Starting to Sell Woodwork

[Andrew Joiner]

I think I can make a few bucks, maybe even enough to cover my costs of doing business!

I haven't sold anything yet because I just have home owners insurance that won't cover any commercial exposure.

One idea is to set up an LLC,but then I think my homeowners wouldn't cover me because it's a business from my home address.

Any one have coverage for a home based woodworking business?
What do you pay per year for it?

[Howard Rosenberg]

.....you can ask us who will be just FILLED with opinions and theories

OR

you can ask the professionals who make their living doing what you need to know.

Insurance advice and quotes are free (just get the proverbial three quotes based on their advice as to what you'll need).

Then ask around for a referral and just pay a lawyer $100 or $200 and get the advice that'll cover your butt. And then you'll get it from the horses mouth.

HTH

Howard

[Jon McElwain]

Insurance is a big deal. If you make a penny using your tools your home owners insurance will not cover them at all. You need to make sure that you have your tools, materials and equipment covered on a commercial policy.

I had some serious water damage a couple of years ago and my tools were covered, however, they must have asked 15 times if I used my tools for business, craft fairs, under the table side jobs etc. One "yes" to any of those questions and I would have been out a shop full of tools. Thankfully I had never used them for any business or money making purposes.

Also, make sure your insurance is a "replacement value" policy. Some policies will give you the cash value of the tool at the time the damage occurred. So, if you paid $3000 for that nice table saw a few years back, the current value might only be $1000. If your policy is not a "replacement value" policy, they will write you a check for $1000 and you'll have to come up with an extra $2000 for the replacement. My insurance was replacement value, so they actually bought be new replacement tools.

Anyway, hope that helps. Talk to your accountant, city/state business licence office, insurance carrier, tax person, etc. for the nuts and bolts. It is one thing to make some furniture and sell it to someone you know, it is a whole different game when it comes to monthly or quarterly taxes, business expenses, personal income vs. money that stays in the business, write offs, etc.

[Andrew Joiner]

Insurance is a big deal. If you make a penny using your tools your home owners insurance will not cover them at all.

I had some serious water damage a couple of years ago and my tools were covered, however, they must have asked 15 times if I used my tools for business, craft fairs, under the table side jobs etc. One "yes" to any of those questions and I would have been out a shop full of tools. Thankfully I had never used them for any business or money making purposes.






Thanks for the feed back.

The coverage on machines is the least of my worries. I'd self insure them if it saves money.

It's liability and product liability I'm concerned about. I have assets I want to keep.

I had commercial woodworking insurance years ago and it was cheap. I got quotes on liability for wood working a couple years ago and it was to expensive to make it work for what I had in mind then.

I was hoping to get some experience on insurance companies and prices paid from actual woodworkers.

[Dan Hintz]

If all you're concerned about is liability, make your company an LLC...

[David Helm]

What everyone else said . . . and get a good general liability policy. They generally are pretty reasonably priced ($200 to $300 per year in my experience). Your exposure is liability way more than loss of tools and an LLC does not protect you as much as you may think.

[Jon McElwain]

I was hoping to get some experience on insurance companies and prices paid from actual woodworkers.

I wish I could help you on this. I have actually started up a drafting business and would like to have the ability to do some woodworking/carpentry along with it. It has been a big learning curve with having to send regular invoices, get the taxes figured out, licensing,etc. BUT, I have got solid work through March or April at this point! From what I can see, I am charging competitive rates for my area, and I am able to pay the mortgage, and make a decent living on it.

Anyway, I'll be watching your post to see if others have any good info on insurance rates etc. for the wood working side of things!

Good luck!!

[Dan Hintz]

Unless you're having customers come to your house, you don't need insurance for personal injury on the worksite. Since you don't care about replacement cost on the equipment, the insurance company would have to prove you made a claim based upon your work... and there's nothing to stop you from claiming the equipment in your basement is for personal use. If they don't need to know about the business you run (such as for safety purposes), there's little point in telling them about it. Others will disagree, I'm sure, but what advantage does it offer you for them to know?

If you're worried about liability from someone getting hurt by one of your creations, your liability is limited to assets of the business if it's an LLC, unless the customer can somehow prove gross negligence on your part. If you're building a table that seats 8, making the legs 2x2 sticks may start to approach that mark. Someone losing a finger while putting in the leaf doesn't. This is not engineering, nor do you hold yourself out there as an engineer, so this is not an issue. Again, others may disagree...

