This question arrived today from a friend and engineering consulting colleague. Once in a while a company will request a “General Liability” insurance certificate.
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, jumptoconsulting.com. All rights reserved.
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, jumptoconsulting.com. All rights reserved.
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, jumptoconsulting.com. All rights reserved.
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, jumptoconsulting.com. All rights reserved.
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 Insurance — Two 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!
© 2011, jumptoconsulting.com. All rights reserved.
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.
© 2011, jumptoconsulting.com. All rights reserved.