Home business and home-owners

[Robert gree]

I have just moved into my grandmothers to help care for her and have converted the 2 car garage into my shop.

I am in the progress of starting a LLC for my woodworking business (i build sub boxes) My issue is that her home owners insurance do not allow home business's.

I know if my equipment was lost in a fire it would not be covered do to being used for business purposes, But my dilemma i am having is, Do i need business insurance for the nature of my business? Or is the Limited liability of the LLC enough. The only thing i can see happening is a box injuring someone in a auto accident. Which would not happen if properly secured.

I am just trying to avoid causing any issues for my grandmother.

Here are a few pics of my work,
http://i106.photobucket.com/albums/m244/F3RR3T_01/DSCF0099.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/DSCF0101.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/DSCF0106.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/DSCF0107.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/DSCF0100.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/PICT0004-6.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/PICT0005-8.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/PICT0007-7.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/PICT0005-4.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/PICT0007-3.jpg
http://i106.photobucket.com/albums/m244/F3RR3T_01/PICT0009.jpg

[Michael Flores]

Robert, Those are some nice boxes. I use to work in the car audio industry too back in the days. The answer to your question is YES get insurance. Im no expert but since you are manufacturing these boxes you will want to look at Product Liability Insurance cause no matter what, somebody will play the stereo too loud and loose some if not all their hearing and they will blame your product. I remember guys putting 6x9 boxes on the rear deck and when they hit the brakes really hard, those boxes came flying at you with great force. The first person they sued was the stereo shop that sold it to them. Also the other thing is you still can be sued even if you set up a LLC. It doesnt take much to sue somebody even though you have a LLC set up. You still have to pay the lawyer to defend your case if you do get sued even if you know you didn't do anything wrong. There are a lot of doctors that practice under an LLC and they still carry malpractice insurance.

The following story is fiction but in this country you have to watch your back..

Mr. Merv Grazinski of Oklahoma City. In November 2000, Mr. Grazinski purchased a brand new 32 foot Winnebago motor home. On his first trip home, having joined the freeway, he set the cruise control at 70 mph and calmly left the drivers seat to go into the back and make himself a cup of coffee. Not surprisingly the Winnie left the freeway, crashed and overturned. Mr Grazinski sued Winnebago for not advising him in the handbook that he couldn't actually do this. He was awarded $1,750,000 plus a new Winnie. (Winniebago actually changed their handbooks on the back of this court case, just in case there are any other complete morons buying their vehicles.)

[Ted Calver]

You will need the insurance when the neighbors storm your garage looking for the source of the sound rattling their windows :)

[Ellen Benkin]

Be very nice to the neighbors or they will report you for running a business at that address. Then you will need to find a legal location for your shop.

[Jamie Buxton]

Ellen is right. If you're running your noisy machines 40 hours a week (or more!), it'll wear on your neighbors. Any of them can call the code-enforcement folks, who will then threaten to fine you if you don't stop it. If you have a noisy business, it doesn't belong in a residential neighborhood.

[Lee Schierer]

You might want to reconsider. If the insurance doesn't allow an activity and you are doing that activity anyway and there is a claim, they could deny your claim since you violated the terms of the contract.

[Paul Wunder]

Robert,

Not only do you need insurance, but also the advice of an attorney. My background is financial, not legal. But contrary to conventional wisdom, an LLC does not provide the same protection as a C-Corp against "piercing the corporate veil". In other words, an LLC still puts your assets at risk and you need to know under what circumstances that will occur. Also, operating out of your grandmother's house will, in this litigious society, put her assets at risk for letting you run a business from her home.

Paul

[Bill White]

Ain't it great that we have such intense laws to protect us from our pursuit of enterprise? :( Mutter, mutter, foul language, sputter under ones breath.
Bill

[Brian Tymchak]

My $0.02 worth...

After a few warnings, the HOA would likely file legal action against the homeowner (your grandmother) for breach of contract for running the business out of her home, which seems a bit contradictory to your original requirement of not wanting to cause any issues for the grandmother.

Also, I have some doubts that you will be able to get a commercial policy from a decent company written on an address with that clause in the deed. Particularly if your grandmother is (likely) already carrying a personal policy on that address. But you might be able to find some insurance agent somewhere that will do it.

