Getting started as a lutherie business.

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

  1. RockinRyan13

    RockinRyan13 Member

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    great post! really informational.

    would anyone experienced in the luthier business be willing to talk one on one, give some pointers on how to just get your foot in the door?
     
  2. sectorix

    sectorix Senior Member

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    Hi, GATOR, thanks for the excellent information !

    there is another question that i may have.. what if im a hobbist that makes maybe 1 instrument every 1-2 months, and i wish to sell these via either a recognized luthier or a guitar shop.. am i still obligated for paperwork ?
     
  3. radana

    radana Member

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    A question I have is, what kind of guitar is most profitable? What I mean is, from the standpoint of a business or luthier, with boutique guitars seemingly being a very niche market, is there a type--electric, acoustic, jazz, etc.--that garners the majority of the market? I'm not necessarily thinking about profit margins (although I am curious about that too), but about what style has the largest amount of clients. I'm thinking the ratio is the fancier/elaborate the guitar the smaller pool of consumers, but that small pool has deeper pockets, but wanted to hear from people with actual experience.
     
  4. fastdave

    fastdave Senior Member

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    Gator, I've even known a plumber who didn't know these basic rules of business, fail miserably - they stand up for all businesses.
    Dave.
     
  5. Scubaman

    Scubaman Senior Member

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    The thing which no one has mentioned here and is the biggest potential killer of businesses is CASH FLOW.

    It doesn't matter one single bit what your margins are, what your profit according to your accounts is, what your sales figure is if the money doesn't come in before you need to pay your outgoings.

    Remember more 'successful' businesses (with full order books and great margins) have been put out of business because of poor cash-flow control than any other cause.
     
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  6. kfowler8

    kfowler8 Senior Member

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    Cash is king!
     
  7. Damian Probett

    Damian Probett Senior Member

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    Too true.

    Local boy makes sense!
     
  8. TheZeppelinKid1991

    TheZeppelinKid1991 Senior Member

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    these are true words of wisdom. Posted from Mylespaul.com App for Android
     
  9. cmjohnson

    cmjohnson Senior Member

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    I'm very close to making my guitar building an official business. People are offering good money for my guitars already. I have my logo, I have my website, and I'm ready to run down to city hall and start filling out paperwork to make everything nice and neat and official.

    I SERIOUSLY do not want to get into ANY legal issues so, yes, every expense is documented, every payment is documented, and if I have a tax form to fill out,
    it will be filled out correctly and honestly.

    But at this exact moment I'm in that grey area between hobbyist and starting businessman. So I keep records of everything.

    Recordkeeping IS your business. Keep that in mind.

    When I cross that line to a real business, I will be subject to business regulations,
    and the ones that are of greatest concern to a guitar builder these days will be
    environmental regulations relating to finishes and chemicals. My solution to the
    painting issue is that I have made arrangements with a local auto body shop. They are quite happy to rent a paint booth to me on Saturdays for 100 bucks for a full day.
    Their booth is FULLY compliant with all regulations. So I save up several guitar
    projects, haul the batch in early on a Saturday, hang and paint them all, and then go home. I come back at the end of the day and pick them up.

    I shoot a fast curing DuPont urethane clearcoat that can be handled, buffed, and polished in just a couple of hours.

    I'm posting this as suggestions for others who are also looking into to taking their
    hobby out into the sunlight and saying "I want to sell you a guitar!".
     
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  10. sectorix

    sectorix Senior Member

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    I have a question, I may create a sidetrack here but ill still ask it.

    What if i'm not interested in selling at all? I build for myself, and I build for friends who ask me and pay for the materials (no labor, its a hobby that I enjoy). Is there any tax/legal implication that I should be aware of ?

    Barry.
     
  11. Ronsonic

    Ronsonic Senior Member

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    What has life in this country gotten too.

    You are a free-range human. A free man in a free country. Go forth and build what you want.

    If you're hanging out a shingle and advertising for business, then check the zoning of your home workshop and see about sales taxes, etc. Income taxes are a matter of profit and I don't think you're buds are going to send in a 1099 on you.

    Perhaps they'll want to deduct the costs if they're professional players. If that's the case you'll have receipts showing outlays equalling the income shown on the invoice you give them and since there's no profit, no obligation to report it.
     
  12. VarriusTX

    VarriusTX Junior Member

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    It could be that I don't understand this post, but to me I read this is saying that forming an LLC would have protected his friend against the troubles he had (Tax mistake). In the US, it would not. An LLC does not protect you from Uncle Sam, it only protects you from Uncle Bob who didn't like your guitar and sued you because he thought he got ripped off. Tax mistakes, no matter what type of company you are, will come back to bite you personally.
     
