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Content about Financial economics | AmericanCoinOp.com
March 4, 2013 Access to Small-Business Loan Programs to Expand Under Proposed Rule WASHINGTON — Borrowers of SBA-backed loans gain greater access to capital, have less paperwork under proposed rule changes WASHINGTON — Borrowers and lenders of U.S. Small Business Association-backed loans will have greater access to capital and less paperwork as a result of a proposed regulation aimed at streamlining the application process while strengthening oversight and program integrity.
“Streamlining and simplifying has been a key focus of our agency over the last few years,” says SBA Administrator Karen Mills. “The changes are the latest steps to reduce paperwork burden, with our eye on the larger goal of expanding access to capital and giving entrepreneurs and small-business owners the financial resources to grow and create jobs.”
The SBA proposes the new measures after extensive consultations with lenders and borrowers to identify the greatest challenges they face and find ways to reduce barriers to making and accessing loans, while still maintaining strict oversight.
Among the proposed changes are:
Eliminating the Personal Resource Test — A borrower will no longer be required to obtain a maximum level of personal finance resources for a 7(a) or 504 loan. This will streamline the loan process by eliminating complicated regulations used to determine the amount of collateral required.
Revising the Rule on Affiliation — Revising this rule will open access to SBA loans to businesses that, under current rules, would not qualify as a small business under SBA’s size standards by virtue of their association with other companies. It also would streamline 504 loan applications and reduce paperwork requirements for 504 and 7(a) loan applications.
Eliminating the Nine-Month Rule for the 504 Loan Program — This will remove a restriction that limits a business to include in its 504 project only expenses incurred nine months prior to submitting the loan application. The new rule would allow inclusion of expenses incurred at any time (e.g., projects put on hold for more than nine months due to a natural disaster).
Visit the SBA website for comprehensive information on the new rules and their potential benefits for your vended laundry business.
The full text of the proposed rule published in the Federal Register is available here. September 11, 2012 Succession Planning: Passing the Torch (Part 1 of 2) NEW YORK — Misunderstandings and disputes can turn business transition into costly train wreck NEW YORK — Most family business owners expect their thriving enterprises to transfer to the younger generation with minimal fuss and bother. Reality, though, can be far different. Absent a carefully designed plan, misunderstandings and disputes can turn any business transition—including ownership of coin laundry stores—into a costly train wreck.
Parents must analyze the skills and proclivities of their children before assigning future management roles. While such assessments can help smooth the transition, even the best of such plans needs the support of legal documents that ensure power flows to the right people and sufficient cash is available to make everything happen on cue.
SETTING TERMS
Often the most important transition document is the so-called “buy-sell agreement,” which specifies how ownership will be allocated and how the sale of shares will be funded. “A buy-sell agreement is crucial to a smooth ownership transition for a family business,” says Gregory Herman-Giddens, a board certified specialist in estate planning at the law firm of TrustCounsel, Chapel Hill, N.C. “It allows for one or more of the children who are active in the business to buy out a parent who retires or dies.”
Buy-sell agreements typically cover an array of issues that go beyond the basic transfer of ownership upon the death or retirement of the original owners. They also typically cover how ownership will transfer when one of the children exits the business, either through death, disability or even a decision to go into another line of work. Will the business itself, as an independent entity, buy up the shares of the departing individual? Or will the remaining siblings as individuals have the right to buy up the shares?
Here are some other issues that buy-sell agreements often cover:
What if one of the siblings desires to sell shares to an outside third party?
Must the siblings be offered the shares first?
How much time do they have to reach a decision?
And what if a child wishes to withdraw capital from the business? How much money can an individual owner take out, over what period of time, and how much prior notice must be given to the other owners?
These agreements also often specify the methods by which internal disputes are resolved. Some issues will lend themselves to arbitration or third-party mediation. For those which can be resolved by voting, the agreement will specify who has the power to vote and whether a simple majority or super majority is called for.
Buy-sell agreements can be real lifesavers in sticky situations. For example, they can avert unexpected shifts in power to unqualified individuals. “Often one member of the second generation receives share of ownership, then gets divorced,” notes John J. Scroggin, a partner at the estate planning law firm of Scroggin & Company, Roswell, Ga. “That individual’s former spouse now owns the equity. Unreasonable demands can follow, and that can be a thorn in the side of the family.”
The solution, says Scroggin, is to draw up clauses in buy-sell agreements that anticipate common and costly events such as divorce or unexpected death. To do this, the document should mandate a “call right” on shares that are gifted to children. The “call right” is a provision that empowers remaining family members to buy out the shares of a non-family spouse who may survive the divorce or death of a family member who was in an ownership position.
PRICING THE BUSINESS
The buy-sell agreement will usually specify the method for determining the business’ value upon the death or departure of an owner. “Commonly, the plan may call for a valuation to be done by a business valuation expert or CPA,” says Herman-Giddens. “There may also be a tie-breaker provision: Survivors who disagree over the business’ value might be able to choose their own expert, and then either those two experts agree on a third expert or the two values are averaged.”
An alternative valuation system specifies a formula to be used, such as a multiple of earnings. This can be problematic, though, since economic conditions at the time of a partner’s retirement or death may differ substantially from those at the time the plan is put together, making a pre-set formula inappropriate.
Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an attorney or financial adviser for advice regarding your particular situation.