Brian

[Ray Newman]

You didn't mention if the property zoned for a home business? That might be a problem. Or, of there are any other restrictions barring operation of a business in the home, garage, or on residential property.

Is the property part of a home owner's association? Something that will need to be determined. If the property is part of of an association, what restrictions are in place?

Might look into fire and liability insurance. Not only to protect your tools but the residence itself form a fire that might/could start in the shop, which being a home based business is not covered by your grandmother's home owner's policy.

Then as one poster mentioned, you may have the issue of dealing with the neighbors over noise, zoning issues, etc.

[Paul Atkins]

What if you only make them there and sell them from another location? Think sound insulation. Then double it.

[Nathan Palenski]

What kind of volume are you talking about here? If this is 2-5 boxes a month using a tablesaw and router you probably wont have to worry about any of this.

If you're talking 250 boxes a month with 7 employees on staff and 3 shifts you are going to have a problem.

I have a feeling you're in the middle.



Also, what kind of house is it? A townhouse will complicate things a lot more than a single family home on 1/3 acre.

[Andrew Joiner]

I'm not a lawyer, but I've done lot's of research on insurance.
You could look at this 2 ways.

1- If you do very little business you could try to keep your shop quiet and neighbor friendly. The LLC is much better than no asset protection. If you don't have much money or own a home you are less likely to be sued. All they can go after is your future income.
Do your own research on how separate you are from the LLC business. If there is a suit can you be named personally or can the LLC only be held responsible?

2- To sleep well at night, I would get commercial liability. It's expensive. The last quotes I got were about 10% of the gross. So if you take in(not profits,but gross) $100K a year you pay $10K liability insurance. That's with no employees.
If you can get a commercial policy with your shop in a residential garage they WILL cover a loss unless the policy states you must be in a commercial space.
However if you do have a big loss even if you are in a commercial space you will most likely be cancelled. This makes it near impossible to get liability again for years.

So I hate that this is the case for a small start up but the numbers look bad these days.
Say you have 100K gross
- 10K insurance
- 10 or 20K commercial rent and utilities
- 30k 1/3 of gross is average cost of materials
________
$50 to $40 is what your taxed on in this case
- $15 or so federal income tax
- $ 4 state income tax ( 9% for my state)
__________
$ 26,000 a year would be my "profit"( I pay my own $4K yearly health insurance)

However, Robert I must say going legit and not "under the table" has it's advantages. I was faced with this choice in 1974 when I started in the wood business. I wanted to work " under the table" but I chose to claim all my income and have commercial liability. I worked hard and was able to buy the building I was renting commercial shop space in. I did this for tax deductions and for years I was a landlord and woodworker.
I retired young and sold the shop and building mostly because of high commercial liability costs! I'd still be in the shop working 10 hour days if I could have slept OK working "under the table".

[Robert gree]

Ok to add alittle more info,

I am the only employee.

Average around 5-9 boxes a month

Do not live in a HOA (I will move before i ever live in a HOA)

Noise is not a issue (with dust collector saw and router cutting can barely be heard outside and once i insulate the garage door it wont be a problem.

This is not a full time thing for me this is mainly a hobby that turned into more, i work full time for lockheed martin.

If any other info is needed feel free to ask and i will provide.

[Art Mulder]

I have just moved into my grandmothers to help care for her and have converted the 2 car garage into my shop.

I am in the progress of starting a LLC for my woodworking business (i build sub boxes) My issue is that her home-owners do not allow home business's.


Ok to add alittle more info,
...
Do not live in a HOA (I will move before i ever live in a HOA)

Robert,
Something here doesn't make sense.
You first tell us that you moved into your grandmother's house.
Then you say that "her home-owners do not allow home business's."

Then in a follow-up you say that you do NOT live in a HOA.

Along with everyone else, I concluded that you meant her "HOA" didn't allow home-based businesses. But then you say you don't live in an HOA. Hence the confusion.

So when you said "Her home-owners" did you actually mean to say that her homeowners insurance doesn't allow for a home based business? Or is there something else entirely going on here?

[Brendan Plavis]

I think if you were to completely insulate the workspace then the noise shouldnt be an issue(outside.) And if anyone approaches you, just say that you do if for a hobby(they can't limit your hobbies can you(ie: its not like you have a rifle range in your back yard...)