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  13. houston

    houston Senior Member

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    Just to resurrect this, to touch on a few things:

    1. I'm all about being fully legit from the get-go. Sure there are some add'l expenses (fees & taxes), but the potential for tax savings (via business expenses) more than makes up for it.

    2. When you're small and starting up especially, keep your taxes as pass-thru (ie, your business taxes are simply filed as part of your personal taxes). Then if you have only, say, $2K in sales but $10K in expenses (tool & material purchases, etc) in your first year, that $8K loss can deduct against your total family income. (No, it's not entirely that simple (equipment may require a depreciation schedule, rather than deducting 100% in the first year), but that's the basic idea.)

    3. For an individual, I see an LLC somewhat as overkill. Yes, it protects you from creditors, but why do you have any? Are you planning on going out and setting up huge credit lines with your suppliers, that you need to protect yourself against? Maybe, if you're soon planning to get a Haas or a Plek. But if your primary suppliers are the likes of StewMac and Home Depot, then what are you trying to protect yourself against? Set yourself up as a Sole Proprietor, which is by far the cheapest, fastest, and easiest. (If you're here, you're clearly a hardcore DIYer. Do you really want to pay someone $400-1200 for something you can do yourself in an hour or two? Don't be afraid of learning the basics of starting up and running a business.) Plus, you can always "upgrade" to an LLC or Corp later, when it actually makes sense.

    4. Get general liability insurance. If you're selling anything, you need to be covered for it. It's really not that expensive, for products that are not considered inherently risk prone.

    5. If you're reasonably resourceful, and disciplined about keeping good records, you usually should not need to worry about hiring a CPA (other than maybe to help file your Fed taxes every Apr) or an attorney. Filing something like a trademark may sound daunting at first, but the good news is that the USPTO is set up as a service of the people. Meaning that, they (the clerks who work there) are required by law to be as helpful as possible to the general public. So even if your application isn't 100% perfect the first time, they're very willing to work with you to get it right. There may be a place for those $400/hr attorneys, just don't presume that doing anything "legal" makes them automatic.

    5. While I've started up and ran businesses multiple times before, I've not really done them from home. So I'm hoping that others might chime in on their experiences with the IRS requirements for "home office". I do know the IRS is pretty strict about it: just to have a bike or skateboard in my actual office is fine, but the same in my (garage) workshop may be seen as a big problem, right? Anyone who can comment?

    Edit: Best I can tell, looks like the IRS is quite stringent about the space being exclusive. However, a room can have shared use. So a garage can have a bike stored in it. But the area used for the bike storage would not be counted as part of your shop's square feet. Also, it seems that IRS might want to see some clear demarcation. For ex, rather than just leaning the bike up against the wall, or even hanging it on the wall, you might need to put up some sort of barrier (a screen or similar temp divider) to physically suggest the separation of space. So it means that if you're using just part of your garage, you could even have a car parked in the other part. But just clearly demarcate the working space vs the personal use space. As long as it's clear that the working space is established and static (not being borrowed for personal use), then it should be fine. And now that they have the $5/SF deduction, those with even with only, say, 100 SF of shop space should consider it (assuming you're planning to sell any builds).
     
  14. LtDave32

    LtDave32 Sua Sponte Super Mod Premium Member

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    ^---That's the business end of it, and all good advice.

    But the primary goal is to get people in the shop. Without a customer base, all the business setup means nothing.

    You have to be able to keep the doors open and the lights on.
     
  15. kfowler8

    kfowler8 Senior Member

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    Doesn't an LLC also protect you from being sued on a personal level? I'm not sure general liability insurance covers that. Let's say you sell a guitar and the buyer doesn't like it and he decides to sue you to get his money back. I don't recall if general liability actually covers you for that.
     
  16. houston

    houston Senior Member

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    As well as the focus of the discussion up to now. My point is, if you're small, start with the "bronze" package first. You can always upgrade to "silver" or "gold" later as needed.

    IOW, you'd like to shift the discussion to sales and marketing? Sounds good to me.

    Of course, nothing stops anyone from suing anyone.

    General liability protects you if, say, somebody leaves your guitar on the floor, grandma trips over it, falls down the staircase, and breaks her neck. You need to be covered for this, regardless of your business structure. Let your insurance company will deal with it, with minimal effect on your daily business. It's just like car insurance. You don't need liability insurance to drive a car... unless you plan to take it out and onto public roads. In which case you're taking a huge chance not to have it, regardless of what type of driver (or business structure) you are. And without it, someone could crash into you and claim that it's your fault, which will take you forever to get resolved. Whereas with insurance, they do this stuff all day, so they're (hopefully) quick and efficient, with minimal risk or effort on your side.