Tomorrow: Tips for avoiding the hidden pitfalls of family business transitions August 30, 2012 Building Better Business Credit (Part 2 of 2) ARDMORE, Pa. — What steps can a coin laundry owner take to improve the creditworthiness of his/her business? ARDMORE, Pa. — Things go a lot easier when potential lenders, suppliers and partners can decide to take a risk based on a laundry business’ credit history and capability of repaying obligations. With strong business credit, a business can borrow at a lower cost, with more favorable terms. In fact, many small businesses with good business credit have discovered it is possible to get loans without an onerous and often embarassing personal guarantee.
Obviously, business credit is quite difficult to get. For any small-business owner, navigating the credit and lending world can feel like a vicious Catch-22. Most commercial banks and traditional lenders are reluctant to loosen their purse strings until would-be borrowers have proven themselves with a strong credit history. But it’s difficult to develop that good record when no one will lend in the first place.
Suppliers often allow their customers a grace period before requiring payment for the goods or services they provide. This is called vendor or trade credit and it permits every laundry business to generate at least some revenue from sales before they have to pay for the supplies, goods or products. Vendor or trade credit is also often easier to obtain than bank credit because it doesn’t require collateral. Unfortunately, trade credit can be quite expensive.
Terms of 2% 10 days, net 30 days (2% discount if paid within 10 days, the net [full] amount due in 30 days) translates into a 36% or 37% annual interest rate if the cash discount is foregone. While trade credit may be appealing to laundry businesses looking to save money, beware when opting to take these discounts.
BUILDING MORE CREDIT
It is important to remember that business credit cannot be built overnight. Everyone should think about the business credit of his or her laundry operation from day one. Having access to credit can help any business adapt to changing conditions and position itself for success. But what steps can a coin laundry owner take to improve the creditworthiness of his or her business?
Always pay on time. An operation’s ability to repay loans promptly has the greatest impact on its credit score. On-time payments are the most direct way to improve a credit rating.
Ensure creditors regularly report the operation’s payment history to the credit bureaus. If timely payments to suppliers and lenders are not included in its profile, the laundry business may not get the credit it deserves for paying bills on time. It goes without saying that the credit profile should be monitored at least twice per year to ensure that all vendor payment relationships are included.
Maintain good personal credit. After all, well-managed personal finances can indirectly impact the business’ creditworthiness. Personal and business credit ratings are separate, however, and do not directly affect one another.
Contribute to the business’ credit profile. The more information provided to credit bureaus, the more robust its credit profile will be. In addition, wherever possible, choose suppliers and vendors that report their experiences to credit bureaus, which will also help boost the operation’s profile.
As already mentioned, the best place to start building or rebuilding business credit is with suppliers. Many types of suppliers, including major brands, extend lines of credit that give businesses the opportunity to finance purchases and conserve their cash.
In addition to goods and merchandise for resale, a laundry business can obtain products such as office supplies, computers and marketing materials with payment terms ranging from net 30 to net 60 days. Of course, the focus should remain with applying for credit with suppliers that provide products and/or services needed on a regular basis, in order to make regular purchases using the operation’s credit line. By paying invoices on time, every laundry business can build a credit history and increase the operation’s creditworthiness.
With a strong business credit report, a coin laundry owner can stop relying on personal credit to qualify for needed financing. Because creditors, lenders or suppliers can now easily determine the operation’s risk level with a business credit check, qualifying will be a much easier process.
Building business credit can also improve a store owner’s image, protect the owner’s personal credit, limit liability, and increase credit capacity since businesses can obtain 10 to 100 times greater financing than an individual. But the time to think about credit for your laundry business is now—before it is really needed.
Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult a financial adviser for advice regarding your particular situation.
Click here to read Part 1! August 28, 2012 Building Better Business Credit (Part 1 of 2) ARDMORE, Pa. — With stronger credit, a business can borrow at a lower cost, with more favorable terms ARDMORE, Pa. — Things go a lot easier when potential lenders, suppliers and partners can decide to take a risk based on a laundry business’ credit history and capability of repaying obligations. With strong business credit, a business can borrow at a lower cost, with more favorable terms. In fact, many small businesses with good business credit have discovered it is possible to get loans without an onerous and often embarassing personal guarantee.
When a business issues or extends credit to another business, it’s referred to as “trade” credit. Trade, or business, credit is the single largest source of lending in the world.
Information about trade credit transactions is gathered by the credit bureaus to create a business credit report using the business name, address and federal tax identification number (FIN), also known as an employer identification number (EIN). The business credit bureaus use this compiled data to generate a report about a company’s business credit transactions. In many cases, those extending credit will rely on that business credit report to determine if they want to extend credit—and how much credit they’ll give.
The major business credit bureaus that compile and provide copies of the reports are:
Dun & Bradstreet (dnb.com)
Experian Business (experian.com)
Equifax Business (equifax.com)
Unfortunately, because information provided to the business credit bureaus is submitted voluntarily—no business is required to send it in—the credit bureaus may never receive much, or even any, information about a coin laundry business’ credit transactions. In fact, many businesses go for years racking up business credit without any of it being reported to the credit bureaus.
ESTABLISHING BUSINESS CREDIT BASICS
Fortunately, there are a number of proven strategies that can help establish the credit worthiness of any laundry business and gain recognition from the credit reporting agencies:
1. If not already incorporated, forming a corporation or LLC (Limited Liability Company) to operate the laundry business, and obtaining an FIN or EIN from the IRS should be considered. Corporations and LLCs afford business owners liability protection, and a business credit profile can be created that is separate from the owner’s personal debts. 2. Every laundry business should be registered with some, if not all, of the business credit bureaus. Dun & Bradstreet (D&B), for example, is one of the main business credit bureaus and maintains its own business credit score. An established business with an EIN can begin the process by applying for a free DUNS number. The number is how lenders will determine the operation’s creditworthiness (most business credit card and lending companies will ask for a D&B number during the application process).
