Hobby to business – making money
As difficult as starting up your new woodworking business might seem, the struggle continues over the next several years. You’ll have certain goals you will want to stick to, but might find that financial pressures force you to change course from time to time. The real proof that you are a viable business is not whether you get the business off the ground, but whether your business still exists five years or more later, and whether you are making any money.
If you aren’t making money by your third or fourth year, you are going to have to make some drastic changes in your business offerings, or you’re going to cease operations.
Unless you have a wealthy uncle or lottery winnings, you can’t continue in a business that doesn’t turn a healthy profit. Here is some advice based on things that I have learned the hard way. You will have to learn the hard way too, because there are no shortcuts to making a business successful. But hopefully, these pointers will help you think clearly as you make your way.
1. Time is money
Nothing But Sellers – Beware of attending too many events where everyone is looking for new business. You’re looking for buyers, not other sellers.
Flea markets – Unless your product is very inexpensive, stay away from flea markets and low-end craft markets. Participating in a show takes a huge time commitment and can be worthless to you if you choose the wrong one.
2. Spending money
Stay Out of Debt – Earning little is always better than going into debt. Don’t think that a $50,000 bank loan will solve all your problems. Under-capitalization is a common problem among small businesses, but always think of where you’ll be tomorrow if you have to close up shop. Better to have no money, a few assets, and no debt, than have a mountain of debt that you can’t get out from under for many years.
Business Advice – Good business advice costs money, but can be worth it in the long run. However, beware of professionals who promise you success or wealth if you only pay them large sums of money for their help. Nobody can guarantee your success.
Advertising – Beware of the temptation to spend large amounts of money on advertising. Small ads in local papers can work wonders. Expensive ads could break your budget and still bring in only a small amount of business. Even worse the response could be huge, but you may be unable to meet the high demand, and buyers disappear.
Expansion – Don’t be so quick to expand. We all want a bigger shop, better machinery, and other ‘perks’. Most successful small business owners are successful because they don’t get ahead of themselves with expenditures. While growth and expansion are commendable goals, they can also be the primary cause of business failure. Don’t expand until you’re making enough money to justify it, and until you almost have no other choice.
3. Making money
Selling Wholesale – Be realistic about selling wholesale. Most buyers are looking for at least a 50% mark-up, while many want 100%. That could push the retail price too high. Don’t commit to large numbers of product until you’ve tested the market.
Consignment deals – Be careful about consignment deals. Some stores will only take product on consignment instead of buying it outright. The risk of damage and theft lies with you, so don’t commit a lot of product to that arrangement. Also, the buyer should receive a far smaller mark-up because they are taking less risk.
Diversify – Think about diversifying to avoid fluctuating business cycles and to smooth out your cash flow. This could mean diversifying the products you make, building certain items in summer months, and others the rest of the year. Services like furniture repair and refinishing go hand-in-hand with furniture building. They may not always be much fun, but they help to pay the bills during slower periods.
Get Paid – This might seem obvious, but many people seem to expect a lot for free. They expect free quotes, free advice, free delivery, and ‘no payment for 2 years’! All of your time on a particular job must ultimately be included in the price, or you will not earn anywhere near your shop rate. Make it clear to clients, in a diplomatic and polite way, that your time is valuable.
Follow up on accounts receivable – Show your clients right from the start that timely payment is important to you. You don’t have to be rude about it, but there is a subtle way to make this clear. Too many business people think that asking for money is rude or ‘not nice’, just because they feel uncomfortable about it. Letting deadlines slide for too long is a sign to a client that you don’t care. You will be respected more for being professional and businesslike, than for being a pushover.
Sell yourself – You’re selling yourself every time you meet someone new, even in a non-business situation. Don’t be pushy, but don’t miss opportunities to tell people what you do, and always have some business cards in case someone asks.
It’s all marketing! – Marketing is also about how you present yourself. It’s about how you answer the telephone and how you answer an email, and how long it takes you to respond to a client inquiry. Be as professional as possible at all times.
Spread the word – Even though your website will get hits through search engines like Google and Yahoo, do your best to advertise your web address in press releases, on your correspondence, on your business cards, at shows, etc.. Don’t count on business just falling into your lap; you have to work hard at getting it.
5. Final advice
You’ll make lots of mistakes in the beginning. Learn from them as quickly as you can, but don’t get discouraged. You’re building a business from scratch, which doesn’t come easy and won’t happen overnight. Everyone would be doing it if it were that easy. I’m convinced that many good businesses fail because their owners give up too early.
Starting a new woodworking business from scratch is one of the hardest things you’ll ever do. It will test your commitment, your energy, and your resources. Nothing good comes easy. But if you work hard and analyze what works, what doesn’t, and why, you’ll gradually find your path to success.
Remember, success comes in many forms, not just financial.