Business Startup Advice
- What do I need to track for expenses and income? Would my butt be covered for tax purposes if I simply record all income and expenses in QuickBooks?
From contributor M:
Welcome to our wonderful world of wood! First: get yourself a good accountant. He will guide you in the right direction for proper tax filing, etc. Also, you need him for all your advice on equipment purchases, employee deductions and payroll, depreciation of tooling, etc.
Are you renting or purchasing a building? Again, accountants are invaluable for their aid in how to arrange the ownership of real estate, renting back to your cabinet business, setting up corporations, LLCs, etc.
Then, get yourself an attorney. Use him to properly set up the legal end of your corporations, sole proprietorship, etc. Utilize his expertise in drafting up your contracts, proper use of permits and zoning for your business.
These two guys will go a long way to providing a safe and comfortable path into the world of business. Down the road you may feel you can take over their tasks, but initially it is almost imperative to get started in the right direction. Treat their consultation and legal fees just as important as the money needed to purchase the machinery you'll need to get started. In my book, this is not an option, it's a must have. Visit these forums on a regular basis; they are invaluable for the aid you'll need.
From contributor J:
It doesn't appear that you are qualified and/or experienced to run a business. Perhaps you should reconsider your decision before placing your family's livelihood and perhaps your assets at risk.
From contributor I:
Sounds like someone got up on the wrong side of the woodpile this morning.
I'm sure there are a lot of us out here that can remember being in the same position once upon a time. For me it was over thirty years ago. The advice about a good accountant and a lawyer for your articles of incorporation are right on. Beyond that, give folks an honest bid, do the absolute best job you can, and don't expect to get every job you bid on. If you have the right attitude and can do the work, then eventually you will build a client base of people that will give you a call when they have a need of your services. Also pay attention to that small voice inside when people approach you do to work. A little introspect on your part can save a lot of headaches. There are actually people out there that don't have your best interests at heart.
From contributor J:
It never ceases to amaze me that people who think they are a good at a trade or profession can just start up and successfully manage a business, especially when they admit they don't have a clue about how to do it. His questions indicate that’s exactly his situation.
The next advice I would give to him is to at least work up to a managerial or semi-managerial position in a mid-size cabinet shop or even some other business or find a partner who at least knows how to run a small business. The truth is that someone who doesn’t even know “much about the paperwork required for running the business” doesn’t have any business running a business.
I think I'd like to open an auto repair shop. I know how to operate and manage business, but I don't know much about repairing cars. Where can I find an auto mechanics for dummies book?
From contributor O:
Contributor J may have come across a little rough, but running a business is a beast unto its own. Now that I know how to run a business, I would have a better chance at running that auto repair shop than the mechanic who just knows how to turn wrenches. In 12 years I would have 50 employees at several locations, and he might still be turning wrenches himself, struggling to pay the mortgage.
A sole proprietorship is okay for a year or two, but then you will want to protect yourself better. Starting out, you will not have anything that anyone can sue you for anyway. Plus you need general liability insurance, which gives you lots of protection. To the IRS, your business and personal finances are one and the same (you have money coming in, and expenses going out, and what remains is your income).
Good advice? Take an accounting course at the local community college, then continue with other entry level business courses. Talk to people who own businesses. They are flattered that you are interested, and you will get tons of advice. If you trust someone, let them look at your finances. Find a mentor, maybe a retired cabinet shop owner, or another small business owner.
And keep your overhead as low as possible. Your ship is going to be riding some rough seas, so take your time to learn about the business of business before growing too fast.
Keep all receipts and use QuickBooks. But have an accountant do your taxes and listen to their advice.
From contributor S:
You don't say exactly where you are, but there is probably a chapter of SCORE located in the nearest urban area. This is a volunteer organization of retired executives associated with the SBA. They will help you. You can meet with them on a monthly basis (or even more frequently) for a long time and they will tell you what needs to be done and help you get it done. Individual counselors will certainly come out to your place of business if necessary. They receive funding based on their case load - so don't be shy - they want to talk to you. Alternately, you can go to the SCORE website at score.org.
Nearby colleges and universities may also have a small business incubator associated with the business department, and many business departments require senior students and MBA students to do voluntary internships or other pro-bono work. They will also help you establish your record keeping base.
Don't be discouraged by negativity. Most businesses are started by people who don't know too much about business. The statistics about business failures are a wild exaggeration. Closer study reveals that many small businesses succeed and you can also succeed.
