So, you’re starting a new travel business! If you’re new to the industry, you might not yet appreciate that travel is widely regarded as a high-risk industry. That means that running your business really requires that you’ve taken steps to protect yourself. There are a few simple things you can do to make sure that you’re reducing your risk of legal exposure while operating a high-risk business. And, even if you’ve been in the industry for a while, it’s a good idea to make sure that you’re good to go and that you’re avoiding legal risk.
Whether you’re new to the industry, or you’re a veteran travel advisor who’s using the down-time to reevaluate your business, here’s our list of things you can do to protect your business, as well as your personal assets!
1. The form of your business.
Starting your business as a sole proprietorship is probably the quickest and easiest way to get up and running. On the other hand, there may be advantages to forming a corporation, a partnership or a Limited Liability Company (“LLC”), instead. Each of these legal forms of organizing your business has different implications in terms of protecting you from liability. And the different legal forms for a business also have different implications for how your revenue and income is taxed. The conventional wisdom for a lot of small travel businesses seems to be that the LLC works well for small travel businesses, because it’s flexible and relatively easy and inexpensive to set up. But every business is different, and before deciding what you want to do, it’s best to do some research or consult with your accountant or an attorney. Once you’ve committed to one of these forms for your business, it can be complicated to move your business over to a different legal formation, so this is probably something you don’t want to do more than once.
2. Hosted, Franchise, or Independent?
Whether you’re new to the industry or reinventing yourself during this down time, a reputable host agency can help you in all sorts of ways. By contracting with a host agency to handle your back-office functions, you can spend more time building your business and selling travel. But a host agency can also make sure that you’re operating your new business squarely within the bounds of the law, in a highly-regulated industry.
As an independent contractor of a host agency, you can have the freedom to build an independent business, book travel using your host’s credentials, and get training and marketing support. Most host agencies also belong to a consortium, which means you’ll have a broad network of preferred suppliers and vendors and can earn better commission than if you were on your own.
You can get similar support and resources if you operate your business as a franchise, but that usually requires a larger financial investment. To be independent, you’re calling the shots across the board, but you’ll need to handle a lot more compliance on your own, which can be time consuming and expensive.
Keep in mind that when you affiliate with a host agency as an independent contractor or buy a franchise, you’re signing a legal contract that imposes certain obligations on you and your business. You should review those agreements carefully with an attorney, so that you understand your contractual obligations.
Most importantly—be aware of multi-level marketing (MLM) scams masquerading as host agencies. Websites like Host Agency Reviews and Find a Host Agency can help you figure out which host agencies are legit, and which are best for you. Also check out the Professional Association of Travel Hosts (“PATH”) to see if the host you’re choosing is reputable, and has committed to PATH’s code of ethics.
3. Register as a Seller of Travel.
Many states have so-called “Seller of Travel” laws, and each state’s law is different. California, Florida, Washington, Iowa and Hawai’i require that you register as a seller if you reside in those states, or if you have any clients who reside in that state. So, even if you live in a state that doesn’t have a seller of travel law, if you have even one client in, say, Florida, you need to be registered in Florida. California, in particular, is diligent about enforcing their seller of travel law, and failing to register could have serious financial repercussions, so it’s best not to ignore those requirements.
Additionally, those state seller-of-travel laws may also require you to have a bond, or to have a client trust account in place. California also requires you to be registered to do business in the state, which means you need a registered agent in California, and as a registered California business, keep in mind that you’ll have to pay taxes there, too. So, there are definitely hoops to jump through with this one. It’s a good argument for affiliating with a reputable host agency; they’ll be in compliance with Seller of Travel laws in each state, and they can give you guidance as to whether you also need to be registered independently.
4. Get a business license, if you need one.
Certain states and some local jurisdictions are going to require you to get a business license–even if you’re a home-based travel advisor working on a part-time basis. You’ll need to do the research to find out whether you need a license in your area, and make sure you’ve got the registrations and licenses you need. You can probably access some good resources on business licenses from your local chamber of commerce or business improvement district. But definitely find out what’s required for you to operate a business legally in your location, and get that squared away right out of the gate.
5. Insure yourself.
One of the best ways to protect yourself from unnecessary legal risk is to make sure you’ve got the proper insurance coverage in place. You’ll need Errors and Omissions (“E&O”) Insurance, for sure. Your host agency may have some basic E&O in place, but even so, you’ll want your own policy. General liability insurance is important, too, if you’re operating out of a brick and mortar office. You’ll need to look at your auto insurance if you’re using your car to travel for business purposes. And you’ll need Worker’s Compensation and Unemployment Insurance if you’ve got employees.
There are lots of different types of policies that small businesses might want to put in place, so it’s a good idea to talk it through with an insurance broker or lawyer who you trust.
6. Get your industry credentials.
If you’re an independent contractor of a host agency, you won’t need to worry about this, but if you’re operating your business as a truly independent travel advisor, you’re going to need an industry credential in order to be able to receive commission payments directly from most suppliers. The Airline Reporting Corporation (“ARC”), the International Air Transport Association (“IATA”), the Cruise Line International Association (“CLIA”), as well as the CCRA TRUE Credential all serve the same function, but each has a different application and verification process, and the cost varies between them. If you’re a fully independent agent, you’re going to need to be accredited, however, and you’re going to need to figure out which accreditation is best for your business, and which you are eligible to obtain.
