ARCHIVED  December 1, 1995

Businesses often ignore benefits

All business startups have one thing in mind — making it work.
Owners of new businesses usually lack cash, but they make up for it with long hours, making prototypes, marketing, getting equipment and eventually hiring a few employees.
But many new companies ignore benefits such as health insurance, life insurance, employee stock options and pension and 401(k) plans, all of which seem to be of lesser concern.
“It should be a priority,´ said Bob Martin a partner in Connell/Martin, an employee-benefits company that often consults with small and medium-sized companies on benefits, insurance, credit-card processing and telecommunications.
“Oftentimes, startup companies are under-capitalized, and even with the best intentions they can’t afford to do anything,” Martin said. “Benefits are not mandatory, so many companies don’t bother. Some companies don’t even have workers compensation, which is mandatory — but it’s like car insurance — many people just don’t do it.”
Workers compensation is coverage for workers injured on the job. Employers pay the state for each employee.
Martin said most people would be shocked at how many companies do not carry workers compensation, which is required by law. And many people don’t realize that customers of companies could be liable if a worker is hurt while completing an order for that customer.
In designing an insurance plan for a company, Martin and his partner, Bob Connell, take a complete census of the company, looking over all the records of employees to see how many children, spouses and other dependents would be included in the policy. Then they ask the business owner what type of coverage he or she desires.
“We find out if they want to add maternity coverage,” for example, Martin said, “and what ancillary benefits they want, such as life insurance, disability coverage and other plans. We represent 30 insurance companies.”
Insurance companies don’t want to insure some businesses, and it might come as a surprise to know these are not companies that have a greater accident risk and need more disability coverage.
The businesses that have a hard time getting insurance are law firms.
“A lot of companies won’t insure law firms because they are afraid of lawsuits,” Martin said. Some companies will insure them, but they place a surcharge on their insurance.”
Usually, but not always, life insurance comes as part of the health-insurance package most companies offer.
Disability insurance, however, is an option. It is an option many businesses that are financially strapped tend to cut. and this can have serious repercussions.
“Many companies get into trouble when they don’t have disability insurance,” Martin said. “But small companies often don’t think they need it.
They get into trouble when they have someone who is a faithful employee and has worked there a long time and he has a heart attack. They may decide to pay that person’s salary for a while. But what happens when you have three people with a heart attack and you can’t afford to pay three salaries, plus hire people to replace them.”
Most companies don’t even have employee manuals that state the company policy on long-term disability. Disability insurance would pay the salaries for disabled employees, at least for a period of time.
“More people than you would think become disabled while working,” Martin said.
When health insurance is optional for employees, insurance companies require that at least 75 percent of the employees in a company sign up for coverage, or insurance companies refuse to write the policy for the business.
“This is standard,” Martin said.
Connell/Martin started their business about a year ago, and now they both travel all over to help clients.
“New businesses are very conscious of cost, and they need to keep their overhead as low as possible,” Connell said. “I work with large companies, too, but I really like working with small and medium-sized companies, because then we can set up the programs right in the beginning.
One new issue for insurance companies this year is Colorado House Bill 1210, which was passed in June 1994 and states that sole proprietors can now join group policies. Before this, a business had to have at least two employees to join a group policy. By joining a group, pre-existing medical conditions or riders on insurance policies exempting certain medical conditions will be eliminated.
“This will eliminate job lock,” Connell said. “In the past, people were prevented from leaving a job and starting a business because they couldn’t get health insurance. Now you can get health insurance with no riders even if you have pre-existing conditions if you are a sole proprietor.”
Connell said this will enable a lot of people to start a new business. “But rates will go up with the new law,” he warns.
Insurance companies have already started tap dancing around the new law. “I see that some insurance companies will pull out of the market for a while in subtle ways,” he said. “They will raise rates and won’t get much business for a while, but they have covered themselves.”
For most entrepreneurs entering a new business venture, the subtleties of benefits don’t even enter the picture.
“Sick leave and vacation doesn’t even enter the entrepreneur’s mindset in the beginning,” Connell said. “They just make up policy as they go along. Businesses need to seek out people that they can trust for advice and establish a rapport with those people.”
It is not surprising that most businesses put benefits on the back burner.
New businesses are usually struggling just to survive. “In general, it takes businesses from one to three years to make a profit,´ said Diana Van Den Berg, executive vice president of InfoVision Inc. in Fort Collins. Many businesses can’t sustain themselves for three to five years, and many good products can’t get to market because the business can’t sustain itself that long.
Van Den Berg’s company offers financial services, fax and modem services and marketing on the World Wide Web.
For a new business to survive and offer benefit packages, companies must do their homework. When John Nichols and John Parker started Foothills Specialty Electronics Co. in Loveland three years ago, they took courses to improve their business acumen.
“I took the Leading Edge Business Assistance Class while I was still working at Hewlett-Packard,” Nichols said.
And he is glad he did because the paperwork and regulations were more work than he anticipated. “It was a bigger can of worms than I thought it would be, things like taxes,” he said. “We did not have to have workers comp in the beginning because we were both shareholders. We had a CPA right from the beginning, and he advised us.”
Starting with $15,000, the company, which is a circuit-board assembly business, expects to do $350,000 to $375,000 in sales this year. With 12 employees, the company implemented a health-care program last year.
“We looked around for a long time before we found a plan we liked. We do a lot of shopping around,” Nichols said. “We don’t have a retirement plan yet, but we are investigating that, and we want to do that next year.”
Martin said most companies are switching from pension plans to 401(k) plans because the pension plans are so expensive and complicated to operate with all the new government regulations. Many insurance companies will manage a 401(k) plan for a company that has purchased their health-care program.

All business startups have one thing in mind — making it work.
Owners of new businesses usually lack cash, but they make up for it with long hours, making prototypes, marketing, getting equipment and eventually hiring a few employees.
But many new companies ignore benefits such as health insurance, life insurance, employee stock options and pension and 401(k) plans, all of which seem to be of lesser concern.
“It should be a priority,´ said Bob Martin a partner in Connell/Martin, an employee-benefits company that often consults with small and medium-sized companies on benefits, insurance, credit-card processing and telecommunications.
“Oftentimes, startup…

Christopher Wood
Christopher Wood is editor and publisher of BizWest, a regional business journal covering Boulder, Broomfield, Larimer and Weld counties. Wood co-founded the Northern Colorado Business Report in 1995 and served as publisher of the Boulder County Business Report until the two publications were merged to form BizWest in 2014. From 1990 to 1995, Wood served as reporter and managing editor of the Denver Business Journal. He is a Marine Corps veteran and a graduate of the University of Colorado Boulder. He has won numerous awards from the Colorado Press Association, Society of Professional Journalists and the Alliance of Area Business Publishers.
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