Learning QuickBooks is a good first step, and there are beginner courses in QuickBooks at every junior college I've ever seen. If you can learn QuickBooks, the rest is easy.
The suggestion that you hire an accountant and a lawyer can be a good one. In particular, taking these steps early will allow you to keep track of early-on expenses that will be helpful next year during tax time.
From contributor Q:
The questioner is looking for advice. He is going to do this, and needs help along the way. Those who gave help gave him good advice. I was in his position two years ago, and turned a 2 man shop into a 7 man shop, and doubled my shop size. I basically did what the others have advised you to do. Learn from your mistakes, and be a jerk when necessary. Stick to your guns. When growing up, I learned how to swim by being thrown in the lake.
From contributor W:
The most recent statistics claim that 33% of businesses don't last 2 years. That isn't great odds when you are investing your life savings. One has to be careful. You shouldn't do it on a whim or without having done your due diligence. If I were you I would keep your wife bringing in a second income until the dust settles. Learning from the school of hard knocks can be costly.
I totally disagree with a sole proprietorship. Nowadays, you have to sign a lease for almost anything - building, garbage pickup, phonebook advertising, etc. If something goes wrong you are personally responsible for these things.
I don't want to sound like a downer; many businesses thrive. Get used to long hours, hard work, and Kraft dinners, and one day you might look back at this as the best thing that ever happened.
From the original questioner:
I am soon retiring after 23 years in the military and I will have my house and tools paid for, so the risk is fairly low. I do appreciate the great advice you have shared and will consider it all closely. I can sell, build, finish and install a great product and now I need to get smart on the business aspects to ensure my success. I have found a number of references and courses (my degree is in IT), but using the experienced WOODWEB membership as a sounding board for industry specific recommendations certainly helps.
From contributor E:
There are people around the world who are trying to come to this country to make a better life for themselves. They do that by starting small businesses and working their butts off every day, as many of our ancestors did when they got here. Some succeed and some fail, but those who are determined will make it work in the long run. This country is one of the best places in the world for someone to start a small business. So I would say yes, a tradesman can start his own business without a master’s degree or a Phd. This forum is full of those people, and I'm one of them. Welcome to America.
From contributor A:
Woodworking skills amount to about 20% of running a successful cabinet shop. The rest is divided between marketing, sales, and management.
From the original questioner:
By taking care of things, such as a building, insurance, etc., I am researching the requirements for all and expect to start the business in about 9 months. The only certainty is the building and that will be new construction on my land and it will be used regardless of my decision regarding the business. I am taking care of fire codes by contacting the fire department and insurance company to ensure my design meets the code requirements. I already own all the tools required for frameless cabinets. As you suggest, I am doing the research before acting. I didn't ask for advice on starting a business tomorrow. My wife and I each have marketing, sales and construction experience and we understand that the administration is where we need to get smart to ensure our success.
From contributor S:
Here's one thing you may find useful. In general, if you keep your building and physical plant as your own, and rent this to your own corporation, you can probably pay yourself a (reasonable) rent without deducting FICA. You will, of course, have to pay income tax on the proceeds of your rental, but the savings from FICA is substantial. An accountant can tell you more.
From contributor U:
Congrats on the start of the new business. Being the GM is one thing, but hitting the shop floor, selling to the clients and keeping them happy, working with the employees to get the best out of them, and keeping it all in balance is another.
A good accountant can help you decide on all the questions you have. You can check into the local university extension programs or business incubators as others have mentioned, and they can definitely help too.
For about 75.00 you can buy Quicken for Home and Business. It will print checks, do estimates, invoice and give you the right feedback you need. If you outgrow the software, it will feed the info to QuickBooks.
You didn't mention a cabinet program. Are you currently using one? If not, look into one quick. We use Kitchen Builder currently. It works great for clients large and small, commercial and residential; even architects find the shop drawings satisfactory. And, for a trade-in value of what I paid for it, I will be upgrading to Cabinet Vision this year.
Now that you are looking into the business full time, have you considered what you are going to offer besides frameless and how soon you think you will add employees? A business plan can help you to line these items out.
Don't forget that the shop on your property takes away some of the privacy. Without getting too far off the subject, have you considered a forklift, dust collection, compressed air, shop standardization and all the other odds and ends? I was once in your shoes and when I went to the volume created with the growth, and leaving the part time work behind, the forklift became a life saver, dust collection was no longer “pull hose here and place there.” It got real important just like the jump from a Powermatic 66 table saw to a slider and then the jump from a CH 5hp peak compressor to the 10 hp 3000.00 compressor with gotta-have dry air stuff with shop manifold that can eat the time like there is no tomorrow.
