CWB October 1999

'Going Pro' -- Moving from the Garage to a Shop

Custom woodworker Michael Kurtz discusses some of the issues he faced when he moved into his first shop, sharing advice on how to do it successfully.

By Michael Kurtz

 

Kurtz poses beside a recent cabinet project.

Many hobbyists or part-time woodworkers who own a table saw, planer, jointer and a few drills dream about starting their own small shop and building furniture for a living. This small shop may manifest itself in a garage or basement workshop that generates a few extra dollars a week. Eventually, the woodworker may wonder if he can "quit his day job" and pursue woodworking as a full-time career.

This article discusses many of the issues that need to be addressed before this move can be made. It is not meant to scare away potential cabinet shop owners, but to open their eyes to the realities of starting a business. I dealt with all these issues when I started my business and moved from my garage to a small shop. I hope you will find them useful.

One of your first decisions will be, is it feasible to move? You will have more expenses associated with a shop than you had working out of your home, so you need to ask yourself a series of difficult questions, and answer them honestly.

  • Can you really afford to move? Will you make more money by moving from your garage or basement into a shop? Really wanting to move and being able to move are two different matters.
  • If you have a slow month (or two) do you have the personal resources to cover the rent?
  • Can you effectively increase your marketing while at the same time get more product out the door? The building is a remorseless cash eater. You have to pay your rent, utilities, etc., whether or not you have made any money that month.
  • Have you taken into account what your realistic operating expenses are? A few are gas, phone, electric, trash removal and security, but more unexpected expenses always creep up.
  • Can you handle lost productivity due to more marketing requirements?

Answering these questions may form the basis for your business plan, which is another important starting point. Think of a business plan as a road map you will use to guide the growth and development of your business. It contains financial, marketing and organizational information.

For the most part, a formal written business plan is needed to secure loans from a bank or lending institution. The main reason you need a business plan, even if you are not seeking outside money, is that it is much easier to succeed if you know what your definition of success is. You do not necessarily have to have a formal, written business plan. However, your plan should be documented or well thought out, so that you really understand it and can work toward making the plan a reality.

If you do want to go the extra mile and create a formal business plan, software and books abound on the subject. Check out the business section in a good book store, and you will have no problem getting started. Your efforts will not be in vain, especially if you ever do decide to seek outside funding for expansion.

 

Michael Kurtz Cabinetry Inc.

Michael Kurtz started Michael Kurtz Cabinetry Inc., Toledo, OH, as a sole proprietorship in June 1996. Originally, the shop worked out of another small cabinet shop, paying the owner a fee per hour of shop time. Within a year, Kurtz had purchased all tools necessary to open his own shop, and promptly moved from the cabinet shop to his garage. After working in his garage for about 6 months, he leased an 1,800-square-foot building and incorporated. Since then, he has hired an employee and has grown his customer base from 4 to more than 35. The revenues of his business have risen an average of 20 percent a year, with 1998 annual sales hitting $100,000.

The company builds for a three-pronged customer base: interior decorators, general contractors and individual customers obtained through referrals. Custom built-ins are its "bread and butter," mostly by default, Kurtz says. These include libraries, kitchens and vanities. They also produce stand-alone furniture, such as veneered dining and conference tables, desks and chairs. Kurtz adds that home office furniture is also gaining popularity among his client base.

Most customers are located in the Toledo area, though deliveries have been made to Atlanta, Chicago, Hilton Head Island, Indianapolis and Detroit. Although Kurtz enjoys building residential furniture, he says he has been approached by several commercial contractors and is currently expanding into commercial work.

 

After working in his garage for 6 months, Kurtz leased an 1,800-square-foot shop. Photos by Paul Koch.

After you sit down, make a plan and determine that you really will be able to make more money in a small shop than in your garage, you need to determine a realistic estimate of how much can you afford to spend a month on operating expenses. It is impossible to identify a suitable building until you have a realistic price range in mind.

As any realtor will tell you, the biggest factor of your rent will be location. The difference in price per square foot from the most prestigious area in a town to a run-down area may be $35/square foot compared to $3/square foot -- in other words, a considerable amount.

There are many factors you may want to consider when you are looking for a building. Some are easily quantifiable, such as square footage, electrical requirements (3-phase vs. single-phase), proximity to your home or to a major customer or supplier. Other factors are not so easy to define, such as the safety of the area, the floor plan and general condition of the building. Overall, every issue you wrestle with when you purchase a home is one you face in locating a suitable shop. You may find several suitable choices or only one -- or you may have to settle for something that you do not initially like very much.

Like looking for a new home, you should look at several shops before you commit to one. There are two ends of the spectrum in a property search process -- jump at the first building you look at, or look at so many locations that it is impossible to make a choice. It is best to be in the middle to stay both objective and realistic. By being objective and realistic, you will have a much easier time negotiating one of your most important business contracts, your lease.

Once you have located a suitable building for a shop, you need to negotiate a lease. "Negotiate" is the key word. You are not obligated to sign the piece of paper put in front of you by your would-be landlord. If you can't work out a lease that you are really comfortable with, walk away from the deal. This is certainly easier said than done, especially after you have just looked at several properties and have decided that this is the only building you want. This is where realism and objectivity really pay off.

