The Acoustic Guitar Forum

Go Back   The Acoustic Guitar Forum > General Acoustic Guitar and Amplification Discussion > Custom Shop

Closed Thread
 
Thread Tools
  #1  
Old 02-21-2012, 03:13 PM
El Conquistador's Avatar
El Conquistador El Conquistador is offline
Charter Member
 
Join Date: May 2006
Location: Central California
Posts: 3,937
Default Solo Builder Indemnification Fund

The spate of solo builders untimely deaths and disasters (health and otherwise) cannot be good for the custom order luthier business. Reports of these things on forums like this can be a very powerful argument against a solo custom buid.

This got me to thinking. (Actually, Riorider first mentioned this idea.) Is there some way to reduce the risk to a potential client of losing all her/his funds to some unforseen tragedy, or at least, avoiding the huge frustration of long overdue orders even though commissions have already been paid?

Typically, a solo builder is living, at least to some extent, hand-to-mouth as it were. Any funds that come in are usually spent for supplies for upcoming builds. So, there is very little, if any, financial cushion for some unplanned event, let's say something as simple as the luthier's spouse loses her job meaning the loss of family income along with the families health benefits. Not to mention a serious illness, or, as we have seen, even the death of a builder.

So, wouldn't it be a good thing if a solo builder could guarantee that an unforseen disaster would not result in the loss of a client's funds?

I know that life insurance companies are required to all pay into a State pool of funds as a requirement to actually sell their policies in that state. The idea is, if one of the member companies were to go out of business, which does happen, then their customers would be made financially whole by the fund.

I am suggesting that a model like this could work very well for solo builders. A solo builder could contribute a very small percentage, say 1%, of each sale into a pooled fund. Then, if something horrible were to happen to that builder, any client that had deposits with that builder would be made whole by the fund.

Since contributing to a fund like this could clearly not be made mandatory for all builders, the carrot for a builder to participate in such a fund is the ability to advertise his membership in the fund, and thus, reduce any potential clients angst over losing her/his money.

There is no doubt that the devil would be in the details which would need to be worked out. For instance, when the fund reaches a certain level, then no more funds would need to be contributed until the funds need to be re-pleated.

Just food for thought. Perhaps an exercise in molehill to mountain conversion, but worth a conversation IMHO.

Steve
__________________
Still crazy after all these years.
  #2  
Old 02-21-2012, 03:22 PM
cpabolting cpabolting is offline
Registered User
 
Join Date: May 2009
Posts: 2,986
Default

It is very complicated to say the least... I think as you said it, it is that living paycheck to paycheck (or in this case deposit to deposit) that creates the mess to begin with. That's why overpaying deposits is problematic to a great degree because the builder becomes accustomed to counting on them for existence and the more you have in the queue, the greater beyond your means they may be inclined to live. I think the real solution is to have a trade association that offers life insurance for sale to it's members with the trade association being named as the beneficiary of the policy to be used for that very purpose. It would not cost much, and would restore the faith buyers need to have in builders.... I know this was talked about at the time of Kevin Gallagher's passing to a great degree because there were alot of people who were completely stuck and the Gallagher family didn't have anything they could offer them because the money was already spent.

Tim McKnight I recall has an internal mechanism of segregating deposits and moving them as the build went along, and I can appreciate that. But that isn't a legal way of protecting anyone per se because if anything happens, things get very complicated. This idea of having life insurance is a really good idea because a fund of 100k would have probably gone a long way to help people stuck at Kevin's passing.
  #3  
Old 02-21-2012, 03:40 PM
HHP HHP is offline
Registered User
 
Join Date: Aug 2007
Location: Indianapolis, IN
Posts: 29,372
Default

I suggest if you compare the number of builders, their total output, and revenue, 1% would not begin to cover one buyer, much less multiple customers with builds underway or deposits paid. You could probably get an insurance company to write coverage but it will be so expensive no one will buy it. Even including all other 1 man shop artisan operations into a pool would be cost prohibitive. Are you going to charge a 25 yr old builder the same as you would a 70 yr old builder?
  #4  
Old 02-21-2012, 03:41 PM
El Conquistador's Avatar
El Conquistador El Conquistador is offline
Charter Member
 
Join Date: May 2006
Location: Central California
Posts: 3,937
Default

Quote:
Originally Posted by cpabolting View Post
I think the real solution is to have a trade association that offers life insurance for sale to it's members with the trade association being named as the beneficiary of the policy to be used for that very purpose. It would not cost much,
The Trade Association would work as a good framework for either idea. And it could actually be leveraged by luthiers to buy in quantity etc..