Nine months from now places you around Christmas and the rush of the days. From experience, it may be a little slow in January. Review your business plan, p and l and adjust every quarter as you need.
From the original questioner:
Thank you very much for taking the time to share your experience. You bring up a few things that I had not considered. I started a business plan and keep kicking it around. After doing a lot of reading here, reading Cabinetmaker, and talking to a couple shop owners, I plan to grow very slowly and not rush into hiring anyone other than my to teenage sons. For my product, I plan to build frameless cabinets, entertainment centers (usually a combination of frameless and face frame), and possibly take on trim jobs until the cabinet business grows. I have considered that some people just don't like frameless cabinets and I might have to offer face frame cabinets as well, if that is what the market wants even after I do my best to sell what I make.
I am presently using e-cabinets and have been for a couple years. I bought the KCDw trial program and experiment with it now and then (much easier than e-cabs). I visited with a local cabinet shop owner last weekend and he is leasing KCDw to keep costs down. I wasn't aware of that option and it does make other programs more attractive, at least when starting out.
I am also considering some equipment upgrades. I have one of those 6 peak hp compressors now and I fear that under the load of finishing, running the pneumatic pocket hole machine, edge bander and general use, the compressor is a single point of failure and may need to be replaced or at least redundancy added to avoid having it shut me down one day when I need it most. I expect to upgrade my dust collection as well. I use a single, portable machine and I would like a cyclone with much greater capacity.
From contributor S:
Take a good look at QuickBooks Online. This can be integrated electronically with most banks and most credit cards in such a way that information is traded seamlessly. The advantage is that you don't have to do any more data entry - which many of us postpone - as long as you pay your bills with a check or with a credit card. A purchase with your credit card, for example, is automatically posted to QuickBooks. Later, you can massage QuickBooks to correct any classification errors in the data.
And finally this - you've mentioned that your wife will be a partner. Consider setting up your business in such a way that she helps you qualify for an SBA loan for women entrepreneurs. This loan program has some requirements about ownership, participation and control that you might heed. Additionally, you should inquire whether your bank understands these SBA programs and whether they will help you fill out the paperwork.
From contributor N:
I started my business by accident. I was hired on to do a rather large project along with 15 other guys. We were all told it would last 2 years, but we finished it in 7 months. We were all then laid off, but I knew there was much more to the project, so I went direct to them and asked for a job. They thought I said I was a contractor, when I actually said carpenter. He asked me how many guys I had working for me, I hesitated and then replied, 12. They hired me and my 12 guys, which I didn't yet have. I ran home and called all the guys I had been working with, and hired them all. I paid top dollar to the 3 guys I knew were the best and used them as project foremen. After that project was done we cut back to 6 guys, and the rest, as they say, is history. We have now been in business for 22 years, and are steadily moving up the ladder.
Only you know your own abilities and how far you are prepared to go to achieve your goals. Owning a company is a lot of hard work, and you need a thick skin. I would like to know how many of the people here, who consider themselves to be successful, would have gone into business if they had listened to all the people who tell them they can't do it. Nothing motivates me more than having someone say it can't be done. If it is only experience that guarantees you success, how is it that so many companies go out of business after many years? To be truthful, I think we got where we are because I didn't know enough to be scared. Someone gave you some good advice at the beginning - do what you do best and leave the paperwork to the paper pushers. That would be your best chance to get started.
From contributor C:
One post asked if you had thought of cabinet software to design and build with. I have used Cabinet Vision, and it is good, but I have recently found a web site, ecabinets.com, where you can get a very good program and other perks when you join them. It would be worth your time to check it out.
From contributor X:
I started my full time woodworking business 2 1/2 years ago, after spending 20 years building a manufacturing business with my family and selling it. I consider my previous business experience a big advantage in running my new woodworking business. I work alone and build kitchens, built-ins, and other miscellaneous cabinets and also do trim work as filler, similar to what it sounds like you are planning to do.
I believe most guys that get into this business don’t have much administrative experience, and that’s okay - the key is to get help in this area, which is what you are asking for. I think the thing for you to do is find both a good accountant and attorney, as these two professionals will save you money in the long run, and can educate you in the areas that you need it.
