You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your woodworking business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
What are the startup and ongoing costs?
Who is your target market?
How long it will take you to break even?
What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a woodworking business?
The costs of opening a woodworking business are significant but manageable. Business owners might expect to spend around $6,500 total, which would break down as follows:
$2,000 for wood and other materials
$1,500 for woodworking tools and equipment
$1,000 for a computer
$1,000 for miscellaneous expenses
$800 for a website and camera
$200 for business cards
This example doesn’t include the cost leasing space for a shop or storefront. Many business owners are already woodworking hobbyists and, therefore, have space to work in. They can avoid leasing a store space by selling at festivals or online.
Business owners who already have tools can further keep their costs low by using tools and equipment that they already have. Those that need specific equipment they don’t have might be able to convince a family member or friend to pay for the equipment in exchange for a product that requires that piece.
What are the ongoing expenses for a woodworking business?
The main ongoing expenses for a woodworking business are material costs and overhead. Material costs should be covered by the sale of finished products. Overhead typically includes rent, utilities, and purchasing small supplies (e.g. nails, sandpaper and finishing materials). These expenses are usually equal to 15 percent of materials and labor.
Who is the target market?
A woodworking business’ ideal customer is someone who appreciates wood products and has discretionary income. Such a person is likely to be interested in products and have the money to afford them.
How does a woodworking business make money?
A woodworking business makes money by producing and selling wood products. These products may be furniture (e.g. Adirondack chairs, cabinets or dressers), or smaller items, like jewelry boxes, smartphone holders, manual coffee grinders, cutting boards or wooden beer mugs.
How much wood products are sold for varies a lot. Even the same types of wood products might be sold for vastly different prices, depending on how they’re made and where they’re sold. For example, Svetulka on Etsy sells kids’ name signs for between $19 and $73 (depending on the number of letters and finish). Kolorize lists similar signs for between $68 and $163 on the same site.
When deciding how to price their wood products, business owners should consider the cost of materials, their desired hourly wage and any selling expenses (e.g. shipping to a store). A simple formula to follow is:
Material Costs + (Hours of Work x Hourly Wage) + Selling Expenses = Price
Putting this formula in a spreadsheet makes calculating prices simple.
How much profit can a woodworking business make?
The profit potential of a woodworking business depends on what products a business owner makes, where the products are sold and how skilled the business owner is. Some business owners only sell small products locally, and their revenue might be similar to the income supplied by a part-time job. Other business owners are master craftsmen and highly in demand. Their work might produce a comfortable salary, in some cases even breaking six figures.
How can you make your business more profitable?
A woodworking business may be able to add revenue and increase sales by offering classes. Classes will attract people who are interested in the field, and some may decide to purchase finished products in addition to taking a class.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
Establishing a legal business entity such as an LLC prevents you from being personally liable if your woodworking business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
This separates your personal assets from your company's assets, which is necessary for personal asset protection.
It also makes accounting and tax filing easier.
Recommended: You can get $200 when you open a Chase business checking account with qualifying activities. Learn more.
Get a business credit card
This helps you separate personal and business expenses by putting your business' expenses all in one place.
It also builds your company's credit history, which can be useful to raise money and investment later on.
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