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Chapter 4: When, Where, What, and Who of Your Business

“As rosemary is the spirit, so lavender is to the soul.”

- Anonymous

After deciding what herbs you want to sell and how the business will serve potential customers, the next step is to begin to plan how to make it all happen. Now it is time to tackle the mechanics common to setting up all businesses, with an eye to any special needs you might have because you are selling herbs. Early on, it is important to decide if the herb business will be full or part time, where it will be located, what equipment you will need, and who will work in the business. This chapter lays out important issues of the business side of the equation. Even with all of this information, you may still feel tentative about committing your time and resources to opening an herb business. In that case, seek out expert help. One of the best resources to refer to when seeking additional help to make these decisions is the U.S. Small Business Administration (www.sba.gov). The SBA also is the home of the SCORE program, where retired executives offer their time and expertise at no charge to people who want to get a start in a business of their own. Armed with the knowledge in this book and your own enthusiasm, you can meet with them and make sound decisions on how to build your business.

Checklist: Before Starting Your Herb Business

How much time and money are you and your family willing to commit to this new venture?

When: Will Your Business be Full time or Part time?

“Don’t quit your day job” is the mantra of the part-time entrepreneur. Many businesses can easily be operated while still holding down a full-time job. If you want to do so, carefully consider your commitment to taking care of the plants, marketing your business, and finding a source of funds and space to operate. Many businesses that are ultimately large and financially successful start small. Some stay small to serve niche markets. Starting small allows the owner to retain a steady job with a secure paycheck and to expand the business at the pace of business increases.

When considering full- or part-time status, it is also good to know what work is required in an herb business in each season to determine if your full-time job will or can accommodate the needs of the herbs. If you live in an area of the country where the weather is the same year-round, you can possibly spread these tasks out more evenly; otherwise, take a careful look at the calendar when making your decisions. If you are working full time as an employee and working your herb business part time, you will probably find yourself using vacation time, weekends, and days off to work with the herbs.

In the spring, it is time to start planting most of the seeds and bringing out seedlings you started indoors with grow lights or in a greenhouse. You may need to re-pot herbs that look cramped when their roots are showing through the bottom of the pot. This is also a time when people start to think about designing and planting their homes’ gardens, and it may be a time when you are called to give talks on planning an herb garden or growing a kitchen garden. You can also use this time to host workshops or seminars on preparing and planting gardens for the upcoming season.

Summer is a time when herbs are at their peak and the harvest begins. This is also a peak time for farmers markets, good opportunities for Saturday selling. Farmers markets usually begin at 8 a.m. on Saturdays, so you may either need to take Fridays off or find someone to help you on Fridays to prepare the products you are planning to sell at the market. The summer market season may be one of the busiest times of year. Markets allow you an opportunity to spread the word about your business and its location. Also, if you are not able to obtain zoning variances to sell herbs from your growing location, the farmers market represents a chance for you to meet the public on a regular basis to sell your products.

Autumn is a time to cut back and get herbs ready. Annual leaves, such as basil, can be harvested one last time for freezing or drying, and then the plants can be uprooted and re-used as fertilizer by making them into compost over the winter. Perennials and biennials that are not winter hardy will need to be potted and brought indoors for the winter. If you live in a climate that does not allow winter gardening, use this time to market yourself and plan future plantings. Indoor pots need to be cared for during this time period to ensure they will be in bloom by the time spring comes around. It is also a good time to experiment with recipes and to make sachets and bouquets of dried culinary herbs for sale.

Money is usually the deciding factor when deciding to go full or part time into any new venture, including an herb business. Will the business be able to provide a steady stream of income after paying off the costs of the business? Will you be able to fund benefits for yourself, such as health insurance? Can you work the needed hours in the herb business while maintaining excellence at your other job? These are questions only you can answer.

Where: Will You Operate from Home or in a Purchased or Rented Space?

Even if you have a large garden and a place to grow plants indoors during cooler weather, you must decide if living in the midst of your business is an option for you and for your family. If you have a large amount of land, setting aside some space for herbs is not as difficult as setting aside the same amount of space in a small suburban yard. Remember you can start your herb business in a small space. Requirements for zoning and local community requirements may dictate whether you can run the business from your home. For instance, your community may have regulations concerning the use of indoor space to grow plants from seed and your garden to house potted plants.