If you are saying that such an organization would use its group power to make life insurance more affordable for each luthier, it very probably could be used for that. The problem, as I see it, is if that is all the organization is used for;

1. It would not be compulsory on its members to manage the risk of their death no matter how economical it would make it.
2. Having the Association as the beneficiary would do nothing to protect the luthier's family, and, would be therefor, even less appealing.
3. Would be much more expensive for older builders with health issues and dirt cheap for the younger, healthier folks.
4. It would do nothing to protect a client from a luthier injury, illness, divorce, etc..

While an insurance policy would have worked very well in the case of Kevin, the idea behind the fund is that everyone puts in the same amount and get's client protection for all sorts of disasters. Disability is far more likely than death for a builder.

But, I truly understand the difficulty of creating such a fund, but, still think it is at least worth discussing.

Steve
__________________
Still crazy after all these years.
  #5  
Old 02-21-2012, 04:51 PM
Rod True Rod True is offline
Registered User
 
Join Date: May 2008
Location: Abbotsford, BC
Posts: 423
Default

The best option would be for any builder to ensure that his company (sole proprirtors still should have a business licence and tax number....) has insurance for such a tragedy as death or long term disability, refered hereafter as "The Policy". There should be some level of detail regarding "the policy" written into the contract for any said guitar, signed by both the buyer and builder.
"The policy" would have to clearly state the details of the deposit system of the builder, would also have to have some verification of the builders book keeping (ensuring that deposits are put into the business account versus the personal account). Of course there would have to be a boat load more information than what I'm presenting here, but you get the jest. This might be something the builder can market as security.

Being self employed on your own would be tough. I'm self employed, and when I was working huge hours and making really good money, we made sure to put a large amount away for the days of rain (no sun, no hay as they say). I'm fortunate that a bad month or two (or a bad year for that matter) isn't going to break me. Living simply is also a necessity when self employed. It's never worth blowing the wad on something frivolous when something practical will do.

I'm sure many if not most of the 1 man shops live cheque to cheque and have little to no savings for potential issues. Most of them I'm guessing are also relying on their wood stash as their retirement fund (to some degree).

Good luck getting anyone to pay into a fund that they may never need to rely upon, just to help suppor their competition (all be it most are friendly)....car insurance is one thing but builder insurance....good luck.

Than there's the international factor....
  #6  
Old 02-21-2012, 05:09 PM
Simon Fay's Avatar
Simon Fay Simon Fay is offline
AGF Sponsor
 
Join Date: May 2003
Location: New Smyrna Beach, FL
Posts: 1,516
Default

If I were a customer this would definitely be something I would ask the builder. I would want a guarantee that I would receive my instrument or my money if something were to happen.

I never ask for more than a $500 deposit until the instrument is ready to be shipped. At that time the full-amount is due. I have had some customers pay as the build progresses -- but I never put myself in situation where that money could not be refunded immediately. Anything less than that is irresponsible and unethical -- two things that I am not!!!

My finances are well-kept (I've got spreadsheets detailing all payments received). No one would ever be out any money if something were to happen to me (tragedy or death) and my family is well-aware of who would need to be reimbursed. Even if I had guitars nearing completion - customers would still be refunded. What other way is there to do business!!!
__________________
Luthier
New Smyrna Beach, FL
www.fayguitars.com
  #7  
Old 02-21-2012, 05:38 PM
El Conquistador's Avatar
El Conquistador El Conquistador is offline
Charter Member
 
Join Date: May 2006
Location: Central California
Posts: 3,937
Default

Quote:
Originally Posted by Rod True View Post
Good luck getting anyone to pay into a fund that they may never need to rely upon, just to help suppor their competition (all be it most are friendly)....car insurance is one thing but builder insurance....good luck.
.
Again, the carrot in this scenario is the builder's ability to advertise this indemnity. A builder without such certification would be at a disadvantage to one with it.

