Question
Two of my friends and I may start a cabinet business. We are all engineers, so we do have a sense of measurement, material, constructability, estimated cost, and structural needs of cabinets.
What is the range of possible profit for a first year business?
What is the best way for a new shop to make sales - to bid low, or to promise on time and a better product?
How important is it to have your business located in a high traffic area, where it can be noticed by people driving by?
What price range of houses should we shoot for in the beginning and what should our goal be for types of houses to build to obtain the highest profit?
What are some of the things that you wish you'd been told before starting your business?
Is a 40' X 80' building a good size building to start with?
What tools are a must? What tools are not a must but would be nice? What tools do you not need?
Forum Responses
You asked what the range of possible profits for the first year is. If you are starting from scratch and not buying an existing successful business you should consider how much you could afford to lose your first few years. Contractors like to work with the team that they have. It takes one of their subs to drop the ball before you may get a chance to show your stuff. That is unless you are willing to give your product away and write it up to advertising expense.
Bid low and you become known better for price than product and it will be hard to raise prices later.
Always go for the high end--more money available.
I wish somebody had warned me about the stress. The hard work is fine, but the stress...
I wish I started in a 3200 square foot building. If you have to ask what tools to buy, you have no idea what you are in for.
Assuming you've adequately capitalized the business and tested your potential market, plug numbers into a professional business plan. The proforma spreadsheets will provide results based on criteria. Plan for the worst - a divorce, illness, or bad debt write-off. Don't forget a clear Buy/Sell agreement!
Present your business plan to as many executives as will sit still! Utilize the graduate program of a local university if need be, and especially recruit a member of SCORE as a guide and mentor.
Pitch it to business executives and lenders until they are anxious to fund your venture. When they reach for the checkbook, you're darned close to being in business.
If you purchase a P2P, edgebander, as well as a beam saw, you will most likely be ahead in the long run. I recommend skipping the introduction machinery stages. In the long run it will cost you less money and you will be able to make production from the start. You will need more than luck.
This doesn’t mean you shouldn’t go for it. When we started our sawmill, we were too stupid to know it shouldn’t work. That mill now employs four full time people, plus a couple part-time. Just try to understand the commitment a small business demands, both financially and emotionally.
Today, 25 years after starting out, my company (which includes me and two other guys) grosses over 500K per year and the future looks brighter still.
The cabinet business is not an ice cream shop. There is a tremendous amount you’re going to have to learn. Reading books, magazines, and web sites like this one will only get you so far. For the rest, it takes years of experience. Looking back over my career, I get frustrated thinking of all the mistakes I made when I didn’t know any better. The thing is, I was able to absorb those money-costing errors because I was used to a more modest life style.
I don’t mean to be presumptuous, but I suspect you and your partners are in a different boat. You’re probably accustomed to living the life that a healthy salary and benefits package provides. This is probably going to change. While it might have taken four years to earn a degree in engineering, the cabinet making “school of hard knocks” takes a lot longer. It’s tough enough for a start up in this business to make money in the beginning. Splitting the profit pie three ways will make it tougher still.
If you’re determined to make a go of it, then I say God speed. But don’t let idealism blind pragmatism.
I am in the woodworking business because of the opportunity to estimate many jobs, the opportunity to procure the materials for those jobs, the opportunity to construct exquisite cabinetry for the many clients we estimated jobs for, the sound of awesome equipment turning lumber into finished product, the blessing of enjoying the fragrance of cut wood, excellent compensation, and the excitement of a job completed well. What more could a mere mortal ask for?
I really don't know of another field that can produce a healthy profit with less financial investment. On the other hand, this is a very complex business, and requires a good knowledge of many varied subjects.
Your engineering background will be very beneficial in the design and manufacturing end, but if your partners have the same backgrounds, you will have a duplication of talent, and still could be lacking in some other key areas. Sales, marketing and accounting are areas that are typically either ignored or done out of necessity rather than attacked with planning and excellence. While that sounds like a negative, it really is quite positive for those that will work as hard in these areas as the design and manufacturing area. If your competitors are weak in an area, then it is wide open for those that choose to pursue those areas with excellence. A key area for me has been to simply schedule better than my competitors, and be there when I say I am going to be there (this one thing has paid excellent benefits for me and my company).
Before starting my cabinet manufacturing business in 1990, I sold decorative and functional hardware, software and machinery to cabinetmakers around the southeast. In the 7 years that I traveled, selling to cabinetmakers, I saw many cabinetmakers that just got by. Year after year nothing changed for them, but in the same time period I saw a few go from a small, struggling companies to being very successful both in their businesses and personal lives, and several became wealthy. This is a challenging business to say the least, but also can be quite rewarding, including financially.