Can you succeed working out of your home?

Not everyone can afford to rent an office or retail storefront, and not every herb business needs one. It is quite possible to succeed with a home-based herb business. Consider what you need and how you can make that work in your home business. The following are some questions to ask yourself before deciding where to locate your new business:

Another issue to consider when running your herb business from home is marketing. Although you may save money on rented space, you may have to infuse more money into marketing and promoting your business to bring awareness to your potential customers. Because the business is not in a storefront, it has less exposure, which means you have to work harder at getting the word out in the community.

A small space, even an urban space, is sufficient to start an herb business. For an example of a successful business started in a small space, read the DeBaggio case study in Chapter 9. Expanding the business does not necessarily mean you will need more land. There are many creative ways to increase the size of your business, including purchasing plants for resale from other trusted growers when you need large amounts of potted plants to sell at fairs and festivals.

If you have a large amount of space, your only zoning problem may be the retail sale part of your business. Even if you have plenty of space, your area may not be zoned for retail sales from your site. See Chapter 5 for more information about zoning.

Case Study: Turning Knowledge, Experience, Space, and Dreams into a Business

Cindy Jones

Sagescript Institute, LLC and Colorado Aromatics

Longmont, Colorado 80504

303-485-6289

cindy@sagescript.om

www.sagescript.com

When Cindy Jones completed her advanced degree in biochemistry, she was looking for a creative way to utilize her skills, satisfy her creative side, have fun, and do it in a way that helped people and the environment. Her long time interest in herbs led her to medical writing that centered on the scientific basis of herbs. She published articles in many magazines, wrote for professional organizations, edited and wrote for book publishers, wrote for encyclopedia publishers doing various articles, and published her own book as well. Although this was fun and she learned a great deal, Jones’ true desire was more “hands on” work. This is when her herbal business evolved from writing into botanical skin care, which Jones said, “encompasses all my loves and strengths, which makes my business unique.”

At the time Jones made her business transition, she was lucky enough to have a husband working full time and had been working from home part time so she could care for her small children. Transitioning into an herbal business was a slow process for Jones that started off as more of a hobby as her children were growing. Now that her children are teenagers, she has more time to focus on the business.

Jones runs her business from the small farm and large outbuilding she uses as her workshop that sits on the same property as her home. The workshop is large enough to have an office space and a formulating space to encompass all aspects of her business.

Her business is two-fold. She sells her own botanical cosmetics line, Colorado Aromatics, and also does formulating and consulting for other business owners. The best tactic for selling her own line of products has been attending the local farmers market as a vendor. The best tactic for landing consulting jobs has been participation in online cosmetics and herb groups, mainly through Yahoo! Groups, but also by joining professional organizations such as the HandCrafted Soap Makers Guild and Indie Business Network.

One unique thing about Jones’ business is she not only grows herbs, but she uses them to make skin-care products. Because she is classified as a “farmer” or “grower,” this has enabled her to be a member of the farmers market. “Crafters,” are not usually permitted to participate in a farmers market, and farmers markets have proven highly effective in opening doors to grow her business.

Jones suggests new herb business owners should focus on packaging and marketing their products, but having a good product is the most important aspect of a successful herb business. She suggests owners learn as much as they can about products and the ingredients by surpassing hearsay, pseudoscience, or Internet rumors and going directly to the scientific/medical literature to learn about ingredients, herbs, and interactions. She said, “Any herb business owner is also an educator, and you cannot educate the public until you have the knowledge yourself. Start off small and listen to your customers. They can be your best support group and your resource for ideas.”

Jones also suggests new business owners find a good group of colleagues, either online or in your community, which is very important. Her support started off as a member of the Herb Society of America many years ago, but she has expanded that to membership in many informal Yahoo! Groups as well as professional groups. Although she initially thought having a good product was enough and people would find her, she soon realized you have to be out there promoting your product. She said, “It may take some time to get your name out there, but do craft fairs, farmers markets, consignment, etc. Donate gift bags to silent auction charities. Teach classes at the community center. Write a blog. Anything like that at least gets your name out there.”

Can you succeed working out of a retail space or storefront?

