Hi,
I’m being drawn into cabinetmaking/woodworking on a full time basis. Lot’s of offers for kitchen cabs etc.. I’ve been researching the market and custom doors are a hot item as well and I have more experience in that field but feel confident I can fill a niche. I have clients lined up.
But I don’t have start up costs. I need a bit more machinery and a real shop to move to the next level. As is I can’t seem to get over the hump as I can’t work efficiently enough.
With that in mind, would I be a good candidate for a business loan?
Should I get a General contractors license? Cabinet/millwork?
How best do I approach a lending institution?
How important are references? If things go as planned I have neighbor who will be ordering over a dozen custom pieces over the coming months. Should I get something in writing from them.
I’m guessing $5-10,000 to make it a sure thing for me. Is that too steep? I have no collateral.
Any ideas would be great.
Notrix
Replies
One thing to keep in mind - cabinet shops are going out of business all the time around here SF Bay Area, Sacramento. Many of them got in over their heads with too much overhead - new machinery, etc. So... an opportunity and a caution. Lots of used equipment - and shop space - out there. But, be careful and shop around - many auctions get up to near new prices. Also build the business plan out for a couple of years, and budget in some lean times (as another thread here discussed recently), so that you are sure you can cover loan payments, rent, insurance, etc. and still eat.
Thanks, While I don't own a lot my over head is quite low. I wouldn't mind throwing a futon on the tablesaw for a spell either<G> Somethings in life are a risk and I know I can't cut it. Oft times I've been in over my head and knew it right away. This is a sure thing for me if I can get the backing. I've been less than happy with my bank. I went in for a personal loan about 3 years ago and the ladies were passing notes and giggling about some inside joke. I was denied and dismissed without a reason. If I try them again I want to be prepared and not let them off the hook so easy.Thanks again,N
Notrix
Many years ago, my 1st business failed miserably because I got in way over my head financially without really understanding the cycles of business. I was young, and extremely sure of myself, and leased the finest office space, the best equipment, etc...and nine months later, when the economy went in the crapper, I almost went with it. The business sure did, and everyone had a hitman out looking for me. Don't bite off more than you can chew. It is better to struggle a little in the beginning than to go out, borrow a bunch of money, and find out that you made a huge mistake. Start out smaller, with used or less expensive equipment, and trade up as you go, and as you feed yourself. Believe me, you'll be sick of that futon on the table saw after a while, and will want to buy a wider jointer just to have a new place to bunk.
I now own two businesses, both built the same way. Very slowly, a ton of hard work, and a lot of capital reinvestment from profits to upgrade equipment. 20 years later, we're over 7 figures annually in gross.
Besides, banks aren't going to lend you a bunch of money in a non-collateral situation anyway. If you go to the 'lending institutions' available today, they're gonna hit you with 18-21% in interest, which is going to put you behind the 8 ball right out of the gate. The only time banks wanted to lend me money was well after I no longer needed to borrow it, from a starting up point of view.
You'll be better off in the long wrong keeping your capital investment down to where you can manage it on a cash basis. Of course, if you're flat broke, then it's gonna be that much harder. Most businesses fail in the first year because they don't have the capital to withstand the learning curve involved with finding their niche.
Good luck, work hard, and stay away from the loan sharks. The mercedes will come soon enough, just reinvest in yourself every month, after you eat!!!!!!!!!
