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Defending the Small Business - Part 23 - Changing Your Ways 4/7/2009 5:31:48 PM
Once the small business owner identifies his mistakes, the hard part begins--changing his ways... Once you hire your accountant it’s important to do a budget to determine what cutbacks to make. Frequently there will have to be layoffs, salary reductions, and suspensions of fringe benefits. Rent may be too high, which will require re-negotiations with the landlord, or termination of leases and executory contracts in bankruptcy.
If the SBO has been looting the company, that has to come to a halt. If the company has too many employees or simply can’t afford what it has, the whole operation of the business will need to be reviewed to determine how labor can be better utilized so that fewer employees will be required.
If payroll taxes haven’t been paid and proper procedures for collecting and paying these taxes aren’t in place, that situation needs to be corrected immediately. It’s not wise to finance your reorganization with Uncle Sam’s money. It’s an expensive loan, and one that will only cause you immeasurable grief in the long run.
This is a critical stage in the reorganization process and must be done as quickly as possible, for there has to be a certain amount of cash available to continue operations. If the negative cash flow isn’t stopped quickly enough, the business may run out of money and be unable to reorganize at all.
Too often SBOs wait too long to seek legal counsel and the business is too far gone to be saved. It is important to be realistic and seek help at the first sign of trouble. This is another reason an ongoing relationship with an attorney is important. If the company has an attorney that it deals with on a regular basis, it is more likely the SBO will pick up the phone as soon as bad fortune rears its ugly head.
This is the time to take a good look at insurance too. Many SBOs operate without insurance. They think that insurance is a luxury that they will get down the road when they have extra money. Well, if you want to build a successful business, you have to realize a lot of things will go wrong and prepare for those eventualities. If you want to roll the dice and go naked you can, but only at your own peril.
The wise SBO will find a good insurance agent and sit down and figure out what insurance is absolutely necessary and get it in force immediately. In my experience, an SBO should have personal life insurance as well as disability, medical insurance, business interruption, automobile, general liability, workman’s compensation, fire, and extended coverage on his real estate and contents insurance. Additionally, it is wise to get a blanket umbrella liability insurance policy, both personally and for your business.
This sounds like a lot, but if you shop carefully you can often get these coverages as part of a single policy, which will be much cheaper than separate policies. Personal life insurance, disability and medical coverage can often be purchased as a group policy, which is also a lot less expensive than if you purchase each individually.
A good insurance agent can handle all your insurance needs and take care of most of the onerous paperwork involved. It’s a good idea to find an agent who is willing to take this burden off your shoulders and handle claims too, so that you won’t be saddled with this task or have to pay an employee to handle it for you.
I have had the same insurance agent for twenty-five years and, whenever an issue comes up, I make one phone call and it is resolved. Conversely, if my agent becomes aware of industry changes or issues that I should know about, he calls me immediately. If I miss a premium, he gives me a personal phone call to remind me to pay. If you have five different insurance agents, you won’t be a big enough client to warrant special attention and you won’t get this kind of service.
I can’t tell you how many times I have been forced to defend clients who thought they had insurance but for some reason hadn’t paid the premium. Sometimes they were short on funds, but often it was as simple as forgetting to send in a change of address or the insurance notice getting lost in the mail. Defending a lawsuit can cost thousands of precious dollars that few SBOs can afford. If the lawsuit is lost, the business may be forced into bankruptcy or put out of business.
Insurance is not a luxury. It is a fundamental requirement for anyone who operates a business. Just as a policeman wouldn’t go into a crack house without a bulletproof vest, neither should the SBO pass another day without adequate insurance to protect him from the perils of doing business.