Steve
__________________
Still crazy after all these years.
  #8  
Old 02-21-2012, 05:48 PM
riorider's Avatar
riorider riorider is offline
*mahoganut*
 
Join Date: Feb 2008
Location: Central Rural Oklahoma, off old Route 66
Posts: 7,041
Default

Simon, you are absolutely correct. Unfortunately, you are also almost absolutely alone in that practice (aforementioned Tim McKnight being an exception). -- Apologies to luthiers who do have such a policy of which I'm unaware -- I'm going by what's posted on your websites and my own admittedly limited experience (3 builds by different luthiers, 4 more builds commissioned, 1 delay of more than a year after sending full payment supposedly 2 weeks prior to delivery, and one deposit not lost but let's say in semi-permanent limbo until I decide that the risk of sending more money is less than the existing "loss" of the $500).

Steve expanded the idea I floated to him in a PM well. The other thing I mentioned was to combine this "risk-avoidance" for the luthier as well - risk of non-payment by a buyer, returns and demands for refund, buyer disappears but the luthier has to keep the deposits on the books indefinitely, etc. There's risk to mitigate on both sides.

My thought was a "guild" membership where the "guild" would indemnify both sides - possibly by simply holding the funds in an escrow account.

However it could be done, individual luthiers may or may not choose to participate. I think I've been generally fortunate - 3 of the 5 luthiers I've dealt with have been 100% perfect to deal with. But those numbers are not encouraging in the aggregate. I will certainly be cautious with any other build commissions beyond those I have already made.

This is by no means limited to luthiers. I have a cousin by marriage who makes custom knives. He is generally a good craftsman, basically good businessman, and well known in the custom knife community. Some years back, however, he was much delayed in delivering a complex (big, many design features) knife to a friend of mine. Communication, frustration of the buyer who had already paid for much of the work, etc., sound hauntingly familiar.

Putting the issue in context and the true statistical risk are important tasks, and we also tend to be quite a patient crowd. Communication would have solved many of the problems occasionally discussed; lack of full truth only figures in a scant few; mostly unplanned issues like what Steve lists (divorce, health issues, business changes, etc.) are the main "interuptors" which impact delivery.

It's possible that some kind of shared risk and shared risk mitigation facility would help the business - spelling out the responsibilities and expectations on both sides.

Cheers all,

Phil
  #9  
Old 02-21-2012, 05:59 PM
Haans Haans is offline
Registered User
 
Join Date: Feb 2009
Location: Minneapolis, Mn.
Posts: 1,015
Default

Builder insurance...right. Who let the capitalists in?
Here's my plan...I have a stash of guitars that I build. If I die, my wife will send out guitars or mandolins to whomever I happen to be building for at the time.
I might say, what happens to the builder if halfway through the build, you die? Or worse, change your mind...
An even bigger question...why are these questions NOT in the general discussion. Seems like a lot of general questions are creeping into the Custom Shop.
  #10  
Old 02-21-2012, 06:05 PM
Brackett Instruments's Avatar
Brackett Instruments Brackett Instruments is offline
Registered User
 
Join Date: Nov 2003
Location: Grover NC
Posts: 5,156
Default

I hope this doesn't offend any of my builder friends...........but.
It's just not good business to use "client f's" deposit to fund "client c's" guitar. If that's the way a builder is doing business then sooner or later someone isn't going to get their guitar, or deposit back.