3. Apply for a business credit card. Although most major credit card companies require that cardholders be in business for at least two years before they will extend credit, there are many small, local banks that are more accommodating to small businesses. They may be even more accommodating if an owner or manager is savvy enough to set up a business bank account with them!
Even though the laundry business may not require more credit cards to finance its operations, it should still apply for more business credit cards. In business, the 5-3-2 rule is key—a business’ credit record is not considered established and solid until it has at least five trade accounts, at least three credit cards, and at least two small loans fully paid off.
4. Comply with all business requirements. Not being in compliance with local, state and federal rules, ordinances, regulations and laws can raise red flags with both credit bureaus and those who grant credit. Potential red flags include such things as a lack of a business license or a phone line. Many suppliers will not grant credit to another business that hasn’t taken the steps to set the operation up with the proper licenses or meet local, state and federal requirements.
5. Financial statements and a professional business plan are a necessity, particularly in today’s economy. These documents are also required by many credit grantors.
6. Finding companies willing to grant credit to the laundry business without a personal credit check or guarantee is also a good strategy. When a supplier grants a business credit, it is important to ensure they report the payment experiences to a credit bureau. This step can help build a business credit report as well as provide a financial foundation for the operation.
7. Manage debt so the laundry business, large or small, won’t experience trouble making payments, which will negatively affect its credit score.
8. Monthly payments to credit grantors will keep a business credit profile active.
9. Get a website. It may not seem like a must in building or maintaining business credit, but D&B now shows and lists websites on credit files. Many banks also use the fact the operation has a website as a positive factor in determining the creditworthiness of a borrower.
Check back Thursday for Part 2! August 22, 2012 Coin-Op Laundry Insurance Q&A (Part 2 of 2) CHICAGO — If a coin laundry doesn’t have proper insurance protection, an incident could be difficult to recover from CHICAGO — Fire, liability or a worker injury is a risk that a coin laundry faces every day. If the business doesn’t have the proper insurance protection in place, an incident could be difficult to recover from. In a worst-case scenario, it could even put it out of business.
American Coin-Op invited representatives from the industry’s major insurance providers to answer some questions that the average self-service laundry owner might have about protecting their business investment.
ACO: How often should a laundry owner evaluate his/her insurance coverage?
Steve Brodie, senior vice president, Wells Fargo Insurance Services USA: Things change all the time. I would review the liability when the lease is coming up for renewal and just keep in touch with your distributor annually on any major equipment price increases so you can raise your personal property value accordingly.
Adam Weber, president, Irving Weber Associates: All insurance policies should be evaluated yearly at the time of renewal at a minimum. If, over the course of the given term, changes are made to the building, machinery, autos, etc., the insurance should be re-evaluated at that time as well.
Anne Hawkins, senior underwriter, NIE: A good agent will contact his insured at least two months before renewal to review current coverage and make possible upgrades or changes. If an agent does not contact the owner in this manner, it may be time to look for a new agent. Don’t let a renewal go by without reviewing your coverage with the agent or carrier. There may be changes that are occurring to the insurance or you may have some new operation that needs to be covered.
I find that many Laundromat owners actually have other jobs and businesses and are extremely busy people. But always take those 15 minutes to remember what’s covered/not covered at the Laundromat. If you can’t be reached by phone, let your agent know that he can reach you by e-mail. I find it a convenient way to communicate, but it’s always nice to speak to the owner so responses are immediate and carry a more personal touch.
Larry Trapani, president, Brooks Waterburn Corp.: The insurance landscape is constantly shifting. In terms of price shopping, I recommend you review your policy about every two years. I do strongly suggest an annual conversation with your agent to review coverages. You may have bought new equipment during the year and the values need to be adjusted. The agent can also review new discounts that become available during the year.
ACO: How does the presence of a surveillance/security system affect a store’s insurance coverage and cost?
Weber: Surveillance/security system would lower the costs of most property coverage as this is a definite deterrent to theft, vandalism and similar situations causing a claim. Surveillance systems can also assist in determining if there was an actual fault on the business owner’s part in a liability claim, such as to whether a water spill caused a slip-and-fall.
Hawkins: That determination would be made on a company by company basis. I find that unless surveillance tapes/discs are kept for at least 2 years, they may not be of help for liability purposes. Why? Someone may fall on your premises and you may not hear a word about it until the statute of limitations is about to run out (two years in most states). In the meantime, the claimant has seen an attorney and been treated by a chiropractor for two years, running up many expenses. Then, out of the blue, you receive a lawsuit. If you haven’t kept the surveillance footage, it’s hard to contest the claim.
Security systems are great, but in many cases someone forgets to turn them on, they aren’t working for some reason, or they are working but the burglar is able to get in and out before the police arrive. They may be a customer during the day, trying to figure out exactly how they are going to pull it off quickly without getting caught. On the other hand, the fire portion of the security system is important. It can keep a small fire from becoming a potential total loss.
Trapani: Every insurance company has different credits for security systems. While most give a credit for alarms, cameras, etc., the discount is relatively small. The real savings occurs when cameras protect you from bogus liability or employee dishonesty claims. I’ve gotten many slip-and-fall and workers’ comp claims denied because the store owner had cameras on the premises and the claim proved to be false.
Brodie: It helps greatly in the defense of a liability case, so many carriers give a small credit for the installation of live, taped security systems (both fire and burglary).