7. Put your website in order.
8. Do you need a payment processor? Can you even find one?
Because the travel industry is classified as “high risk” by banks and credit card processors, getting a merchant account from your travel business can be a difficult and expensive proposition. You might be tempted to use PayPal, Square or Stripe. They’re definitely easy to use, but because of the high-incidence of scams and chargebacks for credit card transactions in our industry, their terms don’t allow for processing payments for high-risk businesses.
It’s best not to gamble with credit card processing. For example, if your PayPal account is connected to your personal bank account, think about what a disaster it would be if you couldn’t conduct any basic banking transactions, because a processing problem with one of the transactions caused your accounts to be locked. And even if you’re not running a charge on your account, you’ll need to be very diligent with how you handle your clients’ personal information. You don’t want credit card numbers for your clients just sitting around on a scratch pad, or in an unsecured file on your computer. Make sure you’re implementing best practices with your clients’ payment info and processing.
9. Draw up a Booking Terms and Conditions Document.
Having a rock-solid Terms and Conditions (“T&C”) of booking and getting your clients to affirmatively agree to those terms is probably the single most important thing you can do to protect your business. These days, businesses can be sued for a good reason, a bad reason or no reason at all, and even the most frivolous lawsuit can take a lot of time and money to make it go away.
Having an booking agreement in place with your clients can check a lot of boxes – it can be a way for you to make legally-required disclosures to your clients and it can serve to put your clients on notice about the inherent risks of travel. You can include advisories about travel insurance, clarify for clients the nature of your relationship with the suppliers you use, and include waivers and limitations on liability. You can also outline payment terms and travel requirements, referencing the terms and conditions of your suppliers, if necessary. And all of these provisions can help ward off a lawsuit or can make an unfounded lawsuit go away more quickly.
There are templates for T&C documents that you can download from the internet, but keep in mind that every business is different, and a cookie-cutter policy that’s not crafted to reflect the way you do business isn’t going to be very helpful in warding off liability and risk. Instead of doing a cut-and-paste for your Terms and Conditions, you might be better off consulting with an attorney that understands the unique nature of the travel and tourism industries.
10. Join ASTA and CLIA
This might not be a legal consideration, strictly speaking, but these memberships really do pay for themselves pretty quickly. Plus, your membership can give you access to resources that will help protect your business, legally and financially. Even if you’re just starting out, there’s no reason not to make a small investment in these association memberships that will give you the skills and training to run your business properly and efficiently.
Perks and benefits from ASTA include an attorney referral program with a complimentary initial consultation and discounted rates for members. As we’ve said, the travel and tourism industries have a lot of unique complexities and while a typical small business lawyer might easily be able to set up your LLC, they might not understand the nuances of drafting your other documents and policies, or registering you as a seller of travel. The ASTA referral program can ensure that you’re hiring an attorney that understands the ins and outs of a complicated industry.
Additionally, CLIA has great training and certification programs, which can help you make sure that you’re operating your business in compliance with supplier policies, as well as the law. Not to mention that your CLIA membership gives you access to bonus commission certificates, which can increase your bottom line and offset the cost of your membership if you sell cruise travel.
11. Do supplier trainings and attend industry conferences.
In addition to the terrific training opportunities from ASTA and CLIA, most suppliers have put together really great training programs that can truly help you run your business in an efficient and responsible way. The better that you understand your supplier policies, the less likely it’ll be that you make a stupid mistake that winds up getting you sued.
Similarly, industry conferences and events are really important for the purpose of establishing personal relationships with supplier representatives. Since you’re the point of contact for your clients, they’re going to be looking to you to run interference with the suppliers you use. If something goes sideways when your client travels, that could lead to a legal dispute, and having someone to call can really help you stay in front of those problems. This is an industry of relationships, and especially if you’re not tapping into those relationships through a host agency or consortium, you’ll need to start meeting the people who can help you at industry functions.
12. Build a solid workflow, and invest in the right technology.
A solid workflow using the right technology can help make sure that you don’t miss a step when planning travel for your clients. Think of it this way—any time you make a mistake, it could be the reason that someone comes after you. With supplier payment deadlines, release dates for group space, and shifting policies for refunds and exchanges, it’s really important that you’ve got a solid workflow for keeping track of all of those moving parts. Having a Customer Relations Management (“CRM”) system will remind you if an important deadline is approaching. And Investing in an itinerary planning tool that allows you to upload and attach booking confirmations can make sure that you didn’t forget to send important trip details to your client. Sure, there’s a cost attached to some of those technologies, but some host agencies and franchisors might include these tools as part of what they provide to affiliated travel advisors. Either way, making the investment and using these tools consistently can help you become better at what you do.
That seems like a lot, doesn’t it?
For sure. Starting a travel business might seem like a really fun, exciting thing to do, maybe even just as a side-hustle. But even a part-time travel business comes with a lot of potential legal and financial risk, and by setting up your business the right way, you’re not only protecting yourself from risk of a lawsuit, you’re also making sure that your business is on sound legal footing.
About the Author:
Thomas R. Carpenter is an attorney in private practice, representing clients in the Arts, Entertainment, Media and Travel industries. He is also the co-owner and co-founder of Huckleberry Travel, an award-winning travel business.