Jeff
Notrix,JHeath is absolutely right. Most small businesses fail in the first year. And the main cause of failure is undercapitalization. And it doesn't matter if its a tiny business or a multi-million dollar undertaking, the result will almost always be the same.Adequate capitalization means that you PERSONALLY have ALL the money, up front, to buy all the equipment you will need to do all the work you need to do over at least the first year, if not the first 3 years. AND enough money to weather the potential start up losses (dry periods, loss of promised jobs to a competitor, etc., that WILL occur).You will not succeed by starting off with a loan. That is a formula for failure. A business cannot make it by making enough profit to both pay off initial debt and salary to the employee(s).Fortunately (for you) a bank will not lend you money based on your business plan (although you DO have to have a sound one) or on promise of work from potential customers. They lend money to already healthy businesses who would be profitable without such a loan when they have a sound business plan for new work based on contracts, very favorable markets, etc.The bank will only lend you money against collateral. And if you have any (a home, very expensive car) the worst thing you could do is put it up against such a loan.There is NO easy road. You will need to earn money and build up savings that are discretionary (not needed to sustain you for necessities). Once you have enough to buy all your equipment and pay you one year's salary, you can start to think of being in business.I've been there (undercapitalized). We lasted for several years (longer than average). And we tried to convince ourselves that our heads weren't really under water (it's frightening how long you can pay off one credit card with another). But, in the end we had to admit we had been drowning from day one, just due to undercapitalization. We had lots of work, but the debt killed us and prevented us from getting the equipment needed to be efficient and profitable.It took a long time to recover, after going to work again for someone else. But we did. Like JHeath, everything worked out eventually. But it was a VERY rough way to learn a life lesson.Pay for some professional financial advice, and start saving your capital.Rich
Rich and Jeff are absolutely right, I was in the same situation you are, until a very wise friend advised me to stay away from banks and use my own capital. This meant, taking on smaller trim carpentry jobs, and reinvesting some of the profits in tools and machinery. Granted, this road is hard, it took me over a year to buy just the basics, but I own them now not the other way around!
You'll also be quite surprised to learn that you don't need many machines to make kitchen cabinets. I remember my first project included a table saw, a router, a planner and some sanders! You could also farm out the doors, and have your lumber supplier cut to size all the boxes. All you have to do is assemble and finish.
Also, for the first couple of years, tackle jobs one at a time. If you over extend yourself, your work will suffer and the clients will be waiting too long.
Good luck!
Notrix,
The advise you have been reading here is on point. If you have to borrow for such a small sum, you already have your answer about the odds of succeeding. No lending institution is going to give a loan or line of credit unless you can heavily collateralize the loan. So, here's a suggestion: if you have potential clients then make the rounds of existing shops and see if you can rent space/machine time from them. Obviously, you want to find the shops with excess capacity. Then, if you grow, you can consider going it alone or you may find that the shop approaches you for a partnering arrangement.
Good luck - Doug
Im going to carve badly, and go with and against the grain.
If you needed a small loan, check into a Credit Union. They will only loan you what they feel safe with, but it might help. It would be more like a personal loan than a business.
I think that all the previous answers have been smart.
As for Saving money, check out the writer of 'Start Late, Finish Rich', this current title at the bookstore, has a sound method that is difficult but feasible.... basically saving 10-20 bucks a day. Then you could apply that money to your business rather than your long term.
Im no guru, dont make a ton, but I have a young business and how I have done it was buying everything as I go. I had or borrowed some basics, then filled in gaps, then bought a van cash and on and on. During this time I saved 30% for my taxes right off the top rather than waiting. When I made money I bought tools. Now I still have a to buy list, but every job has gotten done. You can even add in the cost of a specific item into your bid, and the client pays for it.
Its not easy, and my van is older, and I dont go on vacation, but Ive been able to show profit rather than loss. Image is important too, a good graphic designer can do wonders.
Regards, -zen
Whether or not to borrow is your decision. If you choose to borrow, consider using credit cards. The interest is about the same (or even less) than what you can get from a bank, and the loans are unsecured. You don't need collateral, and you can't lose your house if your business fails.
My wife and I started a business about 5 years ago (still going, btw) and used personal credit to finance everything. We juggled cards constantly and kept the interest rates low. We spent about 2 years paying off the credit cards and eating a lot of beans.
It takes some self discipline, but it can be done. At least, if your business doesn't fail.
Twenty-five years ago I was in your current position. I started a cabinet shop, bought my doors and drawer faces, made everything else.
I started on my own cash and kept it that way. Bought what I could pay for and made do for the rest. Your own genius can often enable you to make your own tools. Spend your nights doing that, and work no more than 6 days a week. You need recuperation time for yourself.
I lasted three years before the building market went in to toilet and I just had not built up enough business to keep me going. Closed the shop with $10,000 worth of equipment paid for and no debts to anyone. I still use a lot of the equipment that I had when I locked up, but now it's a hobby/avocation.
The advice you've had about loans is the best you'll ever get. Stay away from borrowing. I was lucky that my wife made enought income that we could live off of it and by the time I locked the doors, I was able to take a small amount out.