If zoning or other reasons have you opting for a storefront or retail space, these locations have their own set of considerations. For example, a storefront or retail space requires you to set and keep normal business hours. This can be a problem if you intend on keeping your full-time job while starting your herb business on the side or part time. You either have to hire staff to manage the store in your absence or only open the store on nights, weekends, and holidays that you have off from your full-time job.

In addition, renting this space adds to the monthly expenses of the business. Not only do you have to cover rent, but you also have to install a business phone line, turn on the electricity, pay the water bill, and a myriad of other costs you do not incur when adding the herb business to your home setting.

The location you choose for the store is another factor. Sure, you can rent a storefront off of a main street and down a side street, but the exposure in this case might not be enough to attract customers. Out-of-the-way retail spaces have a burden of increased marketing, placements of ads, and appropriate signage in order to make customers aware the shop exists and in directing customers looking for your “hidden” shop.

It is possible to grow your herb garden at your home but sell the products from the storefront. In this situation, look for a storefront or retail space where your target audience shops or where you can garner exposure for your business. For example, if there is a main street in town everyone uses, this may be the best location for business exposure. You can also look for space near other stores that relate to your business, such as a grocery store, a vitamin shop, or a bath and body store. These are all complementary businesses, as well as direct and indirect competition depending on the types of herbs you are selling.

You may want to find a storefront that has a small office space in the back area. This way you can run the majority of the business from this location, minus the herb garden being on the property of your home. In rural areas, you may be able to find a lot of space for planting and growing your garden that has some sort of a building you can use as your office and storefront.

What: What Equipment Do You Need?

The scale of your herb business will define how much startup equipment you need. Most of what is needed for a small startup is probably sitting in the family garage: a shovel, gardening gloves, hand tools, a wheelbarrow, a rake, pots, a spritzer, a watering can for potted plants, and a long watering hose, perhaps two, that can reach all of your plants.

Even items such as seed flats, multiple plant containers, and multiple bags of soil might already be in the garage. Containers — at least some of them — may be available free from neighbors discarding them after a planting season. Garage and yard sales, flea markets, and secondhand stores are also great places to find gardening supplies and pots. For secondhand goods, thoroughly clean the items before using again to make sure you are not spreading disease from one plant to another. You can accomplish this with common household bleach, water, and antibacterial soap. For larger items, fill the container with nine parts water and one part bleach. Allow it to soak for about ten minutes to sterilize. For smaller items, fill your sink with hot water and antibacterial soap. Allow the items to soak for about ten minutes and then scrub the interior and exterior of the pots and planters or the front and back of the gardening tools. Buying supplies when it is not the peak growing season in your area and when nurseries and garden centers price items for clearance is another way to pay as little as possible for the items you need. With some bargain shopping, you may pay as little as 25 cents up to $5 for some of the gardening supplies you need to get started. A greenhouse or cold frame might be the only large equipment expenses for a small startup. As the size of your business increases, grow lights for the basement, possible upgrades for electricity and watering on the business site, renting equipment to till larger plots for planting herbs, and more supplies might be needed. A good resource for finding low-cost items is your local agricultural extension service.

Basic Start-up Supplies for Your Herb Business

Does the family already own a truck that can be used to transport soil, plants, and other items? If not, will the business purchase or lease one? Will you be hauling plants every week to a farmers market in the summer? Or will the need for a truck be limited only to bringing in large amounts of supplies once or twice a year, in which case short-term rental could be considered? For most small herb businesses, a standard pick-up truck or the small-size box truck from U-Haul® or Ryder® is typically sufficient in size for transportation needs such as hauling plants to and from a farmers market.

To determine the needs of the size business you have planned, contact another grower of similar size through an herb organization or by looking up herbs in the local or online phone book. A great source of information on other growers is the International Herb Association in Florida. Its list of members is a rich source for those who have questions to ask. The list includes herb writers, herb growers, and herb wholesalers. See the Resource Appendix in the back of the book for more information about this association and others.

Determining whether to purchase a truck and other supplies for your business will depend on the cost versus how often you will need to use it for the business. If you do not purchase but simply lease or rent occasionally or even use a personal vehicle for occasional business purposes, be sure to keep accurate records for the Internal Revenue Service. Deductions for business use of a vehicle or other supplies need to be documented for each use with the date of the use, the starting and ending mileage for each use, and the starting and ending time for each use. Check with the Internal Revenue Service for other details needed, including the purpose of each use, and other records you may need to maintain.

