Getting started as a lutherie business.

Discussion in 'Luthier's Corner' started by gator payne, May 25, 2011.

  1. free2rock

    free2rock Senior Member

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    Thanks for the informative thread, guys!
     
  2. H.E.L.Shane

    H.E.L.Shane Senior Member

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    Yep... My "office" is a room in my house.. the computer is in there.. the guitar cases are also stored in this room, the fireproof safe is in there (for documents.. it has no money it it..) .. its gets a duduction for "home office"... The shop is also gets a deduciton because it is a building located on the same property as the house... (it would be a different deduction and expense tracking deal if it were offsite as a stand alone building with its own utilities and local taxes and such)

    NOW.. your Tools that you bought over the years.. you CAN claim them... they get entered into service on the date that you incorporate your business and you have to come up with a fair market value for them, just like any used tool you buy (and if you bought it second hand.. here in PA you had better pay the "sales and use tax" on all those if you dont have receipts proving you alreay paid state taxes)

    ughhhh sales and use tax... I bough a couple big ticket tools from out of state.. have to pay the dam state tax on them when i submit my taxes in july.. uuuggghhhh

    The wood that you have.. well, you do basically the same thing.. you basically sell it to yourself when you incorporate the business...

    But.. yes... you will definately need to "pay the piper" at some point and talk to a tax professional to make sure everything you do is Kosher....
     
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  3. redking

    redking Senior Member

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    For the Canadians reading this thread.....it is not nearly as complicated as it appears to be for our American friends. Believe it or not, we have considerably fewer levels of red tape to deal with if you are a small business. For example, you are not required to charge and collect GST until you reach the point of earning more than $30k of Sales Revenue per year. I would see no need to incorporate a small hobby business in Canada, since there are no tax advantages. The only reason to incorporate in Canada would be if you were generating some potential legal liabilty with your business activities.
     
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  4. Bob1

    Bob1 Senior Member

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    Well, for once, living in the Caribbean (for guitars and building) has paid off....here you don't need to pay tax on small business unless you exceed a certain amount per year.

    Guitar building here, wouldn't even exceed half of that. You would have to build 20-30 a year to exceed that amount. Of course, I mean building as a side hobby, because I don't think 20-30 a year is enough otherwise...(at my calculations.)
     
  5. gator payne

    gator payne Senior Member

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    just want to add IMPO the biggest benifit to luthiers of forming an LLC or an LLP is not tax breaks. but rather personal liability insulation. For most luthiers the tax paid would not be much different than as a DBA.
     
  6. melomanarock

    melomanarock Senior Member

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    I don't know if this is the right place for this question but maybe it's important outside the tax thing..
    I've never sold a guitar yet, but I have several people asking for it.. just friends and friend's friends.. but the most difficult thing for me is try to put a price tag on them.. Is there any way to calculate the cost including tool usage and supplies.. and everything else (wood, labor,etc) except the hardware.. ?
     
  7. gator payne

    gator payne Senior Member

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    material + consumables (including utilites used) + (labor rate x man hours)= unit cost. This is only how much it cost you to build the guitar.

    Tool usage is a hard thing to calulate per build. if in business tool usage is an overhead expence not usally charged to the unit cost but you could ad a reasonable figure into the consumables. for example say you expect to reshapen a plane blade twice during a build. This in maybe 1/10,000 of the blades life so if the blade is a nice Hock blade that cost you $40 the $40/10,000 = $.004. it easy to se why too wear is not really practical to account for. Now a router bit that cost you $30, you may use up 1/50th of its life in a single guitar. So the same math $30/50 = $.60. Still this is splitting to many hairs to worry with.

    Consumables should be those things that you can track. sand paper, glue, stain, sealer, finish, utilites ect. Materials should be all materials including wood, hardware, electonics, inlay, case ect. And of course labor is the actual man hours spent.
     
  8. dazzypig

    dazzypig Senior Member

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    Got to stress this.

    (all of the following is England, UK based, but I'm sure everywhere else would be fairly similar)

    I know someone very well who has just gone limited after losing his house, partially wrecking his marriage and having to sell off personal amenities (he had a Shelby Cobra replica). He is now renting with less to show for over 25 years of owning his own business, putting in 60-80hr weeks, sleeping over at the office and working through weekends etc, than any of his employees. (and that was to do with a Tax record mistake which should have been taken care of, but which was left until it surfaced in an audit).

    If I start a business (and that's any business) the first thing I'm going to do is to pay some money to it to make it profitable, pay the fee and get myself limited. No way am i going through that, and the best time to do it is at the start. It can be a real pain trying to get a company into the black for a long enough period of time to register it as limited if it starts to have a little trouble with cash flow.
     
  9. jbrybar

    jbrybar Senior Member

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    Hi, not sure if this is the best place to post this question but here it is anyway. lol .. I was just wondering what plans everyone is using? I have the Stewmac & Catto neither of which have the routing depths for the pickups cavities etc.. I could probably just measure the Les Paul's I have but does anyone know of another set of plans with these details I could use in conjunction with the ones I have? Any input will be greatly appreciated..