ACO: What new developments in insuring coin laundries have there been in the last two years?
Hawkins: Coin laundries can now be insured on a business owners policy, which was not available to most carriers (for this exposure) two years ago through the rating service that most insurance companies use (ISO). This policy is quick to rate, quick to quote, and pretty much boilerplate. The cost and the use of this policy varies by insurance company.
Trapani: Insurance is a cyclical business. There are long periods of time (often five years or more) of insurance premiums going down and shorter periods of prices going up. Unfortunately, we are in one of the periods of higher prices. It started last year with some modest increase and looks to continue through the end of this year.
Some insurance companies have stopped writing the class of the Laundromat business altogether, while most are just raising their prices. The good news is that these cycles usually don’t last long. I think we’ll start seeing a downward shift in pricing in late 2013.
Brodie: Consider adding employment practice liability if you have employees, as well as pollution coverage. Sometimes pollution covers more than you think; for example, mold is a pollutant that’s excluded from all standard policies, but is covered under a pollution policy. Consider this if you have an apartment above the laundry. The heat and moisture in some stores creates mold, and the tenant then sues the laundry owner. Without a pollution policy, your standard insurance normally will not respond.
Weber: Insurance policies should be reviewed for the business property limits, as these have often changed in recent years. The policy was probably originally taken out to cover a loan taken on the equipment. Since that time, the equipment found in Laundromats has changed greatly with the times, particularly in terms of electronics.
Laundromats now usually contain flat-screen TVs, Wi-Fi equipment, computer connection equipment, key fob and/or card readers, and other electronics, which will add considerably to the property value at the location. Review and update this information often to be sure there is adequate coverage.
Q: What general advice about insurance can you offer a coin laundry owner?
Trapani: The best advice I can give a coin laundry owner about insurance is to be proactive. Read your policy, talk to your agent, and make sure your investment is well protected. You have insurance so you sleep well at night.
Also, make sure your agent has experience in writing Laundromats. While the class of business can be written by virtually any agent, if they don’t know the industry and ask the right questions, they may be missing coverages and leave some serious gaps in your protection.
Brodie: The best advice is to insure with a broker that has experience insuring coin laundries. Many local agents insure small businesses, and in this current economy are more than willing to insure a coin laundry, but they know nothing about the business. Go with a knowledgeable broker that has many stores insured, is recognized throughout the industry, and will be there to help with the claims process.
Weber: Be sure to have the correct insurance for your type of business. Standard business insurance doesn’t take into account the industry-specific needs with regards to water damage, bailee coverage, boiler coverage, etc. It is important that your insurance carrier offers coverages specifically designed for the Laundromat industry.
Also, review and update your coverage limits annually and whenever changes such as new equipment and building updates are made. And be sure that you are up front and honest with your insurer about hours of operation, if your operation is attended or not, and if you have certain systems in place (fire/burglar alarms, cameras, etc.) and that they are in working order; insurers will review this against the application at the time of a claim.
Insure your property to the proper value because if you do not, there may be penalties involved at the time of a loss.
Maintain your premises and equipment to keep losses down, which in turn keeps premiums down.
Be sure you have the proper venting installation. If you are not using class B vents, your premium may be higher. Also, make sure vents do not come into contact with combustible building materials.
Clean dryer vents daily; lint sparks a fire easily.
Call your agent or carrier if you have any questions regarding your insurance, your premium or loss-control questions. It’s their job to service your insurance needs.
Click here to read Part 1! August 21, 2012 Coin-Op Laundry Insurance Q&A (Part 1 of 2) CHICAGO — If a coin laundry doesn’t have proper insurance protection, an incident could be difficult to recover from CHICAGO — Fire, liability or a worker injury is a risk that a coin laundry faces every day. If the business doesn’t have the proper insurance protection in place, an incident could be difficult to recover from. In a worst-case scenario, it could even put it out of business.
ACO: What specific coverages do you believe are absolute requirements for any coin laundry, and why?
Adam Weber, president, Irving Weber Associates: There are many coverages that are industry-specific, such as bailee coverage for operations that offer attendant service (as well as those that don’t) such as wash and fold, but may experience an equipment malfunction that damages a customer’s clothing while being processed.
Other important coverages are water damage caused by sewer system backups, signs, general liability, parking lots, and equipment breakdown (including equipment and/or boilers and machinery if present). Also, business property coverage should be considered not just for machinery but also folding tables, TVs, chairs, vending machines, computer systems, card readers, etc.
Anne Hawkins, senior underwriter, NIE: At a minimum, every coin Laundromat should carry these coverages: Building (when owned by the business owner) — If it’s an older building and you wouldn’t rebuild, insure for actual cash value. If you would rebuild, insure for replacement cost.
Improvements and Betterments (when the business owner is a tenant) — You will need to replace the building owner’s property that is part of the building if you have a loss due to your negligence. This would include flooring, lighting, paint, wallpaper, etc.
Business Personal Property (at replacement cost) — When you determine the replacement cost, be sure to include delivery, installation and taxes because these are included in the loss amount.
Loss of Income (for minimum of three days) — This pays your profit and continuing expenses while you are out of business due to a covered cause of loss that occurs at your location.
Utility Services-Time Element — This pays your profit and continuing expenses while you are out of business due to a covered cause of loss that occurs away from your premises, i.e. downed power lines due to windstorm.
Utility Services-Direct Damage — This pays for damage done to your equipment due to a covered cause of loss that occurs away from your premises, i.e. when the power comes back on, some or all of your equipment is not working.