Who: What Type of Staff Do You Need?

If you start out with an herb garden you can manage on your own, you may not need to hire employees. This is especially true in a situation where you are running the gardens, the office, and your “sales” space out of your home.

As your business starts to grow or if your garden is separate from your retail space, you may need to enlist the help of family and friends, or hire employees to help you run the business. Another time to consider hiring employees is when you are running the business part time or on the side when you have a full-time job but have a retail space that needs manning during normal business hours. There are definite advantages in having someone in the office to answer the phones, call the vendors, do phone marketing, or set schedules. Some of this work cannot wait until dark when the outdoor gardening jobs are done.

Start the selection process before you place the ad by describing exactly what you want your employee to do, what experience he or she will need before starting, and what software programs or equipment skills the person will need to have. Also remember your office helper may well become the “face and voice” of your business, so the person you choose should be able to get along with the public, in person and especially on the phone. You may want someone who has bookkeeping experience to take over some of the data entry responsibilities and financial aspects of the business. Whatever it is you want, write it down, read it over several times, and picture the kind of person you would feel comfortable working with.

Especially if the person is operating your storefront while you are away or working in the herb gardens off-site, seek someone who either has herb knowledge or who you can easily train. Fast-learners can be taught the basics of herbs so they can answer customer inquiries and make cross-selling suggestions. Additional knowledge also comes with hands-on work experience and time, so it is possible to find a personable and intelligent enough employee who does not have herb experience and turn them into your own little herb expert. When writing your job advertisement and going through the interview, hiring, and employment process, it is important you are aware of some of the laws that govern employer-employee relationships. These are covered in the next section of this chapter.

Newspaper or Internet ads are effective. Put the ad together using the information you outlined as to what the person you are looking for must possess. Specify the work and hours, but consider whether you want to put the hourly pay in the ad. In some areas of the country, help-wanted ads routinely contain the starting hourly wage. In others, a wage range is listed, and in other places, words such as “competitive hourly wage” are used instead of specific numbers. Get to know the pay scales in your area for the work you want done, check the ads your competitors are placing, and use those standards as guides. Also be sure to state in your ad that applicants must be currently eligible to work in the United States for any employer.

This is the only “pre-screening” you can legally do to make sure you are not hiring an ineligible worker. If you live in a large metropolitan area, you may get better results from community papers than from the large dailies that cover areas larger than 100 or more miles. Online services such as Craigslist (www.craigslist.com) and its local competitors may be a cost-effective form of advertising. Just be sure your applicants are local. It is not wise to employ someone who lives two hours away and drives an old car that may or may not start on any given day.

Keep in mind it is illegal to place an ad that discriminates against anyone because of race, sex, age, religion, and other factors. You are looking for someone who can do the job, no matter what other qualities the person has or does not have.

Discriminatory practices

Under Title VII, the Americans with Disabilities Act, and the Age Discrimination in Employment Act, it is illegal to discriminate in any aspect of employment, including:

Discriminatory practices under these laws also include:

According to laws enforced by the Equal Employment Opportunity Commission (EEOC), all employers are required to post notices detailing employee rights. These notices have to be reader-friendly for all people, regardless of visual impairment or other reading disability.

These guidelines should be followed by all business people, even small, startup businesses like yours. Once you select a person to hire, you will need to set up a personnel file for him or her, prepare the appropriate government paperwork for tax withholding, and other new-hire policies. If you are not sure what is required, your accountant, your state tax officer, or your local chamber of commerce can point you in the right direction.

Set aside some concentrated time to train your new employee in the way you want the business to be handled. He or she may be spending a lot of time alone in the storefront if you are out in the field or attending to other business off-site. Closely monitor the results of the work you assign the shop employee to be sure the job is done. With any luck, there will be no problems, but if there are, you will have to retrain or fire the individual. Neither of these tasks is much fun; it is much easier to pick your employee carefully from the start.

Finally, because you hired an employee to take the burden off yourself, you will want to see some payback in terms of increased revenue within a fairly short period of time. Be sure you do a cost analysis of your hiring experiment to see if it is bringing you more income or costing you more money than you expected. For example, if you once ran the herb store on your own and recorded a set amount of sales, after your employee starts to run the store and gets the hang of the business, your sales should be similar or better.

