Sunday, April 29, 2012

Can I start my business by just cooking at my house?

Need to Know More?
This interview is the first in a series of questions posed to experts in their field.

Interview by Jeff Yoskowitz

Marc Lehmuller is a Vice President of RBL Associates with over 25 years of insurance experience. Marc insures food companies of all types and sizes.

Jeff: Marc, I get questions all the time about baking at home to get your business started. What is your perspective from an insurance point of view?

Marc: The answer to your question, about using your home to bake your goodies, is that it is illegal in most places. You must bake in a commercial kitchen to have the proper licenses.
Your homeowners or renter’s insurance policy does not cover “Business in Pursuit.” That means if you have a home-based business it should have a separate insurance policy only covering what you do. Home-based businesses are usually consultants, CPAs and other professionals not related to food manufacturing.

Starting a food business, you should incorporate first to protect your personal assets in the event a claim or suit is brought against you. The most important aspect is to get Liability insurance for your business, which will protect you for product liability (someone getting ill from your product for instance).The limits vary, but most landlords, farmer markets, street fairs and public parks require $1,000,000 each occurrence (each claim that is brought against you) and $2,000,000 general aggregate (maximum payout for the policy period) as well as naming them onto your liability policy as an additional insured. This protects them and also people who buy and consume your products.

Here is a scenario of what can happen if you don’t have Liability insurance for your company:

Your neighborhood church is having a bake sale or you are giving away your cookies for free as a promotion or let’s say you are selling them at a farmer’s market. Mrs. Smith buys from you and claims that there was a foreign object or that the cookies made her ill and she had to seek medical help. She contacts you and wants to be compensated for her illness and asks if you have insurance to pay for her bills and lost wages. If you don’t have insurance she could give you the medical bills and tell you what she lost in wages or seek an attorney who will look to sue you personally putting your home and personal assets at risk.

THE most important thing is to get Liability Insurance for anything you bake or give away. You are responsible not only for everything you make but also if a friend of yours gives her product to you to sell or give away.

 Remember, set up your corporation and get Liability Insurance before you hand out your product.

Jeff: Thank you Marc, great advice.

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