Severall pointed out the wise use of capitol but no one has pointed out the really important part.. Sales!
Untill you sell things you won't ever make a dime, do not count on those few names that you have to carry you, most will want their project done and then it will be a long time before they need you again (if ever) Oh, you'll have a few loyal customers but not ever enough and at the right time to make a living.
I tried to make a go of a business and actually had a fairly sizeable nest egg.. Three years later I realized that the projects I'd done while profitable had hurt my cash flow so bad that there really had never been a real profit,, What I'd made was actually eaten up by the cost of carring the project thru to completeion.. (I had to buy materials and services up front and be paid at completetion).. Those that didn't pay when due didn't get their work but then I was forced to sell at deeply discounted prices since it wasn't the exact piece wanted..
Don't forget that large companies buy in such bulk that their material costs are dramatically cheaper than yours. Another start up company I ran simply failed to show a profit at all when my much lower volume didn't qualify me for the deepest discounts and the finished product could be sold for what my material and overhead costs were, ignoring the value of my own labor and start up capitol..
To give you an idea of what I'm talking about, I can buy FAS cherry for a 1.95 a bd.ft. and I know several companes who buy it even cheaper! look at your costs in that light and can you really compete?
In addition large operations have equipment, jigs, and fixtures dedicated to a single task.. No set up time no craft required..... shove the wood in here, pull it out shove it in here, sorta thing...
Not saying that it can't be done but I tried twice and failed both times and it never was the ability to do the work or the quaility of the work!
Thanks for the advice, I think most of you understand my dilema. As is I can make about $2000 a month on my wood work, which includes a a few "diciplines". Typical kitchen cabinets takes about 2 weeks to accomplish due to space and lack of some machinery. I can easily cut that time in half or better.So far I've had no problem selling the benefits of me doing the work as opposed to HD Kraftmaid etc... I also have no problem doing the work and designing. I'm still even picky and if a client even snifs of problem I bail out. I've been at this level for about 7 years, not full time as I run up against this wall each time and can't seem to get past it and fall back to other skills to pay bills. But I love cabinet making. I'm not worried about making 7 figures or hiring workers. As Farina said "I've been down so long it looks like it's up to me" so going broke doesn't scare me. Any creative financing "schemes" welcomed <G>N
If you love cabinet making as you say, contact as many architects you can, actually sit down and talk to them, and try to get built-in projects and closet systems. A one man shop, IMO, can't compete efficiently with HD, kda, and the likes for kitchen cabinets.
As far as, "schemes", unfortunately, the long hard road is the only sure way.
Consider yourself lucky that $2000 a month is enough to get you by, here it just about covers the property taxes and some bills.
Creative financing is having residual income.... one of the fastest, and it sounds like you can handle it would be buying houses, fixing them up, adding some decent finish work then flipping them. When I say flipping I mean totally legal, but with the intention to make profit.
Real Estate is one of the best margins right now especially if you dont have a bunch of cash. If you live in it for 2 years you can take the capital gains advantage.
Thats just one option, but having two jobs of some sort is always a great answer.
-zen
My advice is to borrow as heavy as you can from where ever you can. Buy only what tools are necessary and invest the rest in Malox and heart care stock. You may last long enough to make a profit from the stock. :)
Actually listen to the people that have done it with there own money. Not only are the market forces in play but until we get over this idea that everything has to be the cheapest possible and the immigration issue and the china issue, you got your work cut out for you. It will be like being married to the most cantankerous women you can think of and take the same amount of time But if you work it right it can be done. I seem to wallow between poverty and riches. One day i'll get over that hump
Dave
all i can tell you is when i was finally bitten by the proverbial bug i had next to nothing either.my credit was no better than average and when i first opened my shop i did it in my one-car garage.i put everything in line with how it would be used as i brought in un-dressed 6 or8 quarter oak or maple.what helped me then was having everything on wheels.i would pull out the band saw then the planer and then finally cut it to size on the table saw.it was a pain in the neck sometimes but it worked for me.that was eleven yrs. ago.now i have a shop.it was hard moving the machines all the time was a pain but it served it's purpose.one other thing though,i did'nt have "regular"business for a yr. and a half.establishing,getting known was the hardest to do.be prepared to eat alot of hamburgers and hot-dogs.with all that said good luck and have the strength to preservere.
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