.

Conserve those resources — you can always move to a public office later. Unless you are like me, and just love that twenty foot commute!

P.S. – I once asked a fellow consultant sitting next to me on a cross country flight where he had his office. He looked out the window, grinned, and replied, “Well, today it is about 30,000 feet over Denver…”

© 2015, https:. All rights reserved.

Setting up shop… some questions…

From the mailbag: Just last week an engineering colleague (and reader of this blog) announced he was making his own JumpToConsulting. Way to go, Glen!

His announcement e-mail also had several specific questions. After addressing them, I decided to share my comments here.

(1) Quotations & Proposals

We use a two page format. The first page defines the project and tasks, and the second contains “boiler plate” such as terms, rates, etc. That makes it easy to respond – just fill in the blanks on page 1.

Here is a sample, which we send on a letterhead:

****** Quotation ******

Client: XYZ Corp.
1234 Main Street
Somewhere, AZ XXXXX
ATTN: John Smith

Purpose: The client designs and manufacturers military doodads, and is failing MIL-STD-461 radiated emissions tests.

Tasks: The consultant, an electrical engineer specializing in EMI/EMC design and troubleshooting, will assist XYZ as follows:
— On site troubleshooting and reviews at XYZ facility in Somewhere, AZ
— Optional summary report (4-8 pages typical)

Schedule: By mutual agreement (or actual date if scheduled)

Budget: $XXXXX, based on 5 days (4 days on site plus 1 day travel time) plus estimated travel expenses of $2,500. Add $XXXX for optional report.

Please note this is a budgetary estimate. Actual time and expenses will be invoiced. Quotation will not be exceeded without prior client approval.

Terms: Net 30 upon invoice. Purchase order and advance travel retainer of $2500 prior to travel. Quotation valid for 60 days.

Daryl Gerke, PE                                                              April 3, 2014
Kimmel Gerke Associates, Ltd.
EMC Consulting Engineers

I don’t believe in lengthy contracts (keep it simple.) But if you are doing a longer term project, more detail might be needed such as progress payments, etc.

Some companies will have their own consulting agreements. Don’t hesitate to change them if there is something you don’t like.

For example, we remove any limitations on working for others. There is nothing proprietary about what we do. If we limited ourselves to one computer company/one medical company/etc. we’d be out of business in a year.

We do sign standard NDAs (Non-Disclosure Agreements) as long as they do not contain any non-compete restrictions.

(2) Business Insurance

You will probably need a General Liability insurance policy, which most companies now require. We got ours through an insurance broker – about $800/year for two of us. Your accountant or attorney can recommend a broker.

You may or may not need Errors and Omissions insurance. Also known as malpractice insurance, it depends on your area of expertise. Although we are engineers, we don’t carry O&E as our area has little risk of litigation. If we were civil engineers or architects, however, we’d carry it.

(3) Business Bank Account

You also need to set up a separate business bank account. You may need to wait until you have incorporated depending on the bank.

Incidentally, I recommend having an attorney handle an incorporation. Don’t do it yourself to save a few bucks. The attorney will recommend the best legal structure for you – LLC, Sub-Chapter S, C Corporation, etc. The attorney can also handle filings, registrations, and tax documents and IDs.

Finally, these administrative details are pretty simple. The big issue is the marketing – getting the business. But for smooth operations, now is the time to get these details in place.

P.S. Got a question? Drop me a line through the ASK DARYL page.

© 2014, https:. All rights reserved.

More Insurance Comments

How I handle my insurance …

This post is a quick continuation of the previous post on insurance, as someone asked how I handle my personal insurance needs.  My philosophy is to self-insure the small losses, and put the premium savings into higher coverage. As such, I carry larger deductibles than most subsidized policies, but still get reasonable rates.

Since I am approaching the right age for Social Security/Medicare, I am currently reviewing all my insurance. I’m not on Medicare yet, but have just started to look into the myriad of supplemental plans and options. Oh, it is great fun being a “boomer.”

Health Insurance Individual policy from a major health carrier for my wife and me, with a major medical rider. We have a moderately high deductible, and we do not carry dental insurance. As such, we self-insure the first several thousand dollars, but may save even more in reduced premiums. When we become eligible for Medicare, we’ll switch with the appropriate supplemental policies.

Life InsuranceTwo term policies. The first is through my professional organization, and the second is a personal policy. Incidentally, the professional organization policy is much cheaper. I elected to have two policies as a backup, in case the professional organization coverage changed.

Disability Insurance Long Term Disability from my professional organization, with reasonable rates due to a six month waiting period. No Short Term Disability policy – I self insure for that.  I recently dropped the disability policy, as I am now eligible for early social security. As such, should I become disabled, I would simple retire early and start collecting  social security.

