Workers’ Compensation Insurance premiums are based on what’s known as the “experience mod rate.” This is an actuarial number assigned to your company based on your past experience with workers’ comp claims.
Here’s how the experience mod works. Say the “base rate” for coverage is $100 per month. If your experience mod is 0.75, then your premium will be $75. But if your experience mod is 1.25, you’ll pay $125 for the same coverage.
Minimize Your Claims
The key to low premiums is to have a low experience mod rate, which requires minimizing your claims. This is especially important because your experience mod is based on a multi-year calculation – so you’ll feel the pain of each claim for more than one year.
Put a Solid Risk Management Plan in Place
To reduce injuries and workers’ comp claims, implement a Risk Management Plan that requires you to:
• Watch for trends – Review three years’ worth of claims to identify any patterns that emerge. For example, are you seeing a lot of lower back injuries? If so, why? And what can you do to address this problem?
• Have a written Safety Plan – This plan must be in compliance with Cal OSHA requirements, which vary by industry. Your workers’ comp broker may be able to provide a template for this.
• Conduct regular safety training – Get buy-in by asking employees what the company can do to make the workplace safer for them, and then take action on these recommendations.
• Perform regular safety inspections – While most office environments can get by with an annual inspection, others (such as construction and manufacturing firms) should inspect their workplace at least once each day.
No one is going to care more about controlling your costs than you will.
• Get multiple bids – Be sure to get two or three quotes, preferably from solid companies that will help you with risk management.
• Manage open claims – Work with the Claims Manager at your insurance provider to get claims closed as quickly as possible. If a claim is open at year end the insurer will establish a reserve for it. This reserve, which may be several times greater than what has actually been spent on treatment, goes into the calculation of your experience mod…even if it ultimately turns out to be more than actual costs.
Finally, pay attention to your insurance classification codes – a topic which I’ll examine in depth in my next article. Stay tuned!
It’s a fact: Lenders only fund loans when they’re comfortable that they’ll be able to collect both the principal they lend and the interest they charge. The degree of comfort they feel dictates how much they’ll lend and the interest rate they’ll charge. Your loan package must convince them that your request meets their criteria. Which is why getting it right is so crucial!
The Key Elements of a Successful Loan Package
If you can provide the following items in a way that will make the lender agree the loan makes sense, you’ll be able to secure the loan at a reasonable interest rate, with payment terms and loan covenants that you can safely satisfy. But if you’re missing any of these elements, or if they don’t point to your ability to repay the loan, then you’re not likely to have much luck obtaining funding at all.
• Business plan & projected financials – You can help yourself get the best loan by having a solid business plan that forecasts revenue and expenses for the desired loan period. This plan must show where your company has been and where it is going in terms of sales growth, business opportunities and more.
Your projected Profit & Loss Statement, Balance Sheet and Statement of Cash Flow provide the numbers that support your plan. Each of these financial statements should be presented on a quarterly basis for each quarter of the desired loan period.
• Current financials – In addition to the projections, lenders also want to see your current year’s financials, which serve as a benchmark.
• Narrative – Your loan package must clearly show why you need the money, and when and how it will be paid back. While the numbers should do much of the “talking,” if you don’t already have a relationship with the lender it’s best to include a page or two that lays out the assumptions and provides a top-level view of your company and plans.
• Extra explanations – In addition, be sure to provide more information for anything that might be a potential red flag. For example, if you’re projecting 25% revenue growth in an industry that’s flat, you need to explain how you will make this happen.
Need help with any of this? With over 30 years of experience, I know what lenders are looking for when they’re considering loaning money to companies like yours. Give me a call. As your part-time CFO, I’m here for you!