If you can wake each morning ready for the challenges of the day, you can accomplish what you desire. Attitude is a big part of the battle.
I would examine the partnership from every angle before taking that path. Ideally you will find that one of you will make an excellent salesman and marketer, one will love to crunch numbers and run the business end of things, and the other will love the challenges of manufacturing and managing people and processes.
If you find that you three possess the different skills needed, and are certain you can do this without killing each other, the next, and perhaps one of the most important questions is: do you have the capital, or at least access to the capital, to do this right? It is easy to gain knowledge and expertise in almost any area of life, but when you are out of money, you are typically out of options. By the way, if you have the capital to start this out right, I am quite confident that done well, you can make a healthy profit (20% to 30%) the very first year. I did, and know many others that did also.
Partner 1: Hard worker, can build anything (includes cabinets, wooden canoes, concrete canoes, chess boards, furniture, etc), understands and enjoys woodworking, good sense of time and cost of building, a positive thinker, practical
Partner 2: Good people person, quick learner, quick reactor in conversation, enjoys building, thinks problems out to get the best possible solution, good business sense
Partner 3: Technology-minded, innovative, practical, good with people, sees the big picture, quick learner, open-minded, optimistic, sales oriented, scheduler, businessman, part owner of internet company
Possible Advantages- several contractor friends and contacts, good people persons, great understanding of Computer Aided Drafting, best friend owns extremely profitable custom cabinet business in Atlanta, live in large city with plenty of residential construction occurring, no overhead (can afford to pay off building and tools with no loans), plan on non-profitable year learning cabinet business, one partner has owned business before, good sales ability
Possible Disadvantages- experience, no clients...
These are some things you should think about. One of you should start the business and the other two work for the first. Slice the pie however you see fit after the first few years.
I sought advice from him but I am not the type to seek advice from only one. I think seeking advice from multiple professionals is using better business judgment.
He lives in another city 500 miles away. That makes it difficult to partner, although we are talking of opening a sister company under his. He actually thought that 3 partners would make the business less profitable and harder to make decisions, but said it could be done and that he personally knows cabinet shops that started with three owners.
You should come up with a business plan and some type of agreement on who is going to do what in your new venture.
Since none of you have any real cabinet experience, you may want to find someone who does and hire them to help you get off the ground. It may be expensive to hire someone who can help with the actual construction and finishing but you will gain valuable knowledge.
As far as the experience in the field, we had one up on you. I started in a mill at age 14 learning how to make wood straight and true. It’s easier said than done, and from there I spent the next 14 years earning my degree in the school of the trade, an education that one cannot put a price on, nor can I ever post on the wall. We all brought something to the table when we started our shop, and I can't imagine doing this by myself. Most of all just have fun with it and don’t become to obsessed. You can get eaten up in the first year, you can have the best time of your life.
Do you have any unique competitive advantage, or will you be same as every other shop with a different address?
What is the plan? Is there one?
By the way, I started a business in web design with little knowledge of how to do it and now that I know what I am doing I really don't like the work. Make sure this is something all of you will enjoy.
Comment from contributor A:
First of all, you have to consider that 95% of all woodworkers are not business people. It is very rare to find someome who is creative and has business sense as well. I have been in business for myself for many years and woodworking was my hobby (which I am now turning into a profession). My advice? Before you ask someome their opinion, make sure they are where you want to be. Example: How can I tell you how to become successful as a cabinet maker when I make only 30k a year?
I purchased a mid-sized cabinet shop and hired the previous owner on to run the cabinet-making side of things. Our collective abilities are really meshing well and that is a big plus.
The moral of the story: Remember, remember, remember that a business is a business no matter what type it is. Whether a cabinet shop, a shoe shine booth, or a corner grocer, as soon as you take a leap out on your own you become a professional businessman first - and a professional cabinet-maker, shoe-shiner, grocer second.
Honestly, your engineering background will not get you where you need to go. The basic gist of the negative vibes you're getting on this board seem to be stemming from the fact that cabinet-making is a whole different animal than any other profession, and you will have to start from scratch and learn how to do it just like everyone else.
Your alternative is to do what I did, acquire an existing shop that already has a customer base and the know-how that you lack. You then inject your unique skills into the operation without getting in the way of the craftsmen (like I said, I've owned my shop for some time, and I still couldn't build myself a cabinet to save my life). This recipe has helped my business go from a struggling little shop to a healthy $800K per year business with growth approaching 30% per annum.
Finally, take some courses and read some books on business management, marketing, and finance. A few suggestions would be The Emyth by Michael Gerber, The 22 Immutable Laws of Marketing by Al Ries, and The One Minute Manager by Kenneth Blanchard.
