To make a profit in any business you need to keep track of your costs. When you start your woodworking business you will need to put a final cost on your products. This will include a number of cost variables such as material, labour, overhead, shipping and other miscellaneous items. This may not be accurate at the beginning and you may take a loss. So that is why you need to keep track of your expenses right from the start. Adjustments will have to be made to insure that you make a profit as you grow your business.
Here is a list of costs you should keep track of as you grow your woodworking business:
Labour Costs - This should be determined by how much you would pay a professional woodworker, if you hired this person as an employee. This will be your personal labour cost. You could determine the actual rate of pay based on a percentage of you the cost of materials to complete a particular woodworking project.
Material - Each item you build will have a definite material cost built into it. This cost will not change once you have purchased the material you need to complete the project from start to finish. Keep track of even the smallest items. Remember small things add up over the course of a year and can become a large expense. These could be fasteners, screws, nails, glue, sandpaper, miscellaneous tools and masking tape, etc.
Overhead Costs - These costs include all those not involved with the actual production of your woodworking projects. These would be office supplies, advertising, insurance, rent, utilities, internet, phone, office supplies and other related costs. You will need an office to do accounting and sales. You might even decide to have a website which would advertise your woodworking business. This website could advertise products available to people beyond your local area. The operation of a company vehicle could be included in these costs.
If you decide to ship your woodworking products to your customers, include this cost in the price. Consider adding a shipping charge to the final price and itemizing it on the customers bill. Be up front about this. Explain to your customer there will be a shipping charge before the final transaction. If your product is of high quality the customer will accept this as part of running a business.
Keeping track of your expenses, even the smallest ones, is necessary if you want to run a profitable business. Remember the money you pay yourself for the labour is different then the profit. The profit is the reward you reap for taking the entrepreneurial risk.
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