Equipment Breakdown — Even if you do not have a boiler at your location, there are many other pieces of equipment that can fail due to an accident such as a power surge that is not caused by a covered cause of loss, i.e. power company equipment failure.
Bailee — If you are doing drop-off dry cleaning and/or wash/dry/fold, you need to have coverage for your customers’ items that may be in your store overnight or for any length of time.
Liability — Coin laundries have high liability exposure due to the volume of customers who enter their store and stay on the premises while doing laundry.
Larry Trapani, president, Brooks Waterburn Corp.: While a Laundromat owner needs many types of coverage, here are what I feel are the most important:
Business Personal Property (AKA Contents) — This coverage protects your washers/dryers, vending machines, coin changers, basically all your stuff inside the building. Make sure the coverage is valued at “Replacement Cost” rather than “Actual Cash Value,” because if there is a claim, you want what it cost to get new machines, not the value of a 10- or 15-year-old machine. When you buy this coverage, think of how much it would cost you to replace all of your equipment if you had to buy it today.
Tenant Improvements (AKA Build-out) — This is the cost that you put into the space you are renting. It includes electrical, plumbing, lighting, flooring, etc. Sometimes, these values can be $75,000 to $100,000. It is by far the most overlooked coverage when I review competitors’ policies.
Liability — This covers slip-and-falls, children running into tables, or any other type of incident that might get you sued. Standard coverage is $1 million but some landlords require $2 million or more.
Workers’ Compensation — The truth is, the Laundromat industry is a cash business. Many store owners pay workers “off the books.” The IRS is cracking down on small business. In most states, employers are required by law to carry workers’ comp insurance. And classifying employees as “independent contractors” will not fly. More than one of my customers has been caught doing that and paid significant fines. Steve Brodie, senior vice president, Wells Fargo Insurance Services USA: Key insurance issues are property coverage and adequate liability protection. Within these two broad segments, you want to make certain on the property side that you have full replacement cost for both equipment and tenants improvements, along with business income protection. Get your distributor involved by asking, “What would it cost to rebuild my store today?” Once you have that answer, discuss it with your insurance broker. Many times, fees (sewer hookups are a good example) do not have to be paid again.
On the liability side, review your lease as a minimum requirement, then discuss your own personal net worth, or that of the LLC, corporation or partnership that owns the store.
Last item of importance, but by no means should it be forgotten, is workers’ compensation. Laws differ in each state based on labor codes. Do not have a person in the store, even if advised by your CPA, that you call an “independent contractor” who is not covered by workers’ comp. If you have that exposure, take out a minimum premium compensation policy, evenif your CPA gives them a (Form) 1099 and classes them as independent. The only time this is questionable is if you hire another company (janitorial, for example). Make sure they supply proof of insurance and a “waiver of subrogation” from their workers’ comp carrier.
ACO: What are the biggest insurance risks in a coin laundry setting, and why?
Hawkins: The biggest risk is the liability exposure due to wet floors and/or damaged floor tiles from water leakage, plastic furniture that can collapse, lack of supervision of children, stools used to reach equipment controls, and improper maintenance of equipment. Burglary is another big risk. When someone burglarizes a coin laundry, they usually destroy the coin boxes on each machine and vandalize coin changers. This gets expensive and happens frequently.
Trapani: The biggest risks in a coin laundry setting can be broken down into two areas:
Property Losses — The largest and most frequent claims are dryer fires. It usually has to do with not cleaning lint traps or ducts. As you can imagine, most fires cause significant damage because the dryers and washers are closely grouped together and the fire easily spreads. A good housekeeping procedure can help reduce these types of claims.
Liability Losses — While trips and falls are common, lately, I see more children getting hurt in stores. Parents don’t always pay close attention to their kids, who run into things, pull down tables on top of themselves or fall from carts. I always suggest that a store owner bolt down tables to minimize some of the risk.
Brodie: Fire and liability claims are your biggest exposures to loss and cost the most when they happen.
Weber: Fire is probably the most common and easiest to avoid. Fires can easily begin in these businesses due to buildup of lint in dryers/exhaust vents, poor maintenance of heat-limiting safety devices (switches on dryers), combustible material stored near dryers or water heaters, washing materials soaked in flammable liquids such as gasoline, and buildup of oxygen agents (bleach, for example) through overuse.
Additionally, liability claims for alleged slip-and-falls are prevalent with this industry group.
ACO: How does the status of a store—unattended or attended—affect its insurability?
Trapani: The status of a store has a significant impact on insurance premiums. Unattended stores obviously are not as closely watched as attended stores. If something goes wrong, nobody is there to minimize the damage. Insurance companies know this as well and charge accordingly. The premium can be up to 40% more for an unattended store.
A note of caution here: If your store is unattended, make sure your insurance company knows it. If there is a loss, you may have trouble collecting because the insurance company can state that if it had known the store was unattended in the first place, it would not have written the account and thus deny the claim.
Brodie: They are both insurable; the attended store might get a little bit less premium based on someone attending the store during operational hours. Around-the-clock operations, as sometimes can be found in cities like New York and Las Vegas, pose different risks and must be 100% attended, usually with two people on duty at a time.
Weber: Unattended stores are at a higher risk of theft, vandalism and claims in general. Any time a business is left unattended, it is at a much greater risk of incidences that would require the use of your business insurance policy and generally are not as desirable to insurers.
Hawkins: It may depend on the individual insurance carrier. It’s been my experience that the unattended Laundromat pays more premium than the attended Laundromat due to the vandalism issue and the lack of a witness when someone reports an injury.
