According to a recent article in the local newspaper (Burlington Free Press) the VT Department of Labor has increased the number of inspectors looking for businesses that do not carry the mandatory workers compensation insurance policy.  Apparently seven Burlington businesses have been caught so far and according to the article, the penalties can be very high and are getting higher.

As of July 1, 2010, any business caught without the required coverage can be “closed immediately” and the penalties will increase from the current $150 a day rate to the new and tougher $250 a day penalty for every day the business is out of compliance.  OUCH! 

Okay - I agree that it sounds harsh, but the alternative can be even harsher.  A business owner without this insurance could find himself responsible for medical and financial costs if an employee becoming injured or disabled from a work-related injury or accident.  I have heard employers say it’s too expensive, or that their employees don’t do risky work so why bother - but considering that anyone can have an accident no matter how careful the employer is, it’s really not worth the risk of going without this coverage.

One way businesses try to get around the insurance and tax costs of hiring employees is to hire people as subcontractors.  The construction industry is notorious for this.  Often their workers have no other clients and in effect, since they only work for one contractor, they are being misclassified and should really be treated as employees.  As of July 1st, The penalty for this kind of misclassification can be as much as $5,000 for each “employee”.  OUCH again!

It’s recommend that you review your use of subcontractors to determine if you fall into this trap.  If your subcontractor has other clients, has business cards, carries business liability and workers compensation insurance (ask them for a binder or a copy of their policies), if they have and maintain their own tools and vehicles, and if they can hire their own workers to perform the job, then they are a true subcontractor.  If the above does NOT apply to your subcontractors, you may find yourself at odds with the State.

Refer to the VT Department of Labor site for additional information as it pertains to your business practices: http://labor.vermont.gov/InfoCenter/june2004/tabid/292/Default.aspx

It is widely recognized that micro businesses typically finance their operations with credit cards.  In years past this was not only acceptable, it was also the easiest and quickest way to obtain financing for equipment, inventory, expansion, and for boosting cash-flow.

It may still be easy for many small business owners to obtain credit using this method, but now this quick credit comes with a very big risk.  The credit card companies are no longer following the old rules of operation.  Typically the old rules said that if you kept within your credit limit, paid your credit card payments on time, and weren’t overloaded with debt, your credit limit would increase annually and your interest rate would remain relatively stable.  You could often renegotiate that rate to get a more favorable lower rate after proving your credit worthiness.

This is no longer true.  Because the rules are changing, and because you are often notified in a document that requires a magnifying glass to read, you may find yourself strapped with a high interest rate when you can least afford to pay that rate.  Card holders are being told their interest rates are doubling or tripling and the card companies aren’t saying how they decide who gets the higher rates or when they will increase.

To survive this tight credit period and uncertain credit card rates, business owners will be smart to nurture a relationship with their local bank or credit union.  Having a good handle on your spending and knowing how to present your business’ financial picture to your lender will help you obtain a credit-line now, before you need it. 

• Learn how to read and understand your balance sheet and income statement
• Ask your tax preparer to explain any differences between your profit & loss statement and your tax return - the lender will want to know
• Be prepared to fully describe your business to the lender and show your knowledge and expertise in your field to reassure the lender that you know your business and are good at what you do.
• Prepare a two-year budget that corresponds to your profit & loss statement
• Be prepared to show how you intend to repay the loan

By working closely with your local lenders you will not only have fewer surprises, you will also have a financial partner who is interested in you and in your success.  That’s something you can never get from a large credit card company.