Getting started as a lutherie business.

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

  1. LtDave32

    LtDave32 Desert Star Guitars Super Mod Premium Member MLP Vendor

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    Which brings us right back to my original point; it's a great side gig if you have the skills and talent (and all the tools). IMO, it's quite a leap to go from weekend/evening stuff into one's main source of revenue, and changing careers in the process.
     
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  2. houston

    houston Senior Member

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    Then don't make it a leap. If you can get enough work for it to be worth 5 hrs/wk, how about 10 hours? 15? 25? Again, lutherie is flexible. There really aren't set requirements for hours (unless you're determined to open a store inside a shopping mall or something).

    The key is in how you can set yourself up. Instead of thinking you need to outright quit your day job, how about revising it? Especially if you're good at what you do, you probably have more flexibility than you think. If your boss loves you, finds you indispensable, she'll be more open to letting you cut back your hours. Or find a company that does. Or become a freelancer or independent contractor. The point is, there are probably more options than simply "sink or swim". If you think 20 hrs of lutherie is extremely doable, while committing 40 is sketchy (or just more than you care for), then start working on a plan for how to scale back on your regularly paying gig.

    And for anyone considering to run a business, go rent "Apollo 13". Sure it's extreme, but business really is like that. You make your plans, but pretty much nothing goes as planned. So it's all in how you deal with it. Especially watch Gene Kranz (Ed Harris). How many times does he say, "I don't care what it was designed to do, I care about what it's able to do." You need to be a Gene.
     
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  3. houston

    houston Senior Member

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    Up to now, this thread has been largely about the "necessary evils" of establishing and running a legit business. Hopefully here I can help to shed a little light on the other side of that coin, and offer some encouragement to those considering a lutherie business. Or even if you're not, why you perhaps should be.

    I know taxes and accounting sound terribly boring. But isn't it at least a little interesting to consider if you were to learn that you could be saving $100's, if not $1000's in taxes, in doing what you're already doing?

    The below points were issues raised in a meeting with my accountant. I was already familiar with some of them, but needed clarification on others. Keep in mind this is only a brief guideline, that will vary based on each person's situation and location.

    1. It's fairly common knowledge that a home-based business can take deductions for space used, utilities, etc, and that it's normally calculated as a percentage of applicable bills.

    But how many know the IRS recently added a simplified calculation: a straight $5/SF, up to 300 SF total. So if you're using a 10x20 section of your garage, that's a $1000/mo deduction! And no need to dig up and pore over old utility bills.

    2. Your claimed workspace has to be used exclusively for your business. You wouldn't leave kids' toys around in an office conference room, and you need to treat your home office (shop, storage, etc) the same. But the good news is, it doesn't mean the entire room needs to be dedicated to your work.

    This came up in the thread about Skyjerk's (pretty kickass) garage setup. His garage is a fairly formidable workshop. But he also keeps his Harley parked in there. What I found out is that you'd subtract the space taken by the Harley, -AND- any space needed to access and park it. So if you're using, say, 300 SF of a 400 SF garage, no problem. But that 300 SF has to be treated like North Korea. No crossing the border. If you're claiming the whole space, but there's a tennis racket hanging on the far wall? Uh-uh. You'd need to allow a "reasonable" (3'?) walkway from the door to that tennis racket. So in Sky's case, if he's parking just inside the garage door, and accessing his bike from the outside, it might require, say, a 5'x10' space to get it in and out, even if the bike only take half that when parked.

    3. Normally, the above deduction can't exceed your income (whereas some expenses can be carried over to a following year). However, as a sole prop, any business income is combined into your personal income. So if you have $30K in business expenses, that $90K you made selling DVD rewinders by day, now looks like $60K to the IRS.

    4. On the day you establish, your existing tools can be expensed at market value (whatever that is). Take an inventory of them.

    5. Keep good records of all purchases. And if it's not going into your build, you'll likely owe state sales/use tax on it. So that sandpaper from StewMac is now taxable. However, that Titebond from the local Home Depot is not. You can claim a refund for it. Before anything, get a reseller's permit.

