When running your own small crafting business it's important to be able to wear many hats. Marketing, PR, administration and accountancy are things that we "expect" to be able to do for ourselves. The benefits of this are huge, with the average small business in the US spending on average $7,600 a year on legal expenses alone, the advantage of a little knowhow can go a long way to improving your bottom line.
But where do you start? Say you've made an amazing cushion and sold it on Facebook, Great! Then before you know it you're making 30 a week to fulfil your FB and Etsy orders, you're supplying 5 local shops and you're starting to think that this could be a serious income stream for you.
Congratulations, You have a business!
But with great power comes great responsibility and It's important to ensure that your new business had strong foundations on which to build on.
In this series I will be going through some of the essential requirements that you will need to fulfil in order to protect your fledgling business. And great news, you can do them all yourself.
Step 1 - Setting strong foundations with insurance
This is quite possibly the most important foundation stone for your business.
Insurance is the one thing that YOU MUST HAVE! If something goes wrong it won't be a tap on the knuckles or a small fine. It will be a no holes barred legal frenzy in which a very powerful and very knowledgeable legal firm will be working exceptionally hard to take EVERYTHING FROM YOU. Would you seriously put everything you hold dear at risk for the sake of a 10 minute phone call and £50?
Insurance doesn't need to be scary or expensive. Taking out a simple policy will protect you and your business should anything unexpected happen.
So What sort of insurance do you need?
Here are the 3 main areas of cover that you should be looking for in a policy;
Public Liability Insurance ( PLI)
This protects your company against claims made by your customers for accidental injury and damage to property.
If you plan on selling at craft fairs then you will defiantly need PLI. Some events are happy with you having £2 million in PLI cover, but most council run markets require £5 million.
Some things I have heard people say;
"I don't need PLI because I don't do craft fairs"
PLI would cover you for any claim made as a result of someone injuring themselves due to your not showing "reasonable care". This can be at a craft fair, in your car, at your home/office or anywhere that you may have interaction with your customers.
"I don't need PLI because I work from home and don't see my customers"
You need PLI even if you work from home and never see your customers face to face. What if a customer comes to collect an item as a one off? They may trip on that loose paving slab outside your front door and makes a claim against you?
"PLI isn't a legal requirement"
It is true that your are not legally required to have PLI. But unless you have an emergency £2 million in your back pocket, I would get it anyway.
"I don't need PLI because I only sell to friends and family and they would never make a claim against me"
Lets say a family friend (who is a self employed plumber) buys an item off you. They then injure themselves on that item and can't work. They then make a claim to their OWN business insurance for their lost earnings. Their insurance company then claims against YOU for the lost earnings of their customer. It's not only individuals that can claim against you.
Products Insurance (PI)
This covers the cost of compensation should someone be injured as a result of a faulty or damaged product that is produced, designed or distributed by your business.
Some things I have heard people say;
"I don't need PI because my products are 'safe' "
Never underestimate the stupidity of the general public.
That small button in the centre of your hand stitched lavender bag, can be chewed off by a child in 10 seconds flat.
That bubblegum bath bomb that you made last week was fine for Mrs Miggins, but it gave her sister a horrible allergic reaction.
"I don't need PI because I don't make the items I sell"
You need PI even if you are only distributing items. If you buy Items from other suppliers and sell them on, you are just as liable.
"I don't need PI because I'm only designing items"
As above, even if you are only designing an item (eg a sewing pattern) you are still liable if the finished product develops a fault that results in an injury. The court will probably find in your favour if the injury was a result of the pattern not being followed correctly. But your still going to wish you had legal cover for the £5,000 solicitor fee.
Legal Cover (LC)
As you might guess, this covers you for legal fees that result if a claim is made. You do not necessarily need legal cover. You can represent yourself if an issue should arise, but for the sake of what could be just a couple of pounds if anything on your premium, I would recommend having it.
Like dental work and upholstery, the law is one of those things best left to the professionals.
The way this is paid works slightly differently depending who you are insured with. Some insurance companies expect you to cough up for the legal fees yourself and then re-imbrues you afterwards, and some pay direct. If in doubt, ask you insurance provider.
There are many providers that can cover your craft business some like Direct line and AXA are large companies that do many kinds of insurance. You are more likely to get low cost and basic packages with these providers.
If your craft is something that is a little more niche them you may wish to consider using a specialised craft insurer. Craftcover.com provides insurance specifically tailored for the craft industry.
I have my insured through Direct Line. It costs me £55 a year and covers me for;
- Public Liability (£2,000,000)
- Product Liability (£2,000,000)
- Stock away from home (£1,000)
- Money away from home (£3,000)
- Legal cover (£100,000)
- Loss of earnings (£35,000)
If you don't have insurance, go get it. Like now.
If in doubt, get more cover than you think you need you will never regret having too much protection.
I hope you've found this article helpful Step 2 will cover the financial requirements for your business including accountancy, tax and cash flows.
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