Talk to accountants and tell them you are interested in learning accounting in your business, and ask if they can help train you in QuickBooks Pro or another type of accounting program that you would be comfortable to use. If you pay up a few extra bucks in the first couple of years for some training, it will make your life a lot easier to keep the books, and will keep your accounting costs down in the long run.
As far as attorneys, they will help you decide what structure is best for you, and will be there for you if a problem ever arises. For me, I set up a single member LLC per my attorney, as he said this was the best way to limit liability, and was relatively inexpensive to set up.
You also want good liability coverage, so a good insurance company is important. Take time to get all this administrative stuff done before you get too busy building, and you will be happy you did it right from the start. I know too many guys that never took the time to learn all this stuff up front, and they will never take the time to learn it now, and it is hurting them.
From contributor C:
What I failed to mention before is that the cabinet program software from ecabinetsystems is free. It is sponsored by Thermwood Corporation, who manufactures CNC machinery.
From contributor J:
Those of you who started a business by accident, etc. and are still in business, are the exception. After this thread started, I did some research and I read that ~64% of businesses fail within 10 years. The statistics about new businesses vary somewhat, but the odds are good that his business will fail within a year or two. All of the people who started cabinet shops and failed aren't reading this thread and posting their experience and advice.
From contributor S:
Contributor J’s citation of the 64% statistic is correct, but his interpretation is not correct. What he probably means to say is that 64% of businesses cease operation (about 10% per year for the first six years). The number that "fail" as in "go into bankruptcy" is about 6%, altogether, in the first ten years. The rest represent change-of-name, buyouts, change of business form, voluntary closure, mergers, and so forth.
It's fair to say, I think, that many of these voluntary closures are also closures due to problems - though bankruptcy was not sought. A goodly subset of those are probably due to the realization that a particular business idea just can't provide an adequate living or is running out of money (short of bankruptcy). But the remaining 40% or so that persists is quite a large number after ten years, it seems to me.
The questioner is well served to do exactly what he is doing - scoping out the initial setup of his business to avoid the kind of $5000 blunders that we look back upon at a later time and regret (at least some of us). Cash or actuarial? Business name? Building size? Machinery? LLC or Subchapter S? And the biggie - maintaining bulletproof records and paying timely taxes. Meeting with a knowledgeable accountant, familiar with small businesses, is the best advice I've heard.
The one piece of advice I haven't heard, though it lurks behind so many of the posts in this forum, is that new business owners need to consider and gain control of mood, anger, and anxiety. Running a business is a bit of a roller coaster - it impacts marriage, family, employee relations, and personal mental health. A good sense of humor, realistic expectations about others, an optimistic attitude, a can-do spirit, and the willingness to see problems as puzzles to be solved will go a long way toward making your business successful. Most of us think we're going to enjoy going into business for ourselves - making that happen ought to be a goal right along with getting QuickBooks to spit out a proper P&L.
From contributor W:
The minimum requirement for starting a small business should be being able to write a formal business plan. That said, I started out during a recession, with two partners. My choice was, either go on welfare or try and find work on my own. We didn't have much money to invest and worked in a small garage at first. I remember coming in every morning and lighting the pot belly wood stove and hanging the glue bottles up to unthaw. I learned business through the school of hard knocks. My business was brought back from the brink of bankruptcy a number of times. The last time I had to re-mortgage my home to buy out my partner’s share of the debt. I have taken business courses, and I am putting my son through business school. Starting a business without business training is like starting a cabinet shop without knowing the first thing about cabinetmaking. You might be able to struggle through it, but why take the risk?
From contributor O:
Keep your overhead as low as possible. Debt payments (machine leases) should normally be 1-2% of revenue, and should never exceed 3-4%. Shop rent or mortgage should not exceed 5% of revenue. These are approximations, but useful.
Business advice you should never take is to push your vendors for the longest payment terms possible. I went over 90 days with a lumber supplier and they started having problems and sent me crap wood, then went bankrupt. Now what to do? Any new vendor wants 30-45 day terms. The old vendor wants their money, but now I have to send my money to the new vendor and I still owe the old vendor for 60 days worth of deliveries. Lawsuits are threatened. Fortunately lawsuits were avoided, but this is a situation you can avoid. Vendors do go out of business.
Read up on how to supervise employees. Tell them what the rules are in writing when you hire them, and enforce the rules. Give them scheduled performance reviews. Hold them responsible for their actions. Be firm, fair, and friendly. This forum is a good resource, so come back to it often.
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