How To Protect A Drone Service Provider From Financial Ruin


Photo Compliments of Drew Beamer

So you’ve made a considerable financial investment in your new drone, and now you’re toying with the idea of earning your livelihood by flying this high-priced camera holder.  You’ve followed the rules by registering this drone, and studied hard to pass the Part 107 Knowledge Test.  You’ve earned your Commercial Drone Pilots license, and now you want to gauge whether or not you’ll be able to pay your mortgage by being a commercial pilot.

Good news, it is possible!  However, to better your chances of survival and avoid becoming one of the 20% of businesses who fail in the first year, it’s important you run a very “lean operation”, and avoid:

Excessive Debt

Hiring Employees…At least Initially

Too Much Overhead.

So, In order to properly evaluate the feasibility of your Drone Business, let’s look at what the start-up costs are and a checklist I would follow.

For starters:

Consult with an attorney to determine which professional entity to start.

Before your first ‘Paid Gig’ it’s best to protect yourself from the possibility of financial ruin, by getting great advice from an attorney who can help you understand which type of Entity will be best to form for your specific goals and objectives.

There are lots of great attorney groups who can create a professional entity for you, though I’ve found Rupprecht Law to be the most knowledgable with regard to the drone industry.  They have written great posts which are very helpful in answering legal questions about starting a drone business.  Such as this one about choosing your drone companies name.

Who would have thought choosing your Drone Companies name would be so important, but as you can see, it most certainly is.

Or this one which answers a great deal of general questions about starting a drone company.

So, in order to get a better feel for setting up a professional designation for a Drone Business, I contacted Jonathan personally.  Here is some great advice he provided about which professional entity is ideal for a Drone Startup Business.

When starting a drone business up, it is important to consider liabilities and taxes. Drone insurance can be purchased very affordably and can mitigate liabilities if an accident were to occur. Depending on the level of exposure to liabilities and also revenue, a entity can be set up (Corp or LLC). Limited Liability Companies can provide SOME legal liability protection. You should definitely meet with an attorney because an LLC by itself does NOT protect you from everything and you need to maintain it. A LLC taxed as a sole proprietor does not save you on taxes. Typically, when you are starting to make over $30,000 per year after expenses, you might want to consider doing Subchapter S tax classification so you are not overpaying in taxes. I would highly suggest you meet with an attorney who knows business and tax law so they can finely tailor things to your needs so you are not being exposed to too much liability and you also not overpaying in self-employment taxes.

Should you decide to create a professional entity, and want to discuss your plans with an attorney, here are 10 Questions you should consider asking.

Register your Drone Service Entity with the IRS and your State.

As a U.S. Based business, you must be recognized by the IRS, and in order for them to grant you the authority to conduct business, you must apply for an Employer ID Number commonly referred to as an EIN Number.  You can apply for an EIN number here.

Keep in mind, the IRS wants to know who the ‘Responsible Party” is for your Drone Business, and this cannot be an “entity”, it has to be a person.  So, be ready to provide your personal information, such as your name and Social Security Number.

Protect your Business Entity by purchasing A Business Insurance Policy.

After you’ve created your professional entity, it’s time to find a Business Insurance Policy.  This policy should cover Business Contents; which are anything owned by the entity, such as your Drone, Computer, Cameras, Software, etc, etc.  The policy should also cover Liability, which covers any personal or property damage the ‘Entity’ causes while performing business operations.  Most importantly, the policy should be written in the name of your new entity, and personally I would have my name written on the policy as an additional insured.

Most major insurance carriers would cover a Drone Business, so I would recommend finding one with an AM Best Rating of at least an ‘A’ or better.  The AM Best rating measures the financial solvency of the insurance carrier, and its ability to pay claims.  AIG offers a business policy that covers this, and they have a good history and a long track record of being able to pay claims on a massive scale.

Other insurance additions or ‘riders’ you might consider purchasing for your Professional Entity are:

Supplemental Insurance Coverage.  This covers things such as Accident, Disability, and Life Insurance.  If you are hurt on or off the job and cannot make a living for a period of time, a disability insurance policy would pay you while you’re incapable.  This policy should be written in your name, rather than your entity’s name.

Errors and Omissions.  This covers your Entity if it is accused of doing something wrong.  An example of this may be; say your contract does not specifically state who owns the images you capture for a client, and you unintentionally lose a client’s images, who’s at fault?  If it’s not you, then you will need to prove your innocence.  Having an Errors and Omissions Policy will cover an allegation made against you in the event of a situation like this arises.

Umbrella Liability.  This is liability coverage that “kicks in” when your Business Owners Policy’s liability limits are exhausted.  This is meant to cover large losses, such as Death and Dismemberment, or Property Damage.

How COVID 19 can affect your Drone Services Business

If your Drone Service Business with less than 500 employees, which I assume is most, then The Small Business Association is making Forgivable Loans, in a Federal program called the Paycheck Protection Program, to those who qualify.  Thankfully, ‘qualifying’ is a rather low bar to achieve.  This Forgivable Loan is meant to cover things like Rent, Payroll, Utilities, but at least 75% of the forgivable amount must be for Payroll.  The goal of the program is to ‘brief’ assistance to weather this COVID 19 Storm and to incentivize small businesses to keep their employees on the payroll.

This Paycheck Protection Program even covers Sole Proprietors and “Gig Workers”, to provide the broadest protection for the working class.  If you would like to fill out an application, please do so here.

Lastly, stay safe and healthy by utilizing Social Distancing guidelines and good personal hygiene.

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