    Thanks, Jason
     
  10. bertzie

    bertzie Senior Member

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    Bartletts are generally accepted as the best around here. Plans
     
  11. gator payne

    gator payne Senior Member

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    I think I understand that you are saying that you would in vest in an LLC from the get go. That is a good thought process.

    However when first reading this satement ist sound like you are saying that the first thing you would do is to put money into the buisness account so that it was profitable. In essents you would be personably investing liquid operating funds into the business.

    So for those that may not understand what you were saying it is important to understand the the adding liquid operating funds at start-up has nothing to do with profit or tax liability. If you put 10K into the business account at start up then later at the end of your first quarter, after all licenses, taxes, acounts payable, acounts recivable are balanced and you are left with 10K in the buisness acount the profitability of your company for that first quart wold be ZERO!
     
  12. jbrybar

    jbrybar Senior Member

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    Thanks.. I am getting things together for my first build and i definitely want all the reference material I can get.. I've done carpentry since I was 13 and have played guitar since I was 10 (Got my first Les Paul at 16 (1995 Ebony Studio )) so I figure it is just a natural progression.

    This a great site, forum. Full of very information and over all great threads..

    Thanks again, Jason
     
  13. jason_mazzy

    jason_mazzy V.I.P. Member

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    Gator, I think you can apply this knowledge and wisdom to just about any starting business. Great advice gator. Appreciate you looking out for us here at the board!
     
  14. x_archangel_x

    x_archangel_x Senior Member

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    Since no one had mentioned it yet, an important tip:

    When calculating price per unit, specifically markup, you need to know how to do that properly.

    Most people that I know simply do something like this:

    P = Unit Price ($1,000.00)
    m= Markup percentage (7%)

    P*m = X or 1000 * 1.07 = 1070

    What you should do instead is this:

    P/(1 - m) = x or 1000 / .93 = 1078.27

    I hate to be so BORING, but this issue is far too often overlooked.

    This is how most people really hurt themselves in terms of profitability.

    Anyway, rant over. Please continue.
    :)
     
  15. gator payne

    gator payne Senior Member

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    This is a GREAT question. And is directly to the point of this sticky post

    This is only my opinion and what works for me but is the key fundimentals of good and fair pricing.
    Everything around you in your shop has a value to your business. Even the dust on the floor. Everything you do in your shop affects the real cost of your produce if you are truly honest with yourself. The time it takes to sweep up the aftermath of a build process. The safety equipment you have to by and maintain. The electricity usage in your shop during a build. The heating cost, every single outflow that is not directly traceable to a specific build affects the real cost.

    Now there is a difference between real cost and unit cost. It is not practical to time the cleanup and maintance around the shop so in your book keeping tht is paid for from what is known as overhead. Overhead are the items that affect labor and or payables that are not directly tied to the manufacture of a specific given unit. These still have to be paid for but this is most efficiently taken from the markup that goes on the unit cost. In other words it is a percentage of your markup. Among these things are utility, consumables, license, insurance and maintainable items.
    Then there are the things that make up the directly chargeable parts of the unit cost. These are things that can be directly be credited to a specific build. Things like labor, materials, typically direct charge items can be traced by an invoice and or traceable record keeping.

    So applying the kiss method to this post you should
    First find out what your overhead per quarter is and divide tht by the quantity of unit you expect to produce a quarter. Determine what the directly chargeable costs are. These two things make up the unit cost
    Determine what profit margin you need to make is and ad it to the unit cost and you have your retail price

    I know this is not a formula but is instead the principle of business book keeping which in turn is what should define for you your unit cost and the breakeven percentage of your markup
     
  16. Archtop 13

    Archtop 13 Senior Member

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    I think you lost most of us right there. Can play that out in plain speak?:shock:
     
  17. emoney

    emoney Senior Member

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    You know, I just happened to read this thread, great one Gator.
    I thought I'd add something off the luthier topic, but on the "starting a business" topic.

    You can form a "PLLC", which is Professional Limited Liability Company and the
    tax reporting is even more straightforward, but you still have the protection an
    LLC provides from a liability standpoint. I'm a "hearing guy", and that's what
    I use. And, from a guy who was on the 'Audit Rotation' for 5 years straight, you
    do NOT want to be hauling all your receipts into an auditor's office, I assure you.
    And, if you think for a minute that "you're different"....well, you're not, lol.

    Anyway, just a tiny little addition to a great thread. Of course, you could just
    be like me and build horrible examples of guitars and you never have to worry
    about things like "selling them", etc. etc. etc.:thumb:
     
  18. RICH/CANADA

    RICH/CANADA Senior Member

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    Maybe he will ship it to you or if you do the drive then try to buy enough For a few builds.
    Rich
     
  19. Davio

    Davio Alchemist Extraordinaire Premium Member

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    +1 on the Bartlett plans. Very thorough and complete.
     
  20. Hullguitars

    Hullguitars Junior Member

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    Great post. Wondefull advice, which I should take.
     

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