Maintaining steady cash flow
Matt Buell in shop

Matt Buell talks about how important it is to keep cash flowing in your woodworking business, especially as you are starting out.

This month we’re going to talk about something that is necessary if you plan on having a woodworking business. Cash flow or access to cash is the most essential thing to a growing and surviving business. 

I’m not going to talk about all the intricacies and economic terms for general business practice and cash flow. There’s already a lot of stuff on the Internet you can look into for that. I’m going to cover a more simplified version applying specifically to running a small woodworking business.

I’m doing so to make it easier for you to start to wrap your mind around it as a Young Wood Pro. This is a big part of the great endeavor you are taking on and something you have to look at. I break it down into three main aspects of deposit/price, production time, and overhead. 



Deposit/price
In the first aspect of deposit/price, what I’m talking about is what you are charging for your work. I’m not interested in getting into explaining what you should or shouldn’t charge for your work. Those are things you’re going to have to figure out based on what your cost, time, and product is. But I do want to discuss how all that relates to your cash flow. 

For example, when you’re taking a deposit to start a piece for a client, the deposit should be more than just enough to cover materials and overhead while you’re working on that piece. Deposits should also be able to cover the cost of your life during that time frame, assuming that you live within your means. 

It should also be enough to contribute to your businesses cash balance being in the positive for the duration of building that piece. I typically require deposit of half of the price. If my deposit is not providing me all the things I just described. It means that my prices are too low, and I must adjust my pricing or find a way to lower my operating expenses.

To not have good cash flow for your business while in the middle of building pieces, usually lends itself to running on empty while being expected to do exemplary work. In my experience, those two don’t work together well. 

It’s not always as simple as one job at a time. Once you’re more established, it could be more common to have multiple deposits coming in at the same time throughout the year. If and when that happens, that’s great news, but if it’s not managed well, it can be problematic. There is a best practice for that, as well, which I will get too shortly. That leads to my next aspect of cash flow. 

Production time
Production time is a major factor in having cash flow for your business. The longer it takes you to get a piece out and paid for by the client, the more likely your cash flow will get low or run out during the build. 

It is important that you begin to gain an idea of what your work timelines look like realistically and give yourself a little extra time in the initial bidding process than you think it will take. That should also be accounted for in your deposit/price. I treat that a lot like calculating for lumber I need where I know I have to add a certain percentage for waste. I will add on a certain percentage of time in the same spirit.

I assume we all know woodworking is not always the fastest practice. Best to be on the safe side with work timelines. There is nothing wrong with covering yourself on this front because it is hard to build a piece on an empty stomach or under the threat of your electricity getting turned off. 

I know from experience and peer observation that the stress of working like that is not sustainable and usually not good for the future of your business. This is why in many articles I’ve written for Young Wood Pros I have emphasized how important it is to be as efficient as you can be and always be on the lookout for ways to be even better. 

Fast, efficient production increases cash flow and decreases the chance that you have to creatively operate without cash flow for periods of time. Taking a few days off is nice and sometimes necessary, but I promise you, your bills and overhead never will. Time will be your antagonist as a professional woodworker.

I mentioned how it has become pretty common to have multiple deposits coming in, and my best practice for keeping the cash flow moving well is that I do not use money from a deposit until I start working on the actual piece it pays for. 
Once I start, the calendar is the enemy to good cash flow until the job is done. This helps me to not get into tough situations where that deposit money is already spent on overhead, and I haven’t even started on that piece. 

If I take a deposit knowing I’ve got three months before I start the job, that money is sitting in my account for three months untouched other than picking up materials for that job if it’s efficient and convenient to do so. 

Since we’re all human and when you’re starting out, you’re learning and sometimes you’ll make mistakes. My suggestion is that as a business you start tucking away small percentages of every payment you get into what I call a prudent reserve. By building up a prudent reserve, you have an emergency cash flow fund for when a piece takes longer than anticipated, or for when you need cash for something your business requires such as funding equipment replacement or injury.

I encourage you to do this and come up with a number you think is good for a prudent reserve that you should always have tucked away for emergencies. Whatever number you come up with I would double it just to be safe.

Overhead
My last important aspect for you to consider in trying to manage healthy cash flow is your overhead. 

As I’ve also said in many previous articles, running a tight, lean ship has always been a good practice for me. What I mean by that is, I do not tie up my cash flow in endeavors that aren’t going to yield better cash flow in that present moment or relatively quickly. Larger size business investments I will save up for separately over a period of time or finance through a bank because a small monthly payment allows me to keep my operating cash available.

For example, the other day I was at a lumber supplier picking up stuff for a job, and they showed me a nice pallet of maple with incredible flamed figuring. It was amazing. He had it set aside to sell to someone like me and at an incredible price.

As good as the price was, I passed on the lumber because I didn’t really like the idea of tying up so much of my cash on materials where there’s no way I’m going to be able to even get to do something with it for another 10 months. Don’t get me wrong, I wanted to buy the lumber but not as much as I like having access to cash. 

Sometimes being a passionate woodworker has to be secondary to being a good business person. The key to overhead regarding cash flow is that you should be looking at ways to minimize your operating expenses and business overhead, because the less money you are sending out the door frees up more of the money that’s coming in. A lot of that you do in your initial planning for your business, but I encourage you to always be open to new ways to lower your overhead as you go along. 

Keeping a steady cash flow running through your business is a key element to success. By putting in the time to make sure your pricing and deposits are appropriate for your business to function for you to exist in a healthy fashion while building, by setting realistic time frames for production, and constantly maintaining the lowest, leanest overhead you can will help to maintain steady cash flow.

 

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About the author
Matt Buell | President/Owner/C-Level

Matt Buell of M. Buell Studio the host of the 2023 #YoungWoodPro contest and lead coach for the people who make up the YoungWoodPro audience. Buell has achieved national acclaim for his custom furniture and was honored as a member of the Woodworking Network 40 Under 40 Class of 2018.