Q.: Am I required to have workers compensation coverage if I am the sole employee/owner?

A.: Generally, if you are self-employed, you are exempt from the requirement to have Workers’ Compensation coverage to cover yourself.  However, the minute you add an employee, get that in place – pronto!

Some states do allow you to “opt in” as a self-employed business person, but the rules about whether you can opt in to workers compensation coverage vary from state to state.

A good small business insurance broker should also be able to answer a lot of your questions about which insurances you need, what insurance limits you’d be wise to have, and what makes most sense for your particular industry in your state.

Here are more law questions about small business insurance.

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Maybe you’ve only just started your business or are not ready to sell it just yet. But don’t you ever wonder how much you could get if you cashed out – or let someone else buy in? Could you afford that beachfront property in Hawaii you’ve been fantasizing about? Take those international trips you have been promising yourself? Or have the cash to allay your financial worries and build the business without a cloud of desperation hanging over you?

If so, you may want to consider putting your company through a valuation process. A valuation process may involve working with a business broker to determine its fair market value. Or, if your company has annual sales of less than $1million, you may be able to do some of it yourself (although be sure to get some guidance from competent professionals). Whether for investment or sale, once you know how much your company is worth, you can then factor that information into your exit strategy and personal life plans.

But if you’re not happy with the numbers you uncover – or they simply aren’t large enough to buy you that thoroughbred racing horse you’ve coveted – there are a few steps you can take to enhance your company’s valuation and strengthen your negotiating position with potential buyers:

• Put your financial house in order. No one gets any boost of confidence when seeing financial irregularities or problems. So do what you can to settle any claims, lawsuits, or debts. In particular, pay all back taxes and put the systems in place to make sure that you do not fall into arrears in the future. Do not play games with sales taxes, employee taxes or pension funds, as you will be inviting disaster.
• Clean up! Sloppy books will not enhance the price you can command for your business. Make them as transparent as possible. Consider getting rid of nonessential family members. And stop running your personal expenses through the business accounts (if you’re doing it). Few things shout “amateur” more than this. Also, sloppy premises can hurt the impression you make. Could you sell your home or apartment for the best price if it looked like a pigsty?
• Show off your “legs”. Buyers or investors want to know that your business has “legs,” that it’s a stable business that is not highly dependent on one key factor (e.g., you, a supplier, a customer, an asset). Can you demonstrate steady profits and predictable cash flow? How much does it cost you to deliver your product or service to your clients? Analyze your customer list so that you know how long your customers have been with you and how much each is likely to spend. Also evaluate your key suppliers. Who is easy/hard to replace?
• Have the best team possible in place. While you always want to know that you are working with those who are best for your business, it’s especially important to have a good team when you are thinking of selling or asking others to invest in your business. This is an appropriate time to get rid of underperformers, particularly those at a management and financial responsibility level in your company. And while ideally, you should have en employee manual at the outset, consider developing standard policies and practices so that employees know what duties and behaviors are expected of them.

  Finally, whether with your advisors or potential buyers or investors, be sure to address potential problem issues up front. Thorny issues can include: leases that need renegotiation, equipment to be replaced, pending litigation, key employee and customer retention, and outdated financials. Hiding unfavorable information is the surest way to destroy the trust of your potential buyer or investor (and possibly get the transaction rescinded for misrepresentation) – and say “aloha” to your dreams.

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With more and more people (especially Gen Yers and Millenials) posting their personal information on the internet, it seems a handy place for employers to go to scoop up background information on prospective hires. After all, by publishing this information on their blogs, Facebook pages and MySpace profiles, the potential employees can hardly claim that this information is private. I mean, if you’re too dumb to know that unless specifically encrypted, your blog is totally open to computer-connected Planet Earth, you’re too dumb to be hired, right? So whatever an employer finds is fair game, yes?

Not exactly. As with other hiring and screening processes, unless an employer utilizes them fairly–and handles the information received objectively across the board–an employer could be held liable for discriminatory hiring practices.

Let’s say that Jarhead Corp. is screening two applicants: One is a white male, who has posted a photo with fraternity buddies, holding beers; the other is a Chinese female, whose photo shows her with close friends at an LGBT (lesbian, gay, bisexual, transgender) rally, revealing pierced navel and tattoos. Can an employer honestly say that the LGBT context and race won’t come into play? Similarly, can an employer document that the same degree and level of searching on the internet is done about all candidates? Or is it only to dig up dirt about female ones to find a reason not to hire them?

If an employer does not have a set policy (or list of steps) for the ways it goes about evaluating its employee candidates, it can leave itself open to a world of hurt. That is particularly true because the nexus between social media and law is so new, and there’s not a lot of case law yet to give employers guidance as to how these kinds of issues will be received by courts and legislators. Best to consult an employment attorney when developing a hiring strategy to make sure that the tactics you use don’t run afoul of the law.