    As far as being protected against someone trying to return something? You're right that insurance has nothing to do with that. One could say that an LLC would protect against that, but it's only indirectly. As an LLC, if someone bought your guitar ($2000, for ex), wanted to return it, the customer sues your company and wins, as an LLC you could get out of paying it, by closing the company down. Then the plaintiff can't go after you personally.

    The question is, do you really want to close up shop over $2000? (Not counting that you'd also get the guitar back.)

    Yes, an LLC will protect your personal finances against other companies or private parties, but do it when it makes sense: if you are likely to have $10,000's in debt owed to lenders, or if you're in partnership with anyone who doesn't share your personal financials (I'd consider a simple partnership with my wife, but for sure an LLC or Corp if partnering with any other party).

    But no, an LLC won't stop anyone from suing you, taking you to court, or even beating you in court. (But that last one more likely falls under the category of failing the basic cya of providing a proper sales/service agreement, with a clearly-stated return policy.)
     
  17. LtDave32

    LtDave32 Sua Sponte Super Mod Premium Member

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    No "In Other Words", I was merely making a comment.

    That being said, and as to my original point, all this talk of LLC's and the "paperwork" end of it is just fine, but as far as "getting started in the luthier business" goes, There's much more to it than properly setting one's self up legally. I would go on the KISS principle, and focus on getting people aware of the work that's being done in the shop, seeking ways to get foot traffic in the door for luthier services. Without that, all the legal mumbo-jumbo means little without business turnover to support it.
     
  18. houston

    houston Senior Member

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    As far as how to build up a business/clientele, assuming the business is services oriented (repairs, setups), I can only speak as a consumer. Personal observations would be that repair shops tend to be a little too "take it or leave it", in terms of their services and pricing.

    I know luthiers hate the idea of "undervaluing" their work. But then, who doesn't? When I take an ad out for a graphic designer, I'll get back a thousand resumes. And all of them, no matter how green and inexperienced, seem to think they're worth $60K or more. I'm sorry, it just doesn't work that way. Your worth, by definition, is whatever the market is willing to pay. Whatever your college instructors told you that your supposed to be worth might make you feel a little better about that $25k student debt you racked up. But to the real world, it's irrelevant.

    Take yourself out of your own shoes. Look at how the rest of the service industry is run. How about restaurants, or dentists, or auto repair shops? Will business flood to them, simply by opening their door? Of course not. They have to promote. And to promote effectively, they can't just say "we're here". They have to give potential customers a reason to come in.

    An effective way to promote is by discounting. Buy a lunch and 2 drinks, get a second lunch free. Come in for a free teeth cleaning. Get an oil change and filter for $16.99. Do companies do this because they like giving away stuff? Of course not. They do it to get you as a customer, so that you’ll come back for more services next time.

    But why do it? Even if you give them a great deal, there’s no guarantee they’ll be back. Of course, in business nothing is ever guaranteed. If you can get someone to come in for a cheap service, you have to look at it as getting your foot in the door. Nothing more than that. If I have a lousy experience with my free lunch (the server and/or owner knows I’m “one of them”, and treats me as such), of course I’m very unlikely ever come back. If the server and food are decent, I might come back. But if the server is great, the food is great, and the owner comes by to thank us sincerely, and maybe gives us a coupon for a free drink or dessert, I’ll be extremely likely to take him up on it. And I’ll buy a full dinner for the family in the process.

    Here, you have to get a little creative. What can you do to make a customer’s experience just a little better? Make a list. A long one. Think about every positive experience you’ve had as a customer. And maybe even list out all the negative ones. Make it your “do’s and don’ts”. Having it in front of you, in black and white, is very important. You have to be deliberate about it. Don’t assume it just comes naturally. When you hear about superstar athletes, you learn that their real inherent skill isn’t their ability to play the game. It’s their ability to recognize their own weaknesses, and be able to overcome them by busting ass more than the next guy. Everybody likes to think of themselves as hard working, until they find out what those who win in the bigs put themselves through.

    [FONT=&quot]Year ago, read some article about the differences between men and women. The one thing that stuck with me was the suggestion of how they “keep score” in their relationship. With men, it’s proportional. Bringing you a lemonade while you mow the lawn might be 1 pt. Mowing the lawn for you might be 10 pts. Announcing that they’ve removed all their stuff from the garage, and would like you to use it as a full-time workshop might be 100 pts. But for women, everything is 1 pt. Bring them a coffee, 1 pt. Wash their car, 1 pt. Buy them a diamond, 1 pt.[/FONT]