Check back tomorrow for Part 2! June 28, 2012 Insurance Firm Introduces Services for Coin-Op Owners RONKONKOMA, N.Y. — Will continue to work with local insurance brokers to offer coin-op program RONKONKOMA, N.Y. — Irving Weber Associates (IWA), which has provided business insurance protection to the fabricare/dry cleaning industry for many years, says it is expanding its services to owners of coin-operated and self-service laundries.
“We have been working on this request from brokers and the Laundromat owners for some time now,” says IWA President Adam Weber. “The extra time it has taken us was to ensure the Coin-Op Advantage Program™ was as exceptionally suited for the diverse and advancing Laundromat industry as our Fabricare Advantage Program™ has been for dry cleaners.”
IWA will continue to work with local insurance brokers to offer the coin-op program. “The design and benefit of this program will only be seen by the above-average Laundromat operations,” says Weber. “We will be offering the Coin-Op Advantage Program to owners that are involved with up-to-date, technologically advanced, clean facilities in emerging communities.”
He says this is being done to keep insurance costs down, while providing comprehensive coverage to Laundromat owners “who have invested in the long-term success of their business.” June 18, 2012 Insurer Says Failure to Plan Puts Businesses At Risk JOHNSTON, R.I. — No quick recovery from natural disaster, 75% of U.S. workers fear JOHNSTON, R.I. — Are you prepared should a natural disaster strike your coin laundry? Would it be safe to be in your store? If you run an attended store, what do your employees think?
An overwhelming majority of Americans do not feel their employers are well prepared for, or might not recover quickly from, a natural disaster, according to research reported by property insurer FM Global.
The firm’s Business Risk Pulse Check finds 75% of U.S.-based workers feel their employer is not well-prepared for a natural disaster, and 72% of those polled would not feel totally safe in their workplace during such an event. Additionally, the study finds 71% of U.S. workers are not fully confident their employer could bounce back quickly. The survey comes on the heels of a record year for natural disasters in 2011.
The research, commissioned by FM Global and conducted by global research firm TNS, polled more than 1,300 U.S. workers nationwide to gauge perceptions about natural catastrophe-related risk in the workplace.
“Business resilience is more than just about getting back on your feet, it’s also about doing the right things to make sure you don’t get knocked down in the first place,” says Jon Hall, executive vice president, FM Global. “The findings demonstrate how critical it is that business leaders better prepare for natural disasters and ensure those efforts are understood within the workplace.” February 27, 2012 Man Sentenced to Five Years in Prison for Laundry Arson TEXARKANA, Texas - A man was sentenced to federal prison for burning a northeast Texas laundry TEXARKANA, Texas — A 35-year-old Texas man has been sentenced to federal prison for his role in a 2008 fire that burned a northeast Texas laundry, according to U.S. Attorney John M. Bales.
Justin Rodney Glenn pleaded guilty in December to conspiracy to commit arson and was sentenced earlier this month to 60 months in federal prison by U.S. District Judge David Folsom. Glenn was also ordered to pay $169,517.12 in restitution.
According to information presented in court, from about April 1, 2008, to June 5, 2008, Glenn conspired with others to burn down commercial buildings in order to submit fraudulent insurance claims and collect insurance proceeds.
He recruited and agreed to pay individuals to set fire to the Washtub Laundry, also known as Gary’s 24 Hour Wash and Dry, which burned on June 5, 2008. This caused a fraudulent insurance claim to be submitted to Certain Underwriters of Lloyds of London, resulting in a loss to the company.
Glenn was remanded into custody following the sentencing hearing. August 3, 2011 The Smart Shopper (Part 2 of 2) CHICAGO — While buying Laundromat insurance may be a less-than-glamorous task, few things are as important to your survival as a self-service laundry owner as protecting your business. Your investment must be looked after. For example, could you afford to rebuild after a disaster? Gambling is for Las Vegas, not the self-service laundry industry.
Have you changed insurance carriers lately? Have you looked for a better deal? Do you know what questions to ask when shopping for insurance?
Take a moment out of your busy business life, and think about the last time you reviewed your coverage. Are the limits adequate? Think about the laundry. Have you made any changes to the store? Have you added any washers or dryers? All of these things have an impact on your coverage.
There’s another way to look at your insurance coverage. Has your carrier contacted you lately? If not, maybe you should ask yourself why. It’s never a bad idea to give a new carrier a chance. The worst thing that can happen is you get to compare prices and coverages. A new deal may be beneficial for your operation.
Before you rethink your coverage, be prepared. Larry Larsen, an industry insurance veteran, offers tips on how best to shop for Laundromat insurance.
Avoiding Key Mistakes
Insurance shopping poses a unique challenge, says Larry Larsen, a 30-year industry veteran and agent for Crusader Insurance Co., Woodland Hills, Calif.
“Everybody wants to save money in the Laundromat business, but when it comes to insuring your Laundromat, you have to be careful you don’t save so much money that you increase your risk,” he cautions.
The most common mistake Laundromat owners make is the failure to properly value their business, Larsen says. “The starting point of any Laundromat insurance policy is the evaluation of what it would cost to rebuild the Laundromat in the event of a total loss.”
Trying to save money by lowering the amount of your property insurance means there could be major problems if you experience a total loss, Larsen explains. “No insurance company is going to pay you more money than the face value of your insurance policy at the time of a total loss.”
