by Anthony Noel
Identifying your target market, selling work, financing your business, cost accounting - all are crucial facets of a thriving business. But what if you're just starting out? Following is some advice for brand-new companies.
Most often, I write in this column about management issues ranging from cost accounting to handling personnel problems to sales and marketing. Whether a shop has only a few employees or several hundred, these challenges are familiar to owners of established shops, and there are as many strategies for dealing with them as there are custom woodworking businesses.
But what if you're not yet playing at this level? What if you're just starting out in business, or teetering on the fence that stands between the relative security of working for someone else and the vast unknown of working for yourself? If that's where you find yourself, this month's column is for you. I hope it will make that 'vast unknown' a little less scary. And so, herewith, are the three best tips I received when I was just starting out, with some elaboration on each. If you employ these extremely basic approaches, it won't be long before you're tackling some of the larger ones already mentioned.
Tip Number One:
Establish 'receipts' and 'disbursements' ledgers. As basic as this may seem, someone who has no background in running a business might not even consider it. 'Can't I just go out and get a deposit, take it to the lumber yard, buy what I need and keep what I'm left with?' you may ask. Sure you could, if the prospect of paying heavy fines and interest - on top of your unpaid taxes - sounds appealing to you.
Here is a story to illustrate my point. An electrician friend of mine decided one summer, when he was in his early 20s, to leave his trade and work on fishing boats along the New Jersey shore. He made $3,000 for every one-week trip. The work was hard, but he was paid in cash as soon as he came ashore. He blew the money almost as quickly as he made it and never paid a dime in taxes.
When the IRS caught up with him a couple of years later, he was staring down the throat of a total liability, with penalties and interest, of nearly $20,000. If he'd taken the time to record his pay and set money aside to cover his taxes, he'd have never gotten into that mess. It's a basic rule of thumb: If you're handling money before taxes are taken out, make provisions to handle the tax burden. And running a business is largely about handling pre-tax money.
Of course, there are reasons other than taxes to keep ledgers of what's going out and what's coming in. For one thing, as your company grows, you'll have a recorded history of that growth. This is of great value in the estimating and cost accounting areas.
See an accountant - he or she need not be a CPA - to get set up. Most will be happy to list for you the basic categories which your disbursements and receipts ledgers should include. And arrange to take your carefully recorded information back to the accountant on a quarterly basis, so they can prepare your self-employment taxes. While you could do this for yourself, the low fee is well worth the saved hassle. Plus the occasional interaction with a financial pro will do you good.
(Some advice: Steer clear of a CPA in the early stages of your business' growth. For basic bookkeeping and tax services, a good general accountant will suffice, and you'll save a good deal of money. In many cases, 'CPA' might as well stand for 'Costs Plenty: Avoid.')
Tip Number Two:
Don't market direct to the public. My brother, who owns a strong and still growing woodworking business in Kansas City, MO, gave me this piece of advice more than 15 years ago. John explained that while it is possible to make a decent living selling direct to the public, it is much more sensible to market your services through design professionals, namely, interior designers and architects.
This approach has a couple of benefits. One lies in the fact that to begin with, the end-user is working with a designer or architect. That means the customer is 'prequalified,' sales lingo for 'able to pay.' And since custom work is not cheap, it's helpful to locate a clientele which haggles more over quality than price. Even though quality and price are essentially the same thing (after all, one gets the quality one pays for), working with people who know what they want is far more time-efficient than looking for people who think they know what they want, finding them, drawing and pricing something for them, finding they can't afford it, going back to the drawing board... well, you get the idea.
None of which means that working through a design pro is utopia. On the contrary, the very fact that they (and their customer) know what they want means you'd darn well better be able to produce it. A word to the wise: If you think you might lack the technical expertise to move into doing custom work on your own, you do. Don't try it until you are supremely confident of your ability to do most things and are willing to find talented subcontractors to do the things you can't.
There are a couple of exceptions to the 'don't market direct to the public' tip: it's OK to do so when you're (a) building your portfolio and (b) working with someone who was referred to you by a previously qualified end user. Let's take the last one first.
Though generally a customer will not refer someone to you unless they feel comfortable doing so, based on what they paid and their satisfaction with your work, it is nonetheless smart to minimize your chances of wasting time, even with a referral. A tactful, timesaving way of doing this is by visiting the prospect in person (with your portfolio) and getting a full description of the scope of the work they are seeking. Then, ask if they have a figure in mind for the job in question.
Depending on your experience, you might be able to spot a ludicrous expectation right on the spot, or you may have to go home and work up some rough numbers. Either way, if and when you know you can't do the work for anything approaching the price the person named, say so, and see where the discussion goes. If it feels like it's going down the haggling path, politely explain that your costs are real, and there is little wiggle room.
Though you'd like to do the work, say, 'I think you might want to look at some other options. But thanks for the chance to look at your project.' Remember - courtesy sells. Maybe not this day, to this customer, but just as word about rude or ill-tempered contractors gets around, so, gradually, does word about those who are polite, considerate and tactful.
As for the other exception, when you're trying to get photos of your work to show design professionals, there is no harm in burning time (i.e. money) at the drafting board and in your shop by building stuff at or a little above cost, provided (1) that you're doing it on the side, while you still have profitable work or a 'real' job; (2) you make clear to the end user what the real cost would be, so you're not bombarded with requests for work you can't afford to do once you go full time; and (3) you don't talk yourself into believing that you can actually afford to work full-time for such low prices. You can't, at least not for long. Trust me.
Tip Number Three:
Get Help! Finally, if the goal for your business is to enjoy plenty of demand for your work and earn a fair profit margin, don't work for yourself for too long without hiring someone and, as work warrants, someone else, and someone else, etc.
In the very early stages of your company's existence, it's fine to wear most, if not all, of the hats. But to do so for more than six or eight months (assuming you're busy) is asking for trouble. Like it or not, at this stage, you are your business' best salesman. In order to sell to people who work regular business hours, you need to be available during those hours. Working at night on projects you sell in the daytime is, and should be, only a temporary solution.
Make it your goal to find a talented first employee, someone who will grow with your business and who understands that the initially low pay will increase as sales, and his or her responsibilities, do. Take as much time as necessary to find someone you can trust, who cares about his or her own success and who accepts the fact that success relies on commitment and doing excellent work.
The perspective and experience you'll derive from following these three basic tips will get you off to a great start. Mix in some common sense and question everything, and you're on your way. Good luck!
Anthony Noel writes, consults, and teaches woodworking and journalism, along with doing an occasional custom job in his shop in Macungie, PA.
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This article is reprinted by permission of Custom Woodworking Business Magazine.