The landlord's lease was most likely written by his lawyer in such a manner as to be totally slanted in his favor. From his point of view, it makes sense -- if he wants to take you to court, he will want a lease that will help him and hurt you. Wouldn't you want the same advantage?

Issues you need to be concerned about in a lease are environmental issues, such as dumping and asbestos, and property insurance. In certain states, you may be liable for toxic dumping that happened before you were a tenant. Make sure you understand these laws and get your landlord to release you from liability for environmental problems that happened prior to your stay in the building. You will need to have your lease reviewed by a competent lawyer. It is not a good idea to have your uncle, friend or neighbor look at it. You want someone you are paying to look at it, who will give you an honest opinion.

When you talk to a professional, either a lawyer or an accountant, you are relying on their knowledge of their trade to provide guidance to you. Don't feel intimated by professionals -- they know their trade, not yours. If you are being sued or audited, the buck stops with you, not them. They are acting as your counselor. It is your right to weigh their advice and make your own decision.

An issue you will want to raise with your accountant and lawyer before you sign a lease is whether you should sign your lease as an individual or as a corporation. If you sign your lease as a corporation, then you have a protective shield between your personal finances and your shop's. Although the law is dynamic, this shield could mean the difference between your family or your corporation being responsible for a legal incident. If a corporation files for bankruptcy, you are much less affected than if you personally have to file for bankruptcy. If your corporation dissolves, liability may dissolve with it.

Once you have your location, next comes the step of shop setup. The following are tips I have gleaned by touring several small shops while setting up mine.

  • The shop should be as clean as possible. It is going to be dusty by nature, but minimize it by keeping a regular cleaning schedule. Potential customers do not want to leave your shop and feel like they need a shower. If your shop is too dirty, they can only surmise that your work will be untidy also.
  • Make your office area look professional. Even if your office space is a desk in a corner, make it look professional by hanging awards, diplomas or pictures of your work.
  • Stay away from the "college apartment look." It is not chic to have dirty, overstuffed furniture in your office. Remember, you are a cabinetmaker/furniture maker. Your customers may think that if you own shoddy furniture, then you produce shoddy products.

As your expenses start to grow, you need more business to cover the extra bills. This requires a greater marketing effort on your part. Rather than taking a "reactive" marketing approach and waiting for word-of-mouth to bring business to you, it may be better to be proactive and search out business. This can be done by contacting contractors, decorators and architects in your area, which you can locate in the Yellow Pages and through local Home Builders Associations or other professional organizations.

As basic as it sounds, when you meet a prospective customer for the first time, it is important to make sure you look your best. Your clothes should not be covered with dust and dirt, but should be clean and dressy (no tee shirts). Remember that you are a business owner. If you want prospects to give you work, you must look capable enough to handle their jobs.

A portfolio of all your work should be kept and brought to all meetings with potential customers. The pictures may be grouped in a photo album. A three-ring binder works well, since you can easily add pages in the middle of the book to keep similar projects together. It is also a good idea to make color photocopies of work you are very proud of to leave with customers after your initial meeting. (Make sure that your business card is copied on every sheet.) Sometimes, long after a meeting, you may get a call from the customer as a result of the copies you left behind.

After you meet with a potential customer, follow up with a thank-you note. As you complete jobs that are you are especially proud of, send pictures to potential customers, along with a note detailing your work.

Eventually your marketing efforts will pay off and you will get a "trial" job from a decorator, contractor, etc. If you perform well on this job, you most likely will get subsequent work. This repeat business can be the work you use to finance your growth.

A word of caution -- some contractors may have payment terms that can hurt financially. You may not get a deposit, and payment may not come until 30 to 45 days after delivery. If this payment schedule will kill your cash flow, either negotiate different terms or reject the work.

Eventually you may decide that you could make more money if you had an extra set of hands in the shop and consider hiring your first employee. When the right person comes along and you decide to hire him or her, you need to have a realistic idea what it will cost you to have an employee. There are many hidden costs wrapped up in the wage -- your share of FICA, federal unemployment tax (FUTA), state unemployment tax and workman's compensation. The employer pays these taxes based on a percentage of what the employee is paid, and it can add up. For example, you could pay an additional $2,000 on a $10,000 worker.

Probably the best way to help smooth the transition from garage shop to professional is to identify a businessman you want to be like and use him as your mentor. "Go to school" on him and study him. How does he dress? Who are his clients? How many workers does he employ? How does he market?

You need not copy him or become him, but do not be afraid to learn from him. Also, do not be afraid to ask him questions or seek his counsel on issues you are facing. The best way to learn to run your new business is to talk to people who have already wrestled with the problems you are facing and won.

If you do not have a mentor, read everything you can regarding business issues in general and woodworking business issues in particular.

Moving from the basement or garage to a shop is loaded with expenses and issues you might not expect until you are confronted with them. It is better to be forewarned and prepared to handle them. Your two biggest resources -- your time and your money -- will be eaten up mercilessly as you grow. Make sure you can afford both before you make the move to a professional shop.

However, like any risk you take, there is the possibility of reward. The reason you want to go into business is to make money and be in control of your own destiny. With proper planning, hard work and luck, moving from your garage could be a great move for you.

 

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