You can carry lower insurance amounts, he adds, when you have made the decision to close down and quit the business if you have a total loss. “This applies to people who only have a short term left on their lease, or are leasing on a month-to-month basis. If your store burns and is declared a total loss, your long-term lease may not be cancelled and it will be your obligation to rebuild the Laundromat.”
Confusion often exists when owners buy replacement-cost insurance with the belief that their store will be replaced regardless of how much face-value insurance they have purchased. It’s quite a “surprise” when an owner discovers that the insurance only covers up to a maximum of the insurance purchased, Larsen explains.
Do you know what it would cost to rebuild your store? Read your lease or look at your other building insurance (if you own the building), he says. “As a tenant, many of the items will be covered by the building owner if there is a loss. Absent a lease provision to the contrary, all fixtures you will be required to leave behind at the expiration of your lease may be covered by the building owner’s policy.” This can include the bathroom, water-heating system, water softeners, heating, air conditioners, swamp coolers, electrical panels, gas lines and interior walls.
The lease plays a crucial role in any shopping experience. No one can give you the proper assistance unless the lease is reviewed, Larsen adds.
“The valuation of your Laundromat is not the responsibility of your agent! Your agent probably has not seen your Laundromat, and is only as aware of the condition of your store as you have provided in answers to a few questions.”
Your agent may be the expert in Laundromat insurance, but you’re the expert when it comes to knowing the value of your own business, he notes.
“The second most common mistake is the failure of owners to take the time to understand their insurance. Most owners spend hours evaluating the income-and-expense potential of a Laundromat purchase, but only spend minutes evaluating their insurance coverage. Spend more time evaluating your insurance.”
How does an insurance “amateur” evaluate coverage? “Read the insurance provisions of your lease, learn the definitions of insurance terms, and discuss your potential insurance with your potential agent,” he advises. “A professional agent has allocated up to one hour for each new client to engage in a question-and-answer session. No question is silly, and any agent who avoids your inquiries should be crossed off your list of agents worthy of your business.”
If you have any questions or comments about this article, contact Larry Larsen at laundromat123@aol.com.
Click here for Part 1. August 2, 2011 The Smart Shopper (Part 1 of 2) CHICAGO — While buying Laundromat insurance may be a less-than-glamorous task, few things are as important to your survival as a self-service laundry owner as protecting your business. Your investment must be looked after. For example, could you afford to rebuild after a disaster? Gambling is for Las Vegas, not the self-service laundry industry.
Before you rethink your coverage, be prepared. Larry Trapani, an industry insurance veteran, offers tips on how best to shop for Laundromat insurance.
When acquiring a store, you focus on the terms of the lease, cost of the washers and dryers, and the cost of the build-out, says Trapani, senior partner with New York-based Brooks-Waterburn Corp., an independent agency that represents more than 15 insurance companies with clients throughout the United States.
“Many lenders tell me that the potential owners use their home as collateral against the investment,” Trapani says. “Given that so much is at stake, wouldn’t it be prudent to make sure your business is properly protected?”
This is where the “friendly” neighborhood insurance writer usually enters the picture, Trapani notes. “[This] could be a local insurance agent who handles your home and car insurance, or a direct writer such as Allstate or State Farm. I’ve been in the insurance business for more than 25 years, and the truth is that insuring a Laundromat is relatively simple.
“Most insurance companies want to write this class of business, and are willing to do it at competitive prices. But are they really capable of analyzing your unique situation so that you are adequately protected?”
Just asking a few, basic questions can go a long way in determining if you have the right person or company behind you, he says. Trapani suggests posing the following questions before you request a quote:
How many Laundromats do you insure?
Unless the answer is more than 100, the company probably does not have much expertise in the field, he believes.
How will you cover the build-out?
The build-out is how much you invest in the leased space, and could include costs such as plumbing, carpentry, electrical, etc., he explains. “If the agent answers ‘Huh?’ to your build-out inquiry, it’s best to look somewhere else.”
What markets do you have that specialize in Laundromats, and is the policy you offer specifically designed with coverages for a Laundromat owner?
While this might seem obvious, many agents, and almost all direct writers, only represent one insurance company, he says. “What happens when [the company] stops writing Laundromats, or the price goes too high?”
Other than the basic coverage, what specialized coverages are included in your policy?
At the very least, you should have coverage dealing with customer goods, hired and non-owned auto and business-interruption problems, he explains. “All of these coverages mean the difference between reopening after a loss or not. They are not automatically included!”
Are water heaters and boilers covered?
These pressure vessels are generally excluded from a traditional-package policy, he cautions. “Some business-owner policies do include this coverage, but you need to ask.”
What about workers’ compensation?
“Given that this is a cash business, not all owners pay their employees on the books. The truth is that the IRS is cracking down on traditional cash businesses like restaurants and Laundromats. [The IRS] needs their tax revenue, and are going after easy targets.”
Workers’ compensation is relatively inexpensive, according to Trapani, and you also protect the worker if he or she is injured on the job.
He is often asked how to “stretch money” when it comes to buying insurance and protecting a store. “The easy answer is to buy as much insurance as you can afford. For example, for only a few hundred dollars a year, you can add an ‘umbrella’ liability policy. This is an additional million-dollar (or more) liability coverage above the basic liability policy you have on your Laundromat policy.”
If business picks up, another option is to include policies on you, such as disability income or life insurance, he suggests. “A disability policy would give you the money and, most importantly, peace of mind if you are partially or permanently disabled.”
Similarly, life insurance is a good option to protect your family and investment, too, he says. “If you die, who is going to pay the loans on all of your equipment? Perhaps your spouse does not want to run the Laundromat after you are gone.”
