Managing Growth as a Start-Up Cabinet Shop

      In its second year, this small shop owner's cabinet business is starting to take off. Here, he gets advice on his next steps.October 19, 2011

Question
I'm about halfway through my second year of business as a cabinetmaker working solo. I'm a registered company .I work solo with a panel saw, edgebander, and Blum minipress as my main machinery. I do full custom frameless cabinetry 90% residential with a couple of office fitouts and the occasional shop fitout. I do a combination of outsourcing and in house cutting and construction. My workshop is small and I share with another guy who does exhibition work and used my machinery occasionally. I'm currently doing about 50-70 hours per week.

Now onto my current situation. The first year of business was a massive trial (as I imagine it was for most of you). Getting work was never a problem but being a startup a lot of the business was wishy washy stuff and small jobs that never earn me much. Now coming into my second year I've built a bit of a client base and feel my pricing is where it should be to make a decent profit.

In the last couple of weeks things have really fired up and I have got the ok for a lot of work including some big house fitouts. I've hit the point where I'm pretty much booked out for 2-3 months and work keeps coming. Space is getting a bit tight as the guy I share with is a bit messy and loves "collecting" bits and pieces that end up lying around the factory floor.

I'm ready to hire an apprentice and will do so in the coming weeks. I'm counting on this acquisition to alleviate a lot of the small tasks like driving around picking things up and cleaning in the short term. Iím also considering sub-contracting installation work to a trusted source.

What I'm really after is a bit of advice from guys who have been at this point of working alone and things take off and what the key things that you did to ramp up production (and keep sane).

Forum Responses
(Business and Management Forum)
From contributor Z:
First off, congratulations for being successful - it is something to be proud of. Secondly, make sure you don't lose sight of the business of the business. You will want to be more active (hands on) with the addition of more work and employees, but, the business end will ruin you if you do not tend to it.



From contributor M:
I am glad to hear that your business is doing well. Your next moves will be a big part of your future success. Don't count on the new hire speeding things up. Quite the opposite - he will slow you down because you will have to explain and teach him a lot. Having employees also means you will have to make changes to your process. In my shop it meant I had to develop a lot of paper work and reports. I never needed detailed instructions on the boring, banding, etc. I sure you don't need it either. But your employee will not know that an upper cabinet side panel needs white banding on the bottom and exterior banding on the front. Also parts with odd dimensions will confuse them as to the orientation (narrow cabinet tops look like they get banding on the long edge). You will know the difference because you designed the cabinet, they need to be told. This really goes back to software and production reports.

Where are you with your software? Since you are making frameless consider a feed through CNC boring machine like the Gannomat or Vitap. These machines are the same size as an ordinary boring machine but faster than a big CNC machining center and cost a fraction of the big machines. Also the operating cost is a fraction. This type of machine should speed you up more than another employee.



From contributor C:
1. Outsource the installs and get the installers to give a written estimate and make damn sure you have a mark-up on it for carrying it on your books.

2. The apprentice thing is great, read ten minute manager and make sure everything you teach is engrained the first time. Get him in the habit to be productive, and thinking that he has to be productive 40 hours a week, period. Taking the trash out is important, and so is sweeping but completed product is far more precious.

3. Stock up on supplies and order all items to be delivered to you, period. In this weather I have 1000# of ice melt. I would rather keep the cases and parts going together instead of worrying about sending for it or all the distractions of needs like this. Don't run out of staples, etc.

4. Before you bog yourself down with too much machinery I would seriously look at the idea of a small foot print and large rewards, period.

5. I really ramped production up with setting up standards and sticking with them. We have a drawer system and no, it has nothing to do with steel sides. The rewards come from clear, concise, complete cutlists. Very easy to understand shop drawings and having all the necessary tooling, supplies and materials in place before production starts.

6. Software. It's brought up over and over again. The right software in your hands can do wonders for you. Learn to set it up and use it.



From contributor M:
Well said Contributor C. Standards are everything. The idea that you cannot standardize a custom product is nonsense. Employees need predictable rules to guide their work. Even for me braindead at 1 A.M. after working all day the shop drawings are a lifesaver.


From the original questioner:
Some very insightful advice here. A couple of you mentioned software. I'm currently using Sketchup and although it's been good it's getting to a point where I need something more serious. I've had a look around and after much deliberation I'm leaning towards Cabinet Vision. Big money but I have confidence and experience in the product which I can't say for other programs I've tried. I really like the idea of the feed through CNC. I'm going to look into it. Looks like a great way to boost productivity and keep overheads lean.

Also excellent advice about process and procedures. I've whipped up some manuals for machinery maintenance in the shop. Everyone who comes in thinks I'm crazy as I work alone and should know it off by heart but I'm hoping it will pay off when the staff come in.

