Business insurance questions

[Jim Becker]

Do not underestimate current society's propensity to sue first when something goes wrong with a product...that's why the liability coverage is still important, despite your operational piece being isolated from any clients. Stuff happens...

It's truly sad that things are this way these days, but it's reality.

[Earl McLain]

Do not underestimate current society's propensity to sue first when something goes wrong with a product...that's why the liability coverage is still important, despite your operational piece being isolated from any clients. Stuff happens...

It's truly sad that things are this way these days, but it's reality.

I think Jim speaks wisely. One overlooked benefit of liability insurance (personal or commercial) is the defense of suit. That could be a huge expense in and of itself--and not part of the claim.
earl

[Mark Bolton]

Jack, surely equipment coverage at least right?

That's where I'm struggling - where is the liability? The only thing I could think of that has really any chance of happening is a heavy person sits in a chair I made and it crumbles and a leg goes where the sun don't shine and I get a lawsuit filed against me. Sorry, I digressed there, but you know what I mean. What liability issues do I really have with tables, desks, bedroom furniture, etc?

I've gotten a lot of responses but I don't know how many have their own furniture business. I'd really like to hear from folks that are in business, not just speculating.

We have a custom shop and feed mostly large commercial contractors and architects/interior designers. We do no installs, and little to no field work. All installs are sub'd out to contractors carrying their own coverage. As Jim states, the reasons someone can sue are endless and often times completely ludicrous but if lawyers think they can get some damages, they will. I mean look at the Ikea case with the drawer units tipping over on children. That could, and would, and did, happen throughout history. A kid pulls out the bottom drawer, climbs on it like a ladder, and the unit tips over ontop of them killing them. Should the unit have been able to stand given that condition? I would say no, poor supervision. None the less the law suits abound and Ikea paid.

Its the things you cant think of that make one consider insurance.

I have long been a worry wart about things like this as merely fighting a claim and winning would likely bankrupt my business. This is why I say, no kids, stuff, no toys, no kids furniture, even if its a table.

On the issue of your equipment I think you may be confusing liability insurance with property coverage. Liability doesnt cover a penny of your equipment. That would come from a property insurance policy and would be above and beyond any liability policy.

[Yonak Hawkins]

I have a business rider on my homeowner's policy for my home-based business which covers liability for guests, employees (including any "away from shop" incidents) and product and damage or loss for equipment, premises, inventory, accounts receivable and loss of income. It costs me an additional $175 per year above my normal homeowner's premium. My umbrella gives me a $1,000,000 limit.

[Matt Day]

$175?! Wow, that must be one of the examples of how insurance varies from state to state, I'd happily pay that. Mine quoted me $500 and $700 for an equipment rider.

[Harold Balzonia]

Jack, surely equipment coverage at least right?

That's where I'm struggling - where is the liability? The only thing I could think of that has really any chance of happening is a heavy person sits in a chair I made and it crumbles and a leg goes where the sun don't shine and I get a lawsuit filed against me. Sorry, I digressed there, but you know what I mean. What liability issues do I really have with tables, desks, bedroom furniture.

in your original post you said you weren't going to build chairs.....

you've emphasized how small (one might say tiny) you are going to be as a business, so I'm curious as to what scale you are talking about? A project a month maybe? I might consider calling myself a woodworking "artist" and have a form letter/card that states the piece is "art" and may or may not be suited for traditional use.

ive sold many bowls, boards, and boxes and it's never occurred to me to have liability insurance in case someone drops a cutting board on their toe or pinches their finger in a box lid....

As a tiny business with maybe a couple thousand dollars a year in sales, let them sue.... Your company declares bankruptcy and closes up shop. As long as you have an LLC they cannot touch you, personally. You still get to keep your machines.

its true that anyone can sue for anything at any time, but be realistic... how many products are you going to put out every year? And how many of them will be going to friends and family who know you and care about you (probably a lot?). Are you going to be building junk for strangers that will crumble apart?

The litigious people (I use the term "people" loosely) that you are worried about only sue companies with deep pockets...

In all seriousness, go to a local craft show and talk to the guy who builds adirondak chairs (every show has them) or cutting boards, or bowls, or picture frames or whatever else. Ask them what they do for liability insurance in case a customer of theirs in injured by their product..... Or ask the lady selling home made soaps and lotions how they are prepared for a customer who wants to sue over a skin rash that might develop after using their product.... or the grandmother selling home made quilts and shawls.... kids can suffocate in those things right? You'll have all your questions answered in one afternoon.

[Yonak Hawkins]

Matt, as Jim said, go through an independent agent. Let them do the work to find you the best insurance deal for your area.

[Matt Day]

Yonak, as I've said I've talked to two local agents so far.

Harold, I agree - tiny is the right term. A project a month is probably about right or even less. My chair example was given as a conceivable reason to have liability insurance; and I'm not making them. You made some good points, thank you.

[Robert Engel]

I'm starting a small part time furniture making business and have a couple questions about what type I need. Let me first stress the word small. I am a full-time stay-at-home dad with two young kids, and I would be doing this in some of my spare time while they are at preschool. My shop is in my basement and I will be the sole proprietor. I am not going to be batching out furniture, I will most likely not sell more than $10k a year and we don't need this income - it's essentially an extension of my hobby that I'd enjoy. I do however want to do this the right way; I have an LLC and EIN, am making a website, and will also make business cards.

