Should I Buy an LLC or Insurance for My Candle Business?
As a small crafter selling candles at vendor shows we do not think of ourselves as businesses in the true sense.
As soon as goods are exchanged, a business transaction has been made. Establishing an LLC defines that action to be other than personal. It defines that you are acting as an entity outside your domain. Most businesses carry insurance to protect that entity and assets.
The intention of forming an LLC is to separate personal and business assets. With the risk in candle-making at the worst-case of burning someone’s house down or personal injury, I carry insurance and keep my assets separate.
Everything is fun and joyful until things go wrong. The best time to plan is when things are going well, and you have a clear head. There is nothing worse than finding yourself in a bad situation trying to figure out what to do next.
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I have to follow that statement with the fact that I am not a lawyer or a CPA and you should always seek the advice of professionals in your area. The cost to establish an LLC varies by state.
However, I have been around the block a time or two. I have learned that filing an insurance claim is not fun and they questioned everything. It was like they looked for any route out of not paying up! This is why I say it is better to understand what is covered and what you need to do now to fulfill that requirement so that you do not scramble if anything should happen.
The most overlooked scenario is a home owner’s policy. Review your policy with your agent to make sure you are covered if you set your house on fire while making candles. As a hobby for yourself, you may be covered. Running a business out of your home, you may not be. Some cover damage to the structure but not the contents.
As a business, it is your responsibility to understand what you are required to do. Check with your local city clerk. Are there restrictions on chemical storage? Quantity? Air emittance? Are you required to have an ABC fire extinguisher within 20 feet of any working area? Are there exhaust requirements?
Establishing an LLC means you are a business. You do not have to establish an LLC to be a business. Businesses practice the best manufacturing processes to protect themselves. Insurance companies can be ruthless. If your homeowners will not cover fire as a result of a “company” accident you are in trouble! No one wants to go through that either.
If you are renting a retail space, for example, you may be required to obtain a business license locally through the city. Some require an insurance policy to be presented at the time of application. I rented a space once that required I have a 24-hour smoke detector monitored by the fire department.
Additionally, if your candle causes harm to someone or their personal property they can sue you. Not too many friends maintain that relationship after their living room went up ablaze. Someone will need to fix it and make it right.
Your candle business bank account and your bank account and the record-keeping should be separate. You should be demonstrating that it is a stand-alone business.
Where is the best place to buy insurance for my candle business?
Most insurance policies that sell homeowners can also add on liability insurance for candle making. I buy mine through the Handcrafted Soap & Cosmetic Guild at soapguild.org and it is a good resource.
Without going too far on a tangent, some candle makers also make soap and bath bombs. This community covers everything and is the logic for my choice. The cost for candle making insurance should be less than $250 a year.
Read through the policy to understand what it covers and take the time to make a list of contingency plans should you need them. It is worth the time and effort to plan your candle making process so that you work safely and efficiently. Your equipment is an investment that could take years to build and should be protected.
One type of insurance that we did not cover is healthcare. Most will cover an accident as long as you do not have employees. This is a completely different setup. Most state laws require that you carry workman’s comp insurance if you employ workers to help you make candles. This can also get tricky if you have hired someone to help you in your home even if it is part-time and they get injured.
Asking a professional these questions now is far better than when you are in a panic paying someone else’s medical bills because they spilled hot wax down their arms dropping a pouring pitcher. You may want to only hire helpers that are 18 because of the hazards.
What are the best candle making practices for your insurance?
Strive to work safely. You should be working inappropriate attire and using protective gear when needed. Protect your hand’s face and feet. Wear closed-toe shoes. Determine the risk associated with your activity.
Pouring from a small bottle of fragrance is very different than pumping from a 55-gallon drum. Should you be wearing safety glasses to protect your eyes from splashing? It may seem like overkill until you need to rinse your eye!
Make a list of PPE – Personal Protective Equipment
- Closed-toe shoes, long sleeves, long pants
- Safety Glasses or splash shield
- Gloves or oven mitts
Make a list of work area safety needs, keep your area clean and organized
- Fire extinguisher, smoke detector
- Paper towels, rags, spill kit
- Trash can with lid
- First aid kit
Some best manufacturing rules
- Keep everything properly labeled
- Keep containers closed when not accessing them (open containers spill)
- No open flames
- Keep work areas organized by function, ie: do not mix candle making with shipping
- Setup appropriate storage areas, no piles
- Document and keep records of your activities
Manufacturing practices that help to protect the consumer and you
- All candles should be labeled correctly including a warning label
- Make sure the container meets the labeling laws
- Can the consumer contact you?
- Did they receive care instructions?
- Select containers that can withstand the heat of burning
- Inspect the glass containers before using them for cracks
- The only thing meant to burn in your candle is your wick, adding anything flammable like dried flowers or embellishments is adding risk. I have to stop and mention that if you put something in a candle that should not be and you create a “fireball”, and as a result, someone’s house burns down, you may have a hard time getting your insurance to cover the damage. You are intentionally making a hazardous candle. This type of candle is very popular for a spell and ritual candle. Make sure the warning is clear.
- Your products should be tested by size, type, and manufacture and records kept.
- Keep manufacturing records, what batch did you make and when, with what, etc.
Make some contingency plans for your candle business
This does not have to be anything fancy. A notebook works just fine. Some of this depends on how big your business is. If it does not apply you can skip this section, but it may be something to consider at smaller levels as well. (I speak from the heart of experience)
- Do you have a backup copy of your information? Printed copy?
- Do you have a list of multiple suppliers and their contact information? What if one supply runs out of containers? Or wax? Have you tested alternate sources?
- What if your computer crashes? How would you make labels? How would you ship?
- Do you have support if you get behind?