Ideally, you will find someone who has knowledge in herbs — especially the types of herbs you sell. If you come across that kind of individual, find out why he is not employed. Experience alone is not a good indicator of a satisfactory employee. After all, this person might have been fired because he or she was not dependable or competent. Successful business managers recommend zero tolerance for any bad behavior, whether it is showing up late, laziness, or constant complaining without getting anything done. Make your policies clear from day one and put them in writing so there will be no misunderstandings if you fire someone.

Interviews

The interview process begins on the telephone, as you are setting a time for a personal meeting. The first thing to consider is the attitude of the person on the other end. Is he or she friendly or surly? Do not confuse an inability to articulate with a bad attitude. Someone may not have much formal education but he or she may have experience and a positive attitude that will overcome poor grammar or the fact he or she is nervous in speaking to a prospective employer. What is the overall demeanor of the person you are talking to on the telephone? Does this sound like a person you would like to be around? Some people may be shy about admitting they do not have much experience or some other negative. Lack of experience is not as big a drawback as someone who you suspect is being evasive or trying to pass off work experience at an organic restaurant as a qualification to work for you as an employee.

Why do they want the job? Do they have an interest in herbs and gardening, or do they just need some money? Select the most suitable applicants before you schedule face-to-face meetings. You will want to know whether they have experience with the tools and equipment they will be using as your employee.

During the personal interview, apply the same standards you would expect your customers to use. How is this person presenting himself or herself? Is the person clean? Is clothing torn or dirty? Does he or she look you in the eye? If the prospective employee claims to have experience, ask them two or three questions that require some knowledge to answer. You do not have to be challenging or harsh in your questioning. You can be friendly, even funny. You simply want to determine to the best of your ability whether this person is being honest with you. You might want to present a scenario and ask how the applicant would start, perform, and finish the task you describe. For example, you may act as a customer in asking a question about a particular herb choice for a recipe, medicinal purposes, or another use for the herbs you sell in your store. See how the applicant responds and if the information is accurate and in accordance with his or her stated experience.

Review the applicant’s résumé and ask questions about gaps in work history or lack of recommendations or past employers. If you have the sense your candidate is lying, be cautious about hiring him or her. It is easier to not hire someone in the first place than to fire him or her after the fact.

Before you interview anyone, read the discrimination laws in hiring. Some questions are forbidden. You may not ask about a person’s religion, politics, or sexual preference. Your questions should track the qualifications for the job, not outside interests or qualities the prospect has no control over.

It is not out of bounds to ask “what if” questions during a job interview. “What if a customer comes in asking for a natural remedy for a rash? What medicinal herb would you suggest?” “What if a customer asks you which basil is the best option for an Italian recipe? Which variety of basil would you suggest?” Discuss the job with the applicant, describing in detail what you would want that person to do. Check the person’s reactions. If the candidate responds in a way that is completely unreasonable, smile, thank him or her for his or her time, and end the interview. Also avoid the applicant whose interview style is to present a list of demands he or she expects you to meet.

With each job applicant, try to objectively see the person. Is this someone you want to be around every day? Someone a customer would like and trust? Someone you believe can help your company grow? All of these things matter. Hiring people you can promote is important because it gives employees reassurance they can grow along with your company and provides incentives for superior performance. Ambition can work for you.

Once you have narrowed your list and found the person or persons you would like to hire, check them out. Call former employers to inquire about their work histories and performance. Be aware many former employers will be reluctant to offer bad news about someone. Know the qualities you want to inquire about and ask specific questions. If you just ask, “What can you tell me about Bob?” you will probably get an answer as general as the question: “He was all right.” You want to know if Bob showed up on time, did what he was supposed to do, or caused any problems. Listen for what Bob’s former employee is not telling you. If his former employer is distant or does not seem as though he has much to say about Bob, this may be a warning sign. On the other hand, if he says, “I would hire him again in a minute,” you have the answer you need.

Once you have made a decision, call Bob and give him the good news. Tell him clearly, as you should have done during the interview, you have a probationary period, 60 or 90 days, longer or shorter as you choose, during which he can quit or you can let him go with no hard feelings and no obligation on either side. Send him a confirmation letter outlining your work policies and what is expected of him. This can be a separate document if you like. Again, it is best to have all requirements and expectations in writing.