I plan to make custom furniture such as dining tables, benches, coffee tables, desks, bedroom sets, etc. No chairs most likely.

My main question is about liability insurance and whether or not I need it given my circumstances. I will not be installing anything in anyone's home, clients will not come to my home, and I don't see much risk where I would need liability. But I am no expert and wanted to see what others are doing. Maybe I answered my own question when I said I want to do this the right way, but I also don't want to spend money unnecessarily.

I know I need coverage for equipment and I am inventorying everything this week to come up with a replacement cost.

If any other small business owners in a similar situation could chime in with how they have their business structured, I would greatly appreciate it.

There is a LOT involved in this.

First, you need to talk to a business advisor, not an insurance agent or us folks on SMC.

We all have our opinions, and mine is you don't need liability insurance. In fact, I don't even know what it would be for given your stipulations. Unless otherwise known, your homeowners insurance or medical insurance will cover any injuries you may get in the shop.

Second, when you form an LLC or incorporate, you have legally declared yourself a business and are subject to things like occupational licensing, and inspections by the local environmental authority. You may also get inspected by the fire marshal as well as code enforcement. You may also be subject to intangible property taxes for all your equipment. There could also be issues running a commercial business out of your home.

These things I know from personal experience as a small business owner.

Then there is the IRS. If you're going to do it right, you must keep all receipts for expenses AND income. If you depreciate equipment and declare expenses for things like your personal vehicle, you're inviting an audit. This will almost certainly happen if you go a few years declaring a loss.

Bottom line: IMO you're better off working off the books until your business picks up.

[Mark Bolton]

As long as you have an LLC they cannot touch you, personally

This is not true. Any lawyer worth his/her salt, will go after a single officer of an LLC (i.e. your company doesnt have multiple, detached, officer -no husband/wife/kids/etc). An LLC doesnt protect a single individual in the same way it protects a corporation with multiple officers.

[jack duren]

Off the books. Exactly...

I ran my shop from my garage 2 years legally. Insurance is cheap and I payed taxes.. Cabinet shop, not furniture..

2015 was the first year since 1999 I didn't turn in a business...

It's not that complicated atleast in Kansas city.

Always turn in a profit....

[Don Jarvie]

What Robert said. No offense but have you sold anything yet? Do you have any orders? If you sold something how much profit did you make after paying yourself an hourly wage?

I completely understand your thought process but once it's all said and done how much have you paid to set up a business that you may not be able to recoup your costs for quite a while.

My advice is to get some orders, make a few items and evaluate if going the business route is feasible.

[Victor Robinson]

I don't want to interject an opinion where it may not be wanted or looked for, but I'm going to anyways because it's the internets and we all like to hear ourselves type.

I've been down this road with one hobby, and have worked very hard to make sure it doesn't happen with THIS one. Often the allure of turning a hobby into a small business is the tax benefit of writing off the equipment. You figure maybe the hobby can pay for itself with a little bit of work - no big deal because you enjoy it, right? The overhead as you become legit starts to add up, and so can the headaches gradually (Robert alluded to some good ones), and it might stop being worth your while when you do the math, financially and in terms of the intangibles. I say MIGHT because it doesn't have to go that way, but there's luck involved too and you can't entirely prevent all of the headaches that can come with running a business simply by planning. It helps to firmly know whether you really want to run a business (and are ready to go with it as big and complicated as it gets) or whether you most importantly want to enjoy your hobby. Sometimes that distinction is not clear until you've gone through the process before. It's my personal opinion and experience that you can enjoy your hobby with a few commissions here and there without being a full-blown business. Pay tax on the extra personal income. See where it goes, then sign up for the trials and tribulations of running a business. And if some of the impetus is the write-off, you can always go back and "re-buy" your equipment if you want to move it from a personal expense to a business one.

Anyways, sorry for the digression - I'm sure you've thought a lot about this and I don't mean to be an annoying been-there-done-that kind of guy, just looking out for another SAHD.

[Matt Day]

Don,
I have not sold anything yet. I haven't finished my website yet or done any advertising/social media/emailing. I want to get my ducks in a row first. My costs so far are $100 for the LLC and a background for photography so I'm not at all in deep.

[andrew whicker]

So I started a LLC. I have business cards. I hope to turn this into a full time business.

I have a few orders. So far, they have been to people that know me thru the community (not necessarily friends). I've only been paid in cash and I've been under charging to be 100% honest (confidence and all that). I just went to a chamber of commerce meeting yesterday (free) and will continue to go. I use instagram and facebook for my advertising (free).

I haven't even begun to start to think about insurance. I have yet to put one cost / profit on my LLC because I'd rather just take cash. What's the point of paying taxes and getting the gov't involved if I don't have to?

I work 4 days a week as an engineer and bust ass when I have to on nights and weekends. I'm getting fatter and have a harder time hanging out with friends. I'm getting to the point where I have to either fully commit or just do it as a hobby. But, I will say this about myself: I find the running a business aspect much more appealing than doing woodworking / fab my entire life, so there's that. (If I picture myself 60 yrs old)

Anyway, I have a few picture frame orders for this week / month, but the woman isn't getting back to me. Another person took some awesome frames I made and then moved out of state and left me high and dry (sweet). I took two nights off and now I need to make something else and see if I can't sell it or find someone that wants something (read: spend my own cash up front and hope it sells). Gotta keep momentum..