Everyone knows “when you start a company, it’s hard work.”  But so far there have been a few small business challenges that I didn’t expect because they’re so lame, no one ever talks about them. Allow me.

Small Business Challenge #1: Business Bank Account

Some time ago I called a bank that was recommended to me about opening a business account. I asked what kind of paperwork they would need to see.  Usually it’s an IRS letter with your tax ID on it, a driver’s license, and a company document saying that you are an officer empowered to open an account.  They said that’s all I needed and that I should just “come on down, no appointment is necessary.”  I walked in and waited 40 minutes to be seen by a business account professional.  When we finally sat down at her desk, she asked me,

“Did you bring a copy of your license?”

“Yes, here’s my driver’s license.”

“No, I mean your license to do business in the city,” she said.

“What?”

“I can’t open an account unless you have a business license.”

“I wish you told me that over the phone!”

“I’m sorry.”

So I went over to city hall and applied for a license to do business.

“Did you bring a copy of your workers compensation insurance?” the clerk asked.

“What?  No, we’re brand new.  We don’t have any insurance.  I need a license to get a bank account.  I need a bank account to get other things like insurance.”

“Well, I can’t give you a license without workers compensation insurance.  It’s the law, you gotta have it,”  the clerk said.

I opened the account in a different city.

Small Business Challenge #2: Workers Comp. Insurance

In Massachusetts in particular, employers must have insurance to cover expenses for an employee injured on the job.  This prevents employers from declaring bankruptcy in an injury lawsuit and thereby leaving the injured employee in a lurch.

The law grants some exceptions for founders who are also officers that own 25% of the company.  The trouble is, the law mandates you have it as soon as you have a part time paid employee, no matter how little exposure there may be.  A $300 premium for someone who’s only going to do 30 hrs of work for you at $10/hr doubles the cost of that person’s labor.

You might think you’d be set for a year, so just get it and forget it.  But it’s very important that your employees be classified correctly.  If you tell the insurer they’re a secretary and then you have them cutting pieces of wood, and they lop off their finger, that’s a big no-no.  Talk about finger wagging!

Heaven help you if you pivot a great deal, you’re going to need to hire those employees as contractors or else keep calling your insurer to reclassify your laborers.

Small Business Challenge #3: Hiring Contractors

Contractors are appealing because, in theory, you just pay them straight cash and issue a single 1099 at tax time.  You don’t even have to issue a 1099 tax form if they received less than $600 that year.  That eliminates the burden of filing payroll taxes, and the extra cost of paying the required social security and medicare match.

Good luck hiring a contractor!  There used to be a 20 point test — I think it’s simplified now — that basically says, “If you want to manage them like you’d manage an employee, there’s no way they’re a contractor.”

That means when you pay someone to do odd jobs, you need to withhold taxes, file those taxes, match those taxes with more money, and issue pay stubs.  Very easy, once you know how.  Those links are a good start.

Small Business Challenge #4: Any Kind of Underwriting

Underwriting is when someone vouches for your company and says that you’re respectable enough to receive their product.  You need underwriting for general liability insurance, for unowned auto policies, and for merchant banking (i.e., taking credit cards).

Occasionally, you will find companies that recognize the underwriting problem.  If I had known earlier about stripe, for instance, that would helped me avoid the headache of starting a legitimate merchant account.  When you’re a startup, you’re so risky-looking that underwriters will rather focus on tried-and-true businesses than be faulted for going out on a limb with you.

With all these challenges, there’s a real gap between “zero” and “other businesses want to work with me.”

What do you think, was this helpful?  Let me know in the comments below!