Contact everyone else you have interviewed and explain you have made a decision to hire someone else and keep the résumés of people you think might be suitable in the future. Wish everyone well and thank them for their time. Even after you select a candidate, keep the other appropriate-seeming résumés and contact information. You never know when you may need another employee, and if someone who applied previously happens to be available, you will save yourself time in finding your next hire.

Some communities restrict how many employees a home-based business can have. Check your local zoning and other regulations before you commit to a number of people parking their cars and doing other business-related activities in your neighborhood. If you face such restrictions, you will be forced to either rent business space or arrange to meet all of your workers at job sites or other locations.

New employee paperwork

No matter whom you hire, you will have to fill out and send in or retain certain government documents. These include W-4 forms, the Employee’s Withholding Allowance Certificate, and the W-5 for employees with a child if they qualify for advance payment of earned income credit. Check the IRS site or http://business.gov/business-law/forms to download forms.

Application of Federal Law to Employers

A number of factors may cause an employer to be covered by a federal employment law. These include the number of employees employed by a business; whether an employer is a private entity or a branch of federal, state, or local government; and the type of industry an employer is in.

The following chart shows how the number of workers a company employs determines whether a specific federal statute applies to the business:

Number of employees

Applicable statute

100

WARN — Worker Adjustment and Retraining Notification Act

50

FMLA — Family Medical Leave Act

20

ADEA — Age Discrimination in Employment Act

20

COBRA — Consolidated Omnibus Benefits Reconciliation Act

20

OWBPA — Older Workers Benefit Protection Act

15

ADA — American with Disabilities Act

15

GINA — Genetic Information Nondiscrimination Act

15

Title VII of the Civil Rights Act of 1964

15

PDA — Pregnancy Discrimination Act

1

EPPA — Employee Polygraph Protection Act

1

EPA — Equal Pay Act

1

FCRA — Fair Credit Reporting Act

1

FLSA — Fair Labor Standards Act

1

OSHA — Occupational Safety and Health Act

1

PRWORA — Personal Responsibility and Work Opportunity Reconciliation Act

1

USERRA — Uniform Services Employment and Reemployment Rights Act

Creating an Ethical Environment

In business, fraud refers to a deliberate action by an individual to cheat another individual or business entity, usually involving some type of deceit for monetary gain at the expense of the other party. The most effective fraud deterrent is a corporate culture that does not tolerate fraud. Creating an ethical culture in the workplace is a process that takes time, investment, and continual education. For an ethical culture to become established, management and employees must be committed to it and willing to live by it every day.

Ethics policy or code of conduct

Every business should have a formal ethics policy, not only because it deters fraud, but also because it legally supports efforts to enforce ethical conduct in the workplace. Employees who have read and signed a formal ethics policy cannot claim they were unaware their conduct was unacceptable. A good ethics policy is simple and easy to understand, addresses general conduct, and offers a few examples to explain how the code might be applied. It should not contain general rules to cover specific situations, or threats such as “violators will be prosecuted to the full extent of the law.” In a legal trial of a fraud perpetrator, it is the judge and not the company that will decide the sentence. An ethics policy or code of conduct should cover:

An ethics policy will not be effective if it is handed to each new employee and then forgotten. The ethics policy should be reviewed with employees every year.

Insurance

Insurance is a necessary expense, and in some jurisdictions, an absolute requirement for doing business. No matter how careful you are, accidents will happen — insurance is your protection.

Types of insurance

Insurance is not a one-size-fits-all solution. Laws vary by state, so some states will have higher premiums based on a number of factors, including the number of claims filed overall. Many states have minimum business insurance standards. A description of some common types of insurance follows.

Comprehensive general liability insurance

General liability insurance may be required in your state. This type of insurance will cover your business against unexpected accidents and injuries. Review the policy for exclusions that might leave you vulnerable to exposure under certain circumstances. Read the fine print — do not ignore it or skim over it. For example, if your policy excludes damage caused by drunken employees, the insurance company may not help you if an inebriated employee loses control of your company truck when making a delivery to the farmers market, shop, or other location.

Know what you need and what coverage the insurance company is providing. Talk to a number of providers. Better yet, ask other business owners for referrals to reputable insurance brokers who deal with a range of insurance companies. He or she will shop around for the coverage you need at the lowest cost. The most important part of this process is obtaining the proper coverage. A lower premium is not worth much if you find yourself without the insurance protection you need.