    [FONT=&quot]It’s a generalization, but not without some truth. The important thing is that I think shoppers tend to take the “1 pt” approach. Giving a $20 discount might be great, but that doesn’t mean giving a $40 discount is twice as great. If you can give a small (token?) discount, and it makes your customer happy, you collect a point. The trick is figuring out where that sweet spot is. Being below it, doesn’t help (won’t impress them). Being above it, doesn’t help (if you had them at $20, then offering $40 means $20 gone to waste). But either way, it’s only 1 pt. What else you gonna do for them to rack up more? That’s why you need your list, this stuff isn’t automatic.[/FONT]

    [FONT=&quot]Is it necessary to discount? No, absolutely not. Apple gets customers waiting around the block to hand them their money. They doesn’t need to discount. Gator, BCR, Freddy G, Roman, etc, those guys are Apple. Everybody who isn’t Apple pretty much has to be open to offering discounts. Consumers’ email and snail-mail boxes are flooded with discount offers. Getting a discount has gone far beyond something they appreciate. These days it’s become something they expect, if not practically require. But again, this is mainly a tool just to get them into your shop (to get your foot in the door). And once that happens, you’ll win by how many other tools you can successfully implement from your customer service tool chest.[/FONT]

    [FONT=&quot]Also, it’s perhaps important to note that until you actually implement them, marketing ideas are simply conceptual. It’s like with music. I could write a song, and give it to my daughter’s middle school string class to play. Or the LA Philharmonic. Or the Foo Fighters. Same song, but 3 very different versions. A good song is nothing without great execution. And everybody will play it differently (at least, if you want to be more than just a cover band).[/FONT]

    [FONT=&quot]As far as what to do, in practical terms? Again, not my gig. But I’d perhaps be thinking about all the kids getting their cheap new instruments (can you do banjos? Ukes? Cellos?) for the holidays. For sure they could all do with a huge amount of work to make them actually playable, right? But don’t go quoting $150 for a job on an instrument that Santa paid $179 for at MF. A Mercedes owner might be happy to pay $200 for an oil change, but a Kia owner wants that $16.99 one. Huge difference. Figure out what you can do to cater to the Kia owner. How to reach them. Flyers? Mailers? Grocery store receipt tapes? Those should be fairly inexpensive, and they’re very well targeted to your location. Also, you get some advantage of being quite different from the usual stuff on there.[/FONT]

    [FONT=&quot]Just some ideas. Sorry it’s rambly, but being concise takes more time than available, atm.[/FONT]
     
  19. LtDave32

    LtDave32 Sua Sponte Super Mod Premium Member

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    ^---Nah, it makes a lot of sense. Not "rambling" at all.

    Trouble is, for those who love instruments, the science of how they work, what makes them sound and play good, etc the art and skill of lutherie (luthiery?) is a very narrow and specialized field. This is hard to make a business "go of it". For many, it's a great, rewarding hobby, and for those who have a talent for it, it can become a decent "extra gig" now and then. It's often said; "do what you love, and you'll never work another day in your life". But I'll wager that every successful shop here has had to struggle hard to bring their business to the top of the heap and put food on the table. It's one thing to be good at either building or repairing guitars (two entirely different schools, BTW), yet another thing entirely to bet the farm on it making a career.

    Some of the better and more well-known pros here (BCR Greg comes to mind) have a following and client base a country mile long. I don't know Greg's business history, but I'll wager it all that it took years and years building it up. His shop (from what I've seen in the numerous pics posted here) is loaded and brimming over with great gear and accessories, and he's got some pretty heavy names commissioning him for shop services. I'm sure that didn't happen overnight. Not a typical "nuthin' on the wall" start-up business.
     
  20. houston

    houston Senior Member

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    Every business is hard to make a go of. If anyone tells you differently, it's because they were either extremely lucky, or they have something to sell you.

    Again, while the name of the game is of course to generate revenue, learning to minimize expenses and control cash flow is key, especially to a startup. Think of your cash like oxygen to a diver or astronaut. Be reckless with it, and you'll soon be dead. Be extremely careful with it, and your chances of long-term survival are much higher. It's not to say never to spend money, growing your business requires spending. You just need to be smart about it. The lower your costs, the longer you're able to keep a business alive. The longer you can keep it alive, the better your chances for growing and developing it into something sustainable.

    My question is, why do you need to bet the farm on it? It's not like you're trying to open a bank, or even a restaurant, which have very strict operational requirements. You have tons of flexibility, as far as where and when you operate, so why not take advantage of it? Work out of your bedroom, or garage, or even van (guitar doctor makes house calls?). Do it only part time to start. Find a hardwood flooring company, or whatever compatible business, willing to sublet out a couple hundred sq feet to you.

    It's all about getting a little creative (while learning to do great quality work and be a customer service rock star). But it should not be about betting the farm. No reason to make it an all-or-nothing proposition. Just like learning an instrument: start slowly, maintain good form, don't be afraid to make mistakes, and never give up. It won't happen over night, but if you really want it, it will happen.
     

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