I once upon a time thought about a small business, and I figured that its best to go corp if you can afford it. That way your assets are not on the line, and if something were to occur(ie someone was beheaded in an auto accident...okay maybe this is an extreme..:eek:) your company would fall, rather than you personally...

I wouldnt worry about the 'someone turns the stereo up loud and loses their hearing' senario, because if you ever went to court, the judge would throw it out on account of their personal negligence. Not to mention you didnt create the audio device.

I would also worry about your grandmother. I know that when ever someone runs a chopsaw in my garage, I can hear it every much so. But, that was just a little insight, thats your business, not mine...

-Brendan

[Thomas Williams]

Robert:
I am an attorney that works for an insurance company. You should review what you want to do with your attorney and your insurance agent. You have some specific issues that need to be addressed by professionals in your specific location.

[Don Jarvie]

From what I have understood talking from my insurance agent is that if you make 1 nickel with your hobby you are not covered under your homeowners insurance policy.

First call is the Insurance Agent to find out what your options are for a policy to cover the house and tools if there is a fire or they get stolen.

Send should be to a small business attorney to find out what you need to do liability wise should you have any legal problems since you don't own the house.

Lots of people have businesses out of their house and have no problems. The attorney may be able to help here.

[Robert gree]

Robert,
Something here doesn't make sense.
You first tell us that you moved into your grandmother's house.
Then you say that "her home-owners do not allow home business's."

Then in a follow-up you say that you do NOT live in a HOA.

Along with everyone else, I concluded that you meant her "HOA" didn't allow home-based businesses. But then you say you don't live in an HOA. Hence the confusion.

So when you said "Her home-owners" did you actually mean to say that her homeowners insurance doesn't allow for a home based business? Or is there something else entirely going on here?

i did indeed mean home owners insurance, My apologies to all on that mistake.

[Robert gree]

Ok all found a new home owners policy that will cover the small business. Thanks all for the help and my apologies for the mix up when i said home-owners instead of home owners insurance.

My grandmother is the one that convinced me to start my business back up legally, ( i think she just has a secret plot for me to furnish her house):p

[Andrew Joiner]

Ok all found a new home owners policy that will cover the small business. :p

Great. What insurance company? Does it cover product liability for a reasonable price? All the home owners insurance companies that I talked to only covered day care or a home office.

[John Lieberman]

Robert

Contact your local SCORE chapter./ You can find them at www.score.org (http://www.score.org)
Free no cost business advice.

[Steve Griffin]

I'm going to say screw the insurance.

Think of insurance like a Vegas game--you are betting against the house that something bad will happen, and they always stack the odds in their favor.

The odds of your little speaker boxes hurting anyone are so remarkably low, and if such an event happens, the odds of you getting successfully sued is low too. And if it does happen, guess what---it's just money (though maybe all of it). You still get to live.

I'm not anti-insurance--I have liability for jobsites, workers comp of course and basic homeowners, health and car, but all with huge deductables.. I'm betting against the house rules, so I'm giving them as little money as possible.

But I have nothing on the shop and tools. I figure that if the during the course of my lifetime there is a 1 in a 100 chance the shop will burn to the ground. And if it does, I've saved enough in insurance to by all new stuff.

Remember, it's just money and nothing in life is 100% risk free, no matter what the greedy insurance companies want you to think.

-Steve

[Chris Friesen]

Think of insurance like a Vegas game--you are betting against the house that something bad will happen, and they always stack the odds in their favor.

<snip>

But I have nothing on the shop and tools. I figure that if the during the course of my lifetime there is a 1 in a 100 chance the shop will burn to the ground.

Insurance is intended to be used in cases where you cannot afford the cost of direct replacement or don't want the risk, so you pay someone to assume the risk for you.

Absolutely they're going to stack the odds in their favour, but in return you get peace of mind.

If you can afford to cover the costs directly, then there is no need to get insurance. In the case of product liability (which can go into the millions of dollars), I'd be tempted just to pay the insurance.

[Will Overton]

... and they always stack the odds in their favor.


Don't they have to to stay in business ...

... and to continue to send me my retirement checks? :D