What are the risks of being a carpenter?

Working as a carpenter can be a great career, especially if you’re thinking of starting your own business. However, it’s important you understand what the business risks are, and make sure you are properly protected against them.

What are the main risks?

If this is your own business, you will be responsible for finding work. If you haven’t got work, then you won’t get paid.

There is also a risk of getting into debt, which could occur in a variety of ways: e.g. the cost of materials suddenly rising, at a time when clients are struggling to pay your invoices. Unfortunately, you must still pay your liabilities.

Finally, if something your business does causes damage to someone’s property or injury to someone, there is a chance you could be sued for damages and compensation.

Does it matter how I set up my carpentry business?

You can set up your carpentry business either on a self-employed basis or as a limited company.

Setting up as a self-employed carpenter is relatively easy to do; you just need to make sure you register with HMRC for self-assessment.

However, when you’re self-employed, there’s no difference between your personal finances and your business finances. If the business falls into debt, or someone makes a claim against your business, you may have to pay out of your personal assets (if your business hasn’t got enough to pay). That means assets like your home could be at risk.

What can I do to mitigate the financial risk of being self-employed?

The most obvious and cost-effective thing you can do is to make sure you have proper insurance in place. There are various types of insurance that are designed to protect your business. These include:

• public liability insurance
• employers’ liability insurance
• professional indemnity insurance
• insurance for your tools

The amount of insurance you need and how much it costs will depend on the circumstances of your business, e.g. its size, the type of work you do, etc.

What if I set up my carpentry business as a limited company?

It’s a little more complicated to set up as a limited company. There are more legalities to comply with and it costs a little more to do.

As a limited company, your business assets and personal assets are separate. If the company gets into debt or you are sued, your personal assets are not at risk.

What about my business assets?

Although your personal assets may be protected if you set up a limited company, your business assets can still be at risk if the company gets into debt or is sued.

Therefore, you should always have insurance to protect your business assets.