The best protection for consumers is to pick their builder carefully. Ask them questions about what happens with deposits, and what would happen with their deposit if something happens to the builder. If the builder is offended by these questions find another builder. My policy regarding required deposits is covered on the Terms, Warranty, and Payment page on my website. My policy regarding what would happen to deposits if something would happen to me is covered on the Links and FAQ page on my website.
__________________
woody b politically incorrect since 1964
  #11  
Old 02-21-2012, 06:12 PM
Matt Mustapick Matt Mustapick is offline
Registered User
 
Join Date: Apr 2005
Location: Santa Cruz, CA
Posts: 2,002
Default

I would think this particular possibility is covered by implication in most builders' terms. It is in mine.
  #12  
Old 02-21-2012, 06:13 PM
Running Dog Running Dog is offline
Registered User
 
Join Date: Feb 2011
Location: Vermonter living in Seattle
Posts: 56
Default

I'm far from being a lawyer, but isn't there an implicit agreement between builder and buyer that is legally enforceable? I haven't heard of any unresolved problems created by a luthier's inability to complete a commission, though it's a good question.

I take a deposit as an act of good faith on both my and the client's part: that the work will be done according to the agreement and that the buyer will follow through with payment upon completion (or at whatever point is agreed upon). I assume that if something prevented me from completing a job, I or my estate would owe the client(s) their deposits in full if not with interest. I also take the deposit as a commitment on the part of the customer, though some people don't seem to think that way. That's the other side of the equation.

When Rob Girdis died a few years ago I completed a guitar for one of his clients and was paid for my work by the client. Since Rob had only taken partial payment, it all worked out fairly. Rob had done the operations that made the guitar one of his; I did only final fitting and finishing. I know that other partially completed instruments were taken by another luthier; I don't know if they were completed or what the financial arrangements were.

Some years ago, I was part of a conversation in which a well-known builder said that he didn't think he should take too many more commissions since he was aging and had a long waiting list. He said that he didn't want to leave too much of a mess to his kids -- which implies that not only he but his heirs too are bound by the commitment. That's the way the luthiers I know and respect work.
  #13  
Old 02-21-2012, 06:31 PM
Bruce Sexauer's Avatar
Bruce Sexauer Bruce Sexauer is offline
AGF Sponsor
 
Join Date: Jan 2009
Location: Petaluma, CA, USA
Posts: 5,876
Default

I appreciate the thinking, but I doubt if many of the more established builders, myself included, are likely to leave our clients in the lurch, as it were. This is one of the reasons why we are successful in the first place. I suppose it is an example of getting what you pay for!

I personally am insured, but aside from that I am sufficiently solvent to resolve my obligations at all times. And when worst comes to worst, I too only hold a significant deposit on the instrument I am actually working on, the guitars in the queue have only a modest retainer to represent them. I am surprised to think anyone thought less of me, or my peers.
__________________
Bruce
http://www.sexauerluthier.com/
  #14  
Old 02-21-2012, 09:38 PM
Randy Muth Randy Muth is offline
Registered User
 
Join Date: Jul 2009
Location: Hamilton, NY
Posts: 122
Default

I'm not a lawyer, but it was my understanding that by law all refundable deposits are to be held in escrow until the transaction is completed. That to say the deposits need to be kept separate from all other funds and not spent. I would assume it's everyone's policy that all deposits are refundable if the guitar is not delivered.

This is how I operate and I feel it is irresponsible not to do so. My deposit policy is such that they are non-refundable only if the client backs out of the agreement before the guitar is built. This is to insure an honest commitment on the part of the client. That said, it has never happened.
__________________
Randy
  #15  
Old 02-21-2012, 09:55 PM
wencyjr wencyjr is offline
Registered User
 
Join Date: Sep 2010
Posts: 150
Default

Quote:
Originally Posted by Haans View Post
I might say, what happens to the builder if halfway through the build, you die? Or worse, change your mind...
then wouldn't you have all monies paid...AND the guitar??
Closed Thread

  The Acoustic Guitar Forum > General Acoustic Guitar and Amplification Discussion > Custom Shop

Thread Tools



All times are GMT -6. The time now is 07:03 PM.


Powered by vBulletin® Version 3.8.7
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
Copyright ©2000 - 2018, The Acoustic Guitar Forum
vB Ad Management by =RedTyger=