For some collectors of fine art, wine, and other passion investments, a desire to share their knowledge with others leads them to build a business around their passion. These ventures may include launching a studio, for example, to teach art, offer music lessons, or educate future generations about the nuances of collecting. For some individuals, assisting others in understanding and appreciating passion investments enhances their satisfaction with owning collectibles.
However, passion investors may not realize that risks can arise when turning a passion into a business. For example, a collector who loves art, coins, musical instruments, or other collectibles might host classes for students in their home, or perhaps broadcast educational sessions online to paying subscribers. In either case, the collector may have unexpected liability exposures. For example, if a student becomes injured on the premises, a subscriber’s personal information is exposed in a data breach, or an accident occurs during an event that causes third-party property damage, the collector could be held liable.
Business risks to consider
Launching and running a business, large or small, can be highly rewarding. It also carries significant responsibilities and can introduce risks that the business owner has little experience with. Some risks that passion entrepreneurs should consider are:
Nature of the new business
Is business conducted in person or remotely, such as online? Is it a service business, or does it sell goods? How many customers does it serve at any given time?
Location
Where is the business based? Is it in a residential or commercial space? Does the business have more than one location or operate in multiple states or countries?
Property of others
Does the business perform work on or store property belonging to others?
Employees
Does the business have any full- or part-time employees? Or do staff work as independent contractors?
Safety and security
What safety equipment, physical security, and data security measures does the business have in place?
Permits and licenses
Do the business and its employees have all the licenses and permits they may need to transact business?
Contractual obligations Does the business have contractual obligations that assume risk or require specific extension of insurance coverage up or down their supply chain?
Depending on the nature of the business and where it operates, the business owner may need to obtain licenses or certifications or demonstrate proof of financial responsibility, such as through insurance or surety bonds. Businesses that employ even a small number of workers may be required to have workers’ compensation insurance.
It is important to understand the risks and exposures that can arise from launching a business and the limitations of personal insurance policies. For example, some homeowners policies provide limited coverage for certain in-home businesses, but most ventures will likely require stand-alone commercial insurance.
Will your business idea fly?
Sam is an avid collector of vintage and antique aircraft, such as open-cockpit biplanes, who has an idea to turn his collection into a for-profit business. He holds a pilot’s license and regularly flies his planes at air shows, where he often meets like-minded enthusiasts. From these interactions, Sam realizes many of his fellow aviation buffs would like to experience the thrill of flying older planes. He decides to launch a business as a private flight instructor. This exciting venture needs a few critical preflight activities for Sam’s new business to literally get off the ground.
Sam’s experience and exemplary safety record make him an accomplished pilot. He has acquired extensive knowledge of vintage and antique aircraft through years of collecting. But knowledge as a collector and enthusiast does not necessarily translate into excellence as an instructor. If Sam were to make a misstatement or leave out critical information when teaching his students, the results could be catastrophic.
The first thing Sam needs to do is to become a Certified Flight Instructor authorized by the Federal Aviation Administration. That authorization comes with ongoing responsibilities. It includes regularly updating his instructor certificate, staying current on aircraft training, keeping logbooks updated, and maintaining the aircraft. In addition, the local airport where Sam plans to meet and teach students has specific insurance requirements for private instructors. Sam realizes there’s more risk in being a flight instructor than he previously thought.
Seeking specialist help
If you're a collector wishing to create a business venture from your passion investment, consult qualified professionals for legal, tax, and risk management advice. Specialized expertise is valuable not only in preserving passion investments but also in making sure businesses are properly structured and administered. A personal risk advisor can help you understand different exposure scenarios and explore options for protecting your new business venture with purpose-built insurance solutions. You can also learn more about protecting the investments you are most passionate about in our special report.
Marsh McLennan Agency Private Client Services and our insurance company partners can design effective risk management programs that provide flexible and specialized coverages. Working with a trusted, experienced personal risk advisor is a good way to ensure peace of mind. Before turning your passion into a business, turn to MMA PCS for your protection needs.