How much liability coverage is enough? A million sounds like a lot, but in today’s world, that amount may not be enough. A good minimum is probably $2 million, and $3 million is even safer. If you can afford it, go higher. Insurance companies price this type of insurance reasonably, assuming you do not have a history of claims and judgments and premiums are not based on a dollar-for-dollar fee schedule. For example, $2 million in coverage is less than twice the cost of $1 million, and so on. An insurance broker who specializes in small-business coverage can help you determine what you need. Be honest with him or her and do not mislead the broker, or yourself, about what you will be doing in your business — whether it is outlining the services you provide, or the products you are offering. Ask questions, write down the coverage you need and any promises regarding coverage from the provider or the broker, and check these items against the actual insurance policy.

Product liability insurance

Product liability insurance provides protection from problems arising from the products you sell. For example, if you are selling culinary herbs and a customer gets sick from one of your products, you may run into a product-liability issue. Or, if you are selling herbal body-care products and a customer suffers a skin allergy, you may run into a product liability issue. Be sure your business is covered against this type of risk by discussing insurance options and scenarios with the insurance broker.

Workers’ compensation insurance

Workers’ comp, as it is commonly called, is required in every state. However, the structure of the insurance varies by state. Private insurance companies offer this coverage based on the number of employees on the payroll, the roles each individual performs, and the type of business you are operating. However, some states require such coverage be obtained from the state government or one of its agencies. This insurance pays medical expenses and lost wages for workers injured on the job. There are exclusions for certain categories, such as independent contractors and volunteers, but, again, check your state’s laws. Business owners are generally exempt from having to carry a workers’ compensation policy on themselves or if they are the only employee of the business.

Home-based business insurance

Home-based insurance will be required if you are working out of an office in your home. Homeowners’ policies rarely cover business losses. If you are operating from your home, check with your insurance agent to see if anything in your office is covered. The typical homeowner’s policy specifically excludes home-based business losses, including equipment, theft, loss of data, and personal injury. Unfortunately, many companies that provide homeowner’s insurance do not offer business coverage, so you may need to have two insurance companies covering different areas of your home.

Criminal insurance

Criminal insurance covers you in the event of an employee committing a crime. General liability insurance may not cover theft or other criminal acts by employees. If someone is on your payroll, you may be held responsible for his or her actions while he or she is with customers. Should that person steal something, vandalize customer property, or deliberately harm someone, the customer will expect you to assume responsibility. This type of coverage can also protect you in the event of employee embezzlement. Depending on your general liability coverage, you may want to consider this category of insurance.

Key man insurance

Lenders who provide capital for businesses may require key man insurance. This coverage applies to the person whose absence from the company would cause it to fail. Most likely, that person would be you or your partner. If you have borrowed money to start or operate your business, the lender may require such insurance as a guarantee of payment if anything were to happen to you.

Business interruption insurance

Business interruption insurance covers your expenses if you are shut down by fire, natural disaster, or other catastrophes. Some businesses are not as vulnerable to this as other types of businesses, so look carefully at your other coverage. Assuming your equipment and vehicles are already covered, you may not want to duplicate. Discuss this with your provider or broker.

Vehicle insurance

Vehicle insurance is the commercial version of the insurance you have on your private vehicle. The same price considerations apply: type of vehicle, history of claims, mileage, location, and drivers. If you have employees who will drive your vehicles, their driving records will be considered in the rate you pay, along with yours.

Insurance Review

Insurance is not an option — it is protection required by law and good sense. There is no single standard for business insurance because laws, rates, and requirements vary by state. At a minimum, you will need comprehensive general liability insurance, vehicle insurance, workers’ compensation insurance, and probably home-based business insurance. You may also consider product liability and criminal insurance policies. Your lender may require key man insurance if you have borrowed money for your business.

Ask other small-business owners in your area for referrals to a reputable business insurance broker, and review your options and requirements with her or him to determine the best coverage for business and to find the best rates.

Have your insurance coverage in place before you start your herb business or hire your first employee.

In addition to the discrimination and insurance laws, legally establishing your business requires you to be aware of other business laws. Chapter 5 helps you maneuver the legal scene of establishing and running your herb business.

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