Liability Insurance — I carry General Business Liability through a broker. The annual cost is reasonable, and often required by clients. I do not carry Errors and Omissions insurance, since there is low potential liability in my particular business. If I felt I needed it, it is available from my professional organization. Finally, on my lawyer’s advice, I do business as a corporation. (You should review your liability concerns with your attorney.)

Other business insurance — I have a rider on my homeowner’s policy that covers computers and other office equipment used in my home, as these are exempt from my standard policy. I also have a blanket umbrella policy on the home/auto policies.

My goal is to self insure the small risks my self, and insure for the larger but less likely risks. If I never personally collect any money from an insurance company, that is fine with me.  Not collecting means I have been lucky enough to avoid some pretty serious problems. (Even life insurance — that is there for my dependents, not me.)

But don’t depend on luck — as a business person, you need to manage risks!

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Insurance Questions

So what is it about insurance (particularly health insurance) that spooks so many people?

After the Four Key Questions (a previous blog post), this is probably number five. The question is usually posed as, “So how do YOU handle insurance?”

For many, this issue is a potential show-stopper from making the Jump to Consulting. It need not be, and the answer is simple. You buy it — it is simply a cost of doing business, just like a computer or a copier. Furthermore, since it is tax deductible, you buy it with pretax dollars just like the big guys do.

Sure, the cost may seem like a lot, particularly if you are currently in a company subsidized plan. But in reality, you are already paying for it as part of your benefits package. Although you don’t see it in your paycheck, your employer certainly sees it as part of your overall compensation. As the old saying goes, “their ain’t no free lunch…”

Although health insurance is usually the main concern, you likely need several other types of insurance, including disability, life, and liability. Here are some comments.

Health Insurance – Even if you are young and healthy, you need health insurance. This is particularly true if you have a family or other dependents. Without health insurance, one accident or a bout of cancer can mean financial ruin. No, I’m not in the insurance business. Just get the insurance — it is the responsible thing to do!

Thanks to the recent government health legislation, medical insurance should be easier to obtain for individuals and small businesses. (This is not a political statement — just my opinion.) I’ve know several people who might be consulting today, were it not for a past medical condition that made them or their family uninsurable. Hopefully, that has now changed.

I suggest a basic, no frills plan, with as high a deductible as you can stand. If you are mathematically inclined, you can figure out the level at which you are no longer paying someone else to handle your money. As a bonus, if you don’t meet the deductible, the money you might have spent on a premium is still in your pocket.

You should consider a major medical rider, although with the new legislation, this may no longer be needed. You should also consult your accountant about tax preferred medical savings plans to see if one makes sense for you.

Life Insurance – If you are young and/or have a family, you also need life insurance. On the other hand, if you are single, retired, and/or the kids are all raised, this may no longer be important. This insurance is not for you — this is for those who depend on your income.

I suggest term insurance, which generally gives you the most bang for the buck. Yes, insurance sales people will emphasize the accruing monetary benefits of whole life plans, but do you want insurance, or do you want a savings plan? Remember, insurance is there to mitigate risks.

Also remember the sales agent is working on commission, and makes more money on a whole life policy. The younger you are, the more affordable and reasonable the term insurance.

Disability Insurance – Like life insurance, you definitely need this if you have others depending on your income. But even if you are single with no dependents, you still may want to consider disability insurance. The real question is, “What are you going to live on if you become incapacitated?”

I suggest a long term disability plan, with a waiting period of six months or more. Like any high deductible,  a longer waiting period reduces policy costs. As far as short term disability, I’ve only carried that when offered by an employer and have never purchased it directly for myself. Set up a rainy day savings account to self insure for the short term risks.

Liability Insurance – If you are dealing with corporate clients, you will likely be required to show proof of general liability insurance. This typically covers risks like slipping on the customer’s icy sidewalk, or driving your car into their lobby. Their goal is for you to have insurance in place to minimize the need for legal action if something bad happens during a consultation.

Depending on your business, you may also need additional specialized liability insurance. Two examples are a physician’s malpractice insurance, or an architect’s error and omissions insurance. These are often available from professional organizations. You should definitely discuss the liabilty issues with your attorney.

Other insurance – You may want to consider other insurance offerings, such as coverage for expensive equipment or business interruptions. Keep in mind that your homeowner’s policy probably does not cover business related issues. Check this out with your insurance agent.

Here are some final thought on insurance. Shop around, as prices will vary. If you belong to a professional organization, they often offer individual plans at group rates.

One way to simplify your insurance needs is to find a good insurance broker. You want someone who specializes in small business insurance, which may or may not rule out your personal home/auto agent. Check with your accountant or attorney for a recommendation, or ask other small business owners. A good insurance broker can be a very valuable ally.

Well, I hope this has helped put insurance in its proper perspective. As I learned from a wise old college professor many years ago, “The goal of insurance is to protect yourself against the big losses, not the small losses. You can cover the small losses, but the big losses can wipe you out.”

Good advice today, too.

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