Iím going to get a copy of the ten minute manager. Another great read is "the E myth" but more to do with the importance of process and business models. I'd say it would be a bit elementary for the experienced posters here but anyone a bit fresh looking for some insightful reading might enjoy it.



From contributor K:
What is your five year plan? One, two, three-five, or five-ten employees? Larger facility and more equipment? Making $100K/year?


From contributor R:
This is some advice given to me by an old mechanic who owned his own business for 40 plus years. With one employee, he will make more money than you do. Two employees, you make as much money as they do. Three employees, you start to make more than they do. I never had more than two employees, but that first one sure was expensive. Add up all the taxes, paperwork, planning, and etc and it really will add to your work load.

You will probably want to get someone to handle the accounting. You have to make deposits on their withholdings, etc. and that can eat up some time. The hiring will really be painful. Make sure you know your state laws. My probation period was five days shorter than the states requirement that made that person my responsibility for unemployment. Expect your unemployment insurance rates to be very high since you will have no history. Good luck, that first helper will be a real learning experience for you.



From contributor U:
Something no one has mentioned yet - the shared workspace. Is it yours and you sub-lease to him? If so, especially contemplating hiring someone else, his "collections" are going to start costing you literally thousands of dollars, and lying around the shop floor they are a safety hazard. If it is your option and you feel you have the work lined up to cover the overhead yourself, move him out. If you aren't quite there yet make some guidelines as to what is acceptable to store where and how. If it is a shared lease and you don't have that kind of choice, keep your eye out for new shop space.


From the original questioner:
To contributor U: It's the other guyís factory and I told him yesterday that I will be moving on soon. The "collections" are already costing me money in lost space and moving things around from place to place. Not to mention how scattered my head feels in the cluttered space.

Five Year Plan:

This Year: My key goal for this year is to pay myself a "survival" wage and focus the rest of the money on paying down machinery loans (about 12K at the moment). By the end of the year I would like to be in a new factory with the loan paid down and if I haven't already invested in new machinery I will be ready to do so. This will likely consist of a more advanced edgebander and maybe one of these through feed borers guys have been talking about. An apprentice as well.

Two -three year plan: Myself, apprentice, qualified tradesman. I imagine I'll be doing very little "on the tools" work at this stage. Iíll be focusing on sales and the design side. My girlfriend (who should be wife by then) is a process training wizard. She should be on board by now fine tuning procedures and streamlining process and also taking care of marketing. I will be looking round for a CNC router at this stage. I would hope to be around the $70K a year zone by now.

Five year plan: Hard to imagine this far ahead but I feel like this will be the turning point of whether I go for the big time or not. Would be hoping for $100K plus by now. It's interesting what Contributor R commented. I have been told quite a few times that getting one worker and getting process spot on is a sweet spot that earns you a lot of money. The other day I spoke with an electrician who has 15 employees and when he asked me how things were going and I told him I was looking to get an apprentice he said he made serious money when it was just him and an apprentice. It took him years to get back there when he continued to hire.

I mention this because it's not the first time I've heard this type of story. It seems to be that there is no middle ground, you either get a well controlled small operation and keep your head in, or shoot for the big.



From contributor U:
Alright - tons more info to play with now. Something that I didn't notice in your forecast - cash reserve. Servicing debt as quickly as feasible is a great idea, but once you've got it licked (well, before if you can swing it) you are going to want some operating capital socked away. I'm not going to say how much, opinions vary between two months and two years. I'd say two months isn't near enough, two years would be great but is unrealistic for most companies.

Pricing - you are talking "survival wage" for yourself. As the small business owner that is pretty much where we all start. But don't forget that the company itself also must generate profit. This is the money that belongs to/stays with the company to allow it to grow and survive tough times. Many people make the mistake of thinking that because they are paying themselves a decent wage their company is profitable. If after paying yourself there is no money left in the war chest, the company is not profitable - and long term will not be viable.



From contributor M:
What is the 100K - your salary, net company profit, or gross? I would recommend you not focus on your salary. Decide what it should be, roll it into your overhead/labor costs and forget about it. Focus on gross sales and net profit. These are the numbers that will drive your business or tell you something is wrong. Cash flows, assets, reserves, inventories, accounts receivable and scheduled work are all important numbers as well but it was too much work for me to keep tabs on all of that (still is). Gross sales and net profit are pretty easy to keep track of.


From contributor E:
Set your salary at the minimum you can live on, and comfortably pay all your bills, etc. Profit will go up and down, so don't depend on that to live. When you make a profit, bank it. For one thing, you will have to pay taxes out of that, so you can't risk it. What you have left over is security and future investments in property and building. That's my advice after learning things the hard way and still upside down.



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