    6. Your city may require a local license, but if you haven't sold anything yet, may be able to put if off until you do.

    7. You can go at least 3 years without having to be profitable. But at that point, at least look like you're making some effort. Be able to show that you're doing this as an actual business, with the intention of generating revenue, and not just expensing the large personal guitar collection you've amassed.

    8. If this is of interest, find yourself an accountant (CPA or Enrolled Agent), and get a meeting with them. Note that many will charge (~$200/hr) to meet with you, but some will not, under the good faith that you'll be giving them your business down the road. I know which I prefer.

    There's probably a few more, but that's all I got for now.
     
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  4. spikeymikey

    spikeymikey Junior Member

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    I concur, very helpful and informative thread, thank you Gator!
     
  5. twinrider1

    twinrider1 Senior Member

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    Thank you! I've wondered about this in particular. Also, how do you treat them if you decide to close your business? Are you supposed to sell them to yourself and count that as income for the business?
     
  6. rockgod212

    rockgod212 Senior Member

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    this was a good read- im going to set up a DBA as sole proprietor , but how do you guys get away with selling LP clones without the mother ship coming after you?
     
  7. pshupe

    pshupe Senior Member

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    Depends what's on the headstock and how many you make. There are only a couple of things big G can legally wrap you for the biggie would be using their logo and they could probably try if the body and headstock is exactly the same as well. But if you are only make a few guitars a year, or more lilely, a few guitars a month it's not worth their time to out a lawyer on it. C&D letters are quite simple but it still takes a lawyers time. That's why you see some of the big kit suppliers changing their designs. It's all about how much money G is losing because people are not buying their guitar instead of a replica.

    Cheers Peter.


    BTW - what's a DBA?
     
  8. rockgod212

    rockgod212 Senior Member

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    DBA- I thought it was like a LLC thing, something im looking at for in the future.
     
  9. pshupe

    pshupe Senior Member

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    Never heard of it. sole proprietor and incorporated are our options in Canada, and obviously partnerships. Sole proprietor is good as you can just use your name as your business and you do not need to open a business account. I've had a business account for about 20 years and every year they charge me more money. They actually charge me to deposit cash now. So I write myself a cheque from my personal chequing account. It's crazy but it works out well to have a hobby business.

    Cheers Peter.
     
  10. w666

    w666 Senior Member

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    DBA = Does Business As. Think of it as a Trade Name. Your LLC (or other entity) can be filed as Acme Corp, yet operate under the name Coyote Guitars. The DBA filing creates that association.
     
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  11. pshupe

    pshupe Senior Member

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    Ah, I see. That's cool. Is that a European thing? I think LLC is more common in Europe and Australia. US and Canada are traditionally Corporations. Sole prop for small businesses that do not need to isolate themselves from their business and Corporations for larger firms that are somewhat isolated. If they are sued then their personal liability and property is protected. This may have changed over the last number of years because I have just had a sole prop for 20 yrs or so and it works well for me. I don't really have the need to incorporate.

    Cheers Peter.
     
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  12. LtDave32

    LtDave32 Desert Star Guitars Super Mod Premium Member MLP Vendor

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    We don't.

    Gibson legal team sent the forum owner/admin a letter concerning this very issue. They laid out what they consider to be the biggest infringements on their copyright, and it's the logo and the headstock. Particularly guitars that claim to be Gibson, but are not a Gibson. I ask the membership to point out such sale attempts here on MLP so we can do something about them. Persistent sales attempts and ignoring the rules and our efforts to enforce them will result in loss of posting privileges.

    They get very clever. They post every pic they can with no headstock. So we ask to see the headstock, and we get "crickets". Gee, I wonder why. Then we dump the thread.

    We also get very angry letters from those who try and sell their NOT Gibson "Gibsons" and we've foiled their efforts. So friggin' what, they're mad? Ooh, shiver me timbers. Gibson legal is officially warning us, and the seller is mad? Poor baby. I'd rather have a disgruntled seller than a legal action, any day.
     
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  13. jkes01

    jkes01 Senior Member

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    Actually, LLC (Limited Liability Company) is quite popular in US.

    :thumb:
     

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