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The “€œCase of the $65 Million Pants” got me thinking over the holiday about how small business owners can protect themselves against crazy lawsuits. Often, it’€™s not just (1) operating as a corporation or limited liability company to shield your personal assets, or (2) having the right contract provisions, or (3) knowing how to move a lawsuit along quickly.

Often, what can make the difference between surviving the nightmare and having it drown you is insurance. And not just the kind of insurance that covers a claim (although I think it would be hard for a dry cleaner to anticipate a $65 million claim). I’€™m talking about defense coverage. This is (or should be) a part of your policy that will pay for some or all of your legal fees in the event that someone sues you for a claim that is covered by your insurance policy. Generally, fee disputes aren’€™t covered. But if your business insurance coverage protects you against your negligence in providing your product or service, defense costs may well be included.

If you don’€™t have business insurance, get it. As you can see, people bring lawsuits for cockamamie reasons, and there’€™s no law preventing them from doing so. If you do have insurance, make sure your defense costs are paid by the insurance company. If they are excluded from the policy, you could end up footing the bill out of your own pocket! And if defense costs are included, find out if there is a deductible and how much it is. Sometimes, you may get a better overall rate on a policy by accepting a higher deductible. But, once again, the deductible is money that you will have to pay out of your own (or your company’€™s own) pocket. And those amounts can be in the thousands of dollars! Yes, insurance deductibles are tax deductible . . . but as a tax attorney friend once cautioned me, “Tax deductible does not mean free.”  Weigh the pros and cons of paying a little more over time against being hit hard with an unpleasant surprise.

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Q.: I will be providing a maid service as an independent contractor and will start with one or two maids but don’t know how surety bonding works. If I am an independent contractor for a maid service, do I have to bond each maid, or just have one bond for the company? Also where, and how do I get this?

A.: The best place for you to start is to develop a relationship with a small business insurance broker.  If you are a member of your local Chamber of Commerce, chances are you’ll be able to meet services providers in your local area.

Small business insurance brokers will be able to outline all of the different kinds of small business insurance protection that you may want to have – especially if you are going into people’s homes and there’s the risk of claims of breakage or theft (even if trumped up).  Many companies have both general business insurance as well as surety bonding for the company – to cover any damages created by their employees.

I encountered a maid service in Seattle, WA that also took out “honesty bonds” on each employee.  A business insurance broker should be able to let you know which small business insurance and/or surety bonds are required in your state, and which ones you’ll want to have to ensure you sleep restfully at night.

Here are more law questions about small business insurance.

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As an entrepreneur, you learn quickly that you can’t know it all–and that you need resources for your small business development.  Where can you find them?  Well, amid the noise that can be Twitter, people are compiling lists of experts in various entrepreneurial subjects that can support your small business development.

I was honored–and occasionally, pleasantly surprised–to have been included in the following small business expert and women entrepreneur expert lists.

• 25 Most Influential Women Tweeting about Entrepreneurship (via Forbes.com)
• Top 50 Women Entrepreneur Experts to Follow on Twitter (via Evan Carmichael)
• Top 20 Twitter Small Business Experts We Really Love (via Trusted Business)

Moi aside, though, the others who share this spotlight are top-notch experts in small business development themselves. Make sure you’re following them on Twitter (and me too, while you’re at it @NinaKaufman) so that you get the news you need for your small business development!

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Q.: I wanted to start an automotive maintenance course to teach people how to change a flat tire, do their own oil change, etc. However, the downfall here is I am concerned that I could be held liable for any mishaps. Do I actually need to have business liability insurance? I know it is probably a good idea to have it, but do I actually need to have it in order to start this business?

If I do need this, I am having trouble finding someone who will cover an automotive educational course. Is it possible if people sign a release from liability I will be protected if any mishaps should happen? Do I need to carry business liability insurance for an automotive maintenance course or can I have people sign a release from liability disclaimer?

A.: With few exceptions, there is no requirement in the law that you must have small business insurance to cover your business activities.  On the other hand, for most businesses, you would be foolhardy to go into business without it.  There is no way to prevent people from bringing a lawsuit against you . . . at best, you can only prevent them from succeeding on their claim.

Having people sign a release from liability, liability disclaimers, or waivers are not always iron-clad.  In addition, under some states’ laws, you cannot ask someone else to waive your liability.  So that you don’t get caught short in either of those two scenarios, it’s strongly advisable to have small business insurance in place to cover those kinds of claims.

Another benefit of the small business insurance is that some policies will also cover the defense costs . . . which could otherwise drain your operating cash.

Here are more law questions about small business insurance.

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Find an angel investor that’s a divine match for your business.