If you have any questions or comments about this article, contact Larry Trapani at ltrapani@brookswaterburn.com.
Next page: Larry Larsen on avoiding key mistakes… July 20, 2011 What’s with the Weather (Part 2 of 2) ST. LOUIS, Mo. — I’m no meteorologist, but I can see what’s been happening since the year began: We’ve been hit with record ice and snowstorms in places that rarely receive it.
And this troubling weather “report” doesn’t end there. The country has experienced more than double the usual number of tornadoes, record-breaking rainfalls and hailstorms, and flooding. And hurricane season only recently began!
Since we have no idea if these weather occurrences will continue or subside, it’s better to be safe than sorry when it comes to taking care of your self-service laundry.
If you feel a bit lost when it comes to understanding insurance matters, you’re not alone. There are some items of coverage that most self-service laundry owners just don’t think about. For example, most of you have loss-of-business income, but that only applies when there is a direct physical loss at your location. When you are out of business due to power failure from a storm, you need a coverage known as utility services-time element.
If you’re a store owner in a coastal area, you are probably aware of utility services-time element coverage due to the probability of hurricanes. After a major hurricane, a city may be without power for weeks.
Utility services-time element coverage is an extension of your loss-of-business income due to damage that occurs away from your premises, like downed power lines or a damaged water supply. Again, this coverage is usually not that expensive, but it’s important not just in coastal areas, but in any area due to the variety of weather events that may occur.
Things may not improve when the power returns. You may turn your washers and dryers on and discover that some of them are not working. The equipment may be damaged by a power surge. To deal with this problem, you should carry utility services-direct damage coverage, which pays to repair equipment that has been damaged due to a loss that occurred away from your premises. This coverage is not expensive, and I believe it’s worth the investment.
Flood is an exclusion on virtually all commercial insurance policies. Flood coverage for building and personal property can be purchased through the National Flood Insurance Program. If you are near a body of water that could flood, ask your agent to get you a flood quote.
Earthquake is another exclusion, but it can be purchased from most insurance carriers. If you are concerned, simply call your agent and you should be able to get a price for earthquake coverage.
Think about your customers in these situations. If you have a true bailee policy, and not just personal property of others, the clothing in your laundry is covered for flood and earthquake. If you are doing drop-off service or farming out drycleaning, you should have bailee coverage included in your insurance package and not just personal property of others.
Bailee also covers the clothing when it is away from your premises, such as when it is being transported to the drycleaner you are partnered with. Personal property of others is only covered at your premises.
Most of you are probably aware of Mark Twain’s famous saying, “Everyone talks about the weather, but no one does anything about it.” That may be true, but if you give your insurance situation some thought and are prepared, you reduce the odds of weather getting the best of you.
Tomorrow: How the SBA steps in to help after disasters... July 19, 2011 What’s with the Weather (Part 1 of 2) ST. LOUIS, Mo. — I’m no meteorologist, but I can see what’s been happening since the year began: We’ve been hit with record ice and snowstorms in places that rarely receive it.
Have you thought about cutting back on your insurance due to economic conditions? Well, now may not be the time to make any insurance changes.
If you’re thinking about cutting back on insurance, here’s a question that needs to be asked: What would you do if one of these disasters hit your community and you lacked the proper insurance coverage?
Three Items to Review
If you want to feel a bit more secure about your store as it pertains to dealing with a potential disaster, take a look at your policies and check these items: policy limits, deductibles (including any special deductibles for wind or hail), and exclusions.
Now decide if you can live with the coverage you have.
Let’s start with limits. Insure your building and personal property for replacement cost. If your limits are too low, you will be out-of-pocket on a loss. A few dollars in premiums can get those limits up, and save you thousands in the long run.
Regarding deductibles, you may think you will save a great deal of money by increasing your deductible, but that is not always the case. Of course, explore this with your agent, but don’t be surprised if the savings aren’t what you had anticipated.
Remember, with wind/hail deductibles, the percentage applies to the limits, not the loss. So, for example, with a 5% wind/hail deductible, if you have a $100,000 wind/hail loss on your $500,000 building, your deductible will be $25,000, not $5,000. Many people do not realize this until after the loss.
Regarding exclusions, read them over so you know what property and what perils are not covered. If you have any questions, call your agent. If you want coverage that is excluded, ask your agent to supply a quote. You will discover that many exclusions can be covered for an additional premium, and sometimes that additional premium is not as expensive as you might think.
If you’re looking for an example of exclusions, consider a fence around your self-service laundry. Did you know that fences are not covered? However, you can add them to your coverage for a small, additional premium.
Tomorrow: Loss-of-business coverage is not enough… May 26, 2011 Forecast: Commercial Real Estate Market Sluggish, but Improving October 22, 2010 Insurance: Tips of the Trade (Part 2 of 2) October 20, 2010 Insurance: Tips of the Trade (Part 1 of 2) October 1, 2010 Risk: Weighing Insurance Factors September 20, 2010 SBA Encourages Businesses to Prepare for the Worst February 22, 2010 Mac-Gray Initiates Quarterly Dividend Policy January 6, 2010 Banks and Brokers December 4, 2009 Be a Smart Insurance Shopper (Part 2 of 2) November 18, 2009 The Idea Exchange (Part 2 of 2) October 7, 2009 Ways to Manage Insurance Costs September 14, 2009 Whirlpool Named to Dow Jones Sustainability Index July 29, 2009 Shop for Coverages that Uniquely Fit Your Needs Search this site: Trending on Twitter
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