If you're truly concerned, seek the advice of a business attorney, not a bunch of woodworkers.

[Mark Rakestraw]

It's hard to do this "just a little" and justify the insurance costs. Of course you need liability in case someone gets hurt using your product, be it cabinets or furniture or whatever. I also have a contractor policy, which covers anything that may go wrong during an installation. You may have trouble getting a policy that doesn't include this as they assume you are going to install/transport. Not only will my homeowner's insurance not cover my tools, it won't cover the outbuilding that I use them in. So, $50,000 tool coverage, liability (1,000,000/2,000,000), an additional $1,000,000 liability umbrella, replacement cost for the outbuilding. So it winds up costing me around $2800 a year. Seems excessive, but then so are the consequences of not having insurance if someone decides to sue you (whether you're in the wrong or not).

[Andrew Joiner]

Thanks Mark,

That's exactly what I needed. Do you have product liability included in the $2800? I assume cutting out the building and tool coverage would only save you $200 to $300 if they even write it like that.

[Mark Rakestraw]

Yes, that includes product liability. I don't have the policy in front of me, but I think the liability part would be under $2000. My current Policy is through a company called Merchants Advantage Plus. My past policy was through NGM Insurance. I switched because I had a friend/client selling the present policy. Both companies cashed my checks equally well. :-)

[Andrew Joiner]

Thanks again Mark ,

Do you have homeowners coverage with a separate company? Did the cost on the homeowners go up with the commercial shop next to your house?

[Roger Jensen]

I agree with Howard - this is probably something you want to talk to a professional about, including insurance agents and professional woodworkers. A mistake in this area could be costly.

I love this site, but it is primarily people doing woodworking as a hobby (how else could we afford these tools!?!?). You may want to post questions like this on a site such as WoodWeb, which I believe has a higher concentration of professional woodworkers/cabinet builders.

Good luck!

Roger

[Mark Bolton]

What everyone else said . . . and get a good general liability policy. They generally are pretty reasonably priced ($200 to $300 per year in my experience). Your exposure is liability way more than loss of tools and an LLC does not protect you as much as you may think.

I have not been able to find GL policy anywhere near this price for perhaps 10 years. It may be a regional thing but we use to have a small GL policy that had perhaps 750k of coverage that was a bit more than that. This was 12-15 years ago. Now what we find is that most insurers are only wanting to underwrite a million or more, thats about the bottom end or so we have been told. These policies now far exceed a few hundred dollars and are up over a thousand.

While I have no idea for your particular region based on our experience you may have a hard time finding a company to write you a small policy. I have heard many reasons why this is the case now but I have never had any facts to back up what I have been told. I can imagine that an average claim is so costly now a million is borderline to cover it.

One other thing to remember is that we have also been told by many agents that you want to be careful about shopping around too much i.e. do a lot of homework first as underwriters see the activity when they are processing your quote.

Mark

[Andrew Joiner]

Unless you're having customers come to your house, you don't need insurance for personal injury on the worksite. Since you don't care about replacement cost on the equipment, the insurance company would have to prove you made a claim based upon your work... and there's nothing to stop you from claiming the equipment in your basement is for personal use. If they don't need to know about the business you run (such as for safety purposes), there's little point in telling them about it. Others will disagree, I'm sure, but what advantage does it offer you for them to know?

If you're worried about liability from someone getting hurt by one of your creations, your liability is limited to assets of the business if it's an LLC, unless the customer can somehow prove gross negligence on your part. If you're building a table that seats 8, making the legs 2x2 sticks may start to approach that mark. Someone losing a finger while putting in the leaf doesn't. This is not engineering, nor do you hold yourself out there as an engineer, so this is not an issue. Again, others may disagree...

If you're truly concerned, seek the advice of a business attorney, not a bunch of woodworkers.

Thanks Dan,

I wish it was as simple as you describe.
I have talked to lawyers on this. Even if you sell even one single item, you risk losing your house and all your money if your ever sued. Even if your sued in a nuisance suit and win you will have to pay to defend yourself. The best way to protect yourself is to have both product liability and form a LLC. Just product liability alone is fine in most cases.