Angels are often defined as “spiritual beings.” To the entrepreneur seeking a sizable cash infusion, angel investors might well seem heaven-sent. In addition to money, they typically offer value-added benefits such as expertise, experience, mentorship, creative ideas and contacts. But they are not necessarily endowed with the patience of saints. That’s why it’s crucial to be prepared to attract angel investors to your venture and to ensure a smooth relationship once you have reached a deal.

Here’s what your plan for financial salvation should include:

1. 1. A solid business plan. The days of the concept sketch on the back of a cocktail napkin are long gone. Yes, investors are greater risk-takers than Grandma Sophie, whose portfolio consists of triple tax-free municipal bonds, but their risk-taking is calculated, not reckless. Be      crystal clear about why you need the financing (and how it will be spent), the competitive advantages and threats in your industry, your financial plan (such as tax returns, profit-and-loss forecasts, pro forma cash-flow analysis and balance sheets and five-year projections), and proposed company offering (desired financing, securities offering, capitalization, timetable). The marketing section may be the most fun for you to write, but angels will focus on the financial section.
2. A savvy management or advisory team. Investors don’t expect every business owner to be an expert, but at least someone on your team should have had prior experience in your industry. Therefore, consider carefully your own background and experience as well as that of other potential active owners or advisory board members. Don’t choose your best friend for your advisory board just because she’s supportive; seek out people who have gone where you want to go. Make sure you have the right professional advisors on your side. Include advisors who understand the ins and outs of raising angel capital, because the tax and legal issues can become complicated.
3. A wise choice of angels. Not every potential investor is the right person to invest in your business. Do your due diligence. That way, you’ll not only focus on investors who are a better fit, you won’t waste time trying to court people who have only a marginal interest in your business or those who can’t handle the risk. You’ll want to know:

• Is the angel is an “accredited” investor (defined by the SEC as someone with a net worth of at least $1 million or an annual salary of at least $200,000).In other words, can the investor reasonably and comfortably take the hit if the investment goes down the toilet?
• Does the angel have prior experience in your industry? • Does he or she tend to fund deals at the size and stage your company is in?
• Is he or she geographically convenient for attending in-person meetings (some investors like to take a more hands-on role)?
• What added value (in addition to the money) can the angel bring to your venture? Does he or she have connections to other investors and contacts for business growth?

4.   An understanding of angels’ expectations. Different investors have different styles of involvement with the companies they invest in, and this should be reflected in both the legal documentation you sign with them and your way of communicating with them. Your understanding should include:

• Do the angel want a board position? Would he or she prefer a consulting role?
• How frequently does he or she want to hear from you?
• What information does the angel want to see when you do contact him or her (what kinds of reports and in what form)?
• What is the angels’ exit strategy, both in terms of time to devote to the company and return on investment?
• How large a stake does the angel want in the business?
• Will he or she be expected to contribute capital for further rounds of financing?
• Will he or she demand the right to advance approval for certain actions, such as taking on other investors, adding additional classes of stock or taking any other actions that might dilute the value of his or her investment?

5.    Generous use of your own money. Many entrepreneurs salivate at the prospect of using bushels of other people’s money (OPM) while contributing just the sweat equity. That’s not realistic. Be prepared to put your own money (YOM) on the line. It’s a sign of your confidence in the success of your business model. If you’re not willing to do so, you’ll be hard-pressed to find an angel investor who will. The same goes for offering stock in lieu of cash or a back-end success fee to your professional advisors.

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The Associated Press reported that there was little sign (from its analysis) that former New York state Gov. Elliot Spitzer used taxpayer money or campaign funds to subsidize his visits with prostitutes. His state-issued credit card also showed no outward sign of having been abused for extracurricular pursuits.

I can’t say whether he used public funds or not, and federal investigators have yet to comment. But it started me on a stream-of-consciousness series of questions in a business context: How easy would it be to disguise (bury) those kinds of transactions? What if Spitzer were my employee? What kinds of safeguards would I want to have in place? Here’s what I came up with:

• Make sure that the person in your company writing the checks is not the person reconciling the statements (unless you, the business owner, are holding both positions).
• Restict the number of people who have company bank cards or company credit cards.
• Ask for receipts from employees for all business-related purchases.
• Always review bank statements (once reconciled) and financial statements–don’t abdicate that responsibility, even if you delegate the minutiae of it
• Hire outside advisors (such as accountants) who can direct a practiced (and objective) eye over your company’s financial condition.

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Can you force someone to sign a confidentiality agreement after you’ve disclosed sensitive information? Or after they’ve already done the work for you? No. To use an old farm expression, that’s like “closing the barn door” after the horse is gone.”

I discuss a colleague’s tale in the video, below. She was a subcontractor on a corporate training program. A year after doing the trainings, the contractor wanted her to sign an agreement saying she’d never work for those clients again. Are ya kidding me? Should have thought of that before engaging the subcontractor.

Do you agree?

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