A LLC alone is some protection. If the LLC has the same address as my home I couldn't fill out the yearly questionnaire I get from my homeowners insurance co. They ask if I have any business activity in the home, even down to babysitting.
It won't work to lie on the form because then they may not pay even if you have a legitimate non-business loss. As John said " they must have asked 15 times if I used my tools for business".

I shop for new insurance every year to make sure I get the best price. This year the 2 companies with the most competitive quotes called me back when I was about close the deal. Each separate company said "you said only 2 adults live at your address'' I said correct. They said " who is Sue Carter". Sue is my girlfriend's daughter who lives in Spain and gets junk mail at my address!
Insurance companies have lot's of ways to investigate what goes on in our lives.

I still got the new insurance, but learned that insurance companies care about these details and look for them.

Bottom line,if I had a LLC connected to my home address I think the insurance company would cancel me. Once your cancelled by an insurance company it's hard to get a fair price on ANY insurance.

If I start selling stuff, I plan on only selling 2 or 3 pieces of furniture a year so I started searching for "artist liability" and found some home based artisan's who use this company:
www.insuremyhomebiz.com/classes.asp
People say the're paying $300 to $500 a year.
There are other companies like them but one covers "wood products except toys and furniture"
I can see toys being extra risky but all furniture?

[Mark Bolton]

there's little point in telling them about it. Others will disagree, I'm sure, but what advantage does it offer you for them to know?

I think this is a factor that is fundamental in starting a business in the first place. its basically a turn left or turn right decision. Its basically a decision of do you want to start your business off right or are you going to start out the gate side stepping. I know that makes your philosophy of not telling them sound bad (which I personally think it is) but I don't mean it to.

Many people have no problem not disclosing things to save money based on a perceived minimal risk. While others feel the need to dot all the i's and cross all the t's.

I think its best to try to start your business off right if you are serious about making a go of it and, as has been stated, have assets you want to protect. The craze of LLC's out there right now is a little sad in my opinion but it speaks pretty well to many in the country's mindset. Hey if when my business flops I still keep my stuff. Its almost like a predisposition to failure. That said, and LLC is not a replacement for insurance.

I am on the fence with regards to manufacturing wood products and having product liability. A conceivable claim would be so rare yet we live in a society that has "this is not a toy" printed on plastic bags and pictures of infants drowning on the sides of joint compound buckets. That fear makes you wonder.

Mark

[Tom McMahon]

An LLC offers little liability protection if you are the only owner of the LLC. Any lawyer worth his salt will sue you as an individual as well as your LLC. According to my accountant the real advantage of a LLC is transfering a profitable buisness from one generation to the next. The real advantage of a part time business is to shield the income from your day job from taxes. If you form an LLC you lose this advantage. What you need is insurance and a good business accountant. The cost of these should be covered by the tax savings gained from your buisness.

[eugene thomas]

i have a side business doing woodworking. pay almost thoughsand a year for business insurance but not have to worry about trying to get stuff covered on homeowners policy.... gives me peace of mind.

[Alan Wright]

I usually lurk on this site to learn about woodworkng, but my day job is as an independent insurance agent. I've been doing it for 25 years. Full disclosure... I am a commercial agent. I know almost nothing about personal lines and I am not lisenced to sell life or financial services. I deal strictly in business insurance.

I'm not sure what the rest of the country is like, but in upstate NY, you can get a small commercial policy for about $500 for a one man band. It will typically offer between $300k and $500k in liability coverage and around $25,000 in tool coverage. Replacement cost on the tools is no problem.

The liability insurance is meant to cover you if someone gets hurt in your shop, or maybe more important, if you are delivering a piece or are at a customers' location for some business purpose, and you cause some sort of damage, or hurt someone. This is the "premices and operations" piece.

The "products and completed operations" piece is meant to cover you if someone gets hurt on your creation. Maybe you left a nail sticking out, and it sticks someone. I know none of us would ever do that... Or you build a chair and it collapses when a 500 pound person sits on it and they get hurt. Products coverage is typically included. There iis usually no deductible on liability insurance. We get requests for these policies when they want to sell their wares are a regional market and the market asks for a certificate of insurance before they can set up a booth.

If anyone has questions, I'll try to answer them as best I can. For the fella who moved from NGM to Merchants. I'd politely suggest that you reconsider. Not all companies are created equally and... well... I'll leave it at that.;)

Alan