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Quick Start Guide: Starting a Business
Next Steps: For Serious Business Owners

Understand the Costs of Owning a Woodworking Business

Understanding Business Startup Costs

Lesson 1: Understanding Costs

For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish.’

Ancient wisdom tells us to determine our costs before we start to build – whether it be a house or, in our case, a business. We need to know what we’re getting ourselves into prior to launch so that we don’t crash and burn right out of the starting gates. That wisdom is timeless and it applies equally well to the formation of your new woodworking business.

Before you ever build your first project you should figure out what it’s going to cost to start your business and get it off the ground. To help with that process we have put together a list of some of the things you should consider adding to your list of Startup Costs.

Startup Costs

Admittedly a majority of your startup costs will be in the acquisition of workshop space, tools, and raw materials including wood. However, there are other costs which you may not yet have considered. We’ve broken them down by these subcategories:

Legal Business Entity Formation

If you want to protect yourself from personal liability, in the event your business gets sued, you should consider forming a legal business entity. There are costs associated with creating entities like an LLC and a Corporation. Those costs vary from state to state so do some research and determine what those costs will be. And, if you are going to use a service that can handle the necessary filings for you there will be fees charged to you by those companies as well. One example of such a service is

If you are going to hire employees you’ll also need to apply for a federal Employer Identification Number (EIN) for federal tax purposes.

These are just a couple of things to consider when forming a new business entity. But, don’t overlook the important parts of your business like this because, if not setup correctly, it could get you into trouble later on if you are ever audited (which can, and does, happen).

This is not meant to scare you but to simply make you aware that there are things you must do if you are going to transition from hobbyist/enthusiast to full-fledged business owner. That’s why we started this Quick Start Guide with suggesting that you ask yourself the all important question of “Do I really want to start a business?”.

Workshop Space

You will need a suitable space to setup shop. Whether that be at home in your garage or in a commercial property space you’ll need to factor in the cost of things like rent, utilities, and any additional shop-related services like cleaning and building maintenance/upkeep.

Obviously, it will be much cheaper to setup shop in your home garage but as you grow your business, and possibly take on employees, you may find that you’ll need a bigger space. Think about much you want to grow your business and plan accordingly as far as how much space you will need.

Tools & Equipment

In your workshop you’ll need to have the right tools for the job. Since you’re reading this it’s safe to assume that you’re probably not a beginner woodworker. That means you likely already have a lot of the tools and equipment you need to launch out on your own.

In the event you do not then you’ll want to figure out what tools you still need and add them to your startup costs.

You’ll be looking for things like hand tools, power tools, safety equipment, dust collection & removal systems, as well as planning for proper heating & ventilation (HVAC) and electricity and lighting for your workshop.

If you want to see a list of essential woodworking tools that you absolutely must have in your shop then check out this article on our website.

Wood & Raw Materials

Since you’ll be running a woodworking business you’ll obviously need some wood. Hopefully that doesn’t come as a surprise to you. If it does you may want to rethink your choice of business. So, yes, figure out how much and what kind of wood you will need to get started and add that to your costs.

In addition to wood you’ll also be using things like nails, glue, stains, paints, and other types of finishes. And, if you plan to incorporate other materials into your designs, like iron, steel, or glass, then price those materials out as well and add them to your list of costs.

Woodworking Plans – If you don’t already have a set of plans for the things you’ll be building and selling then investing in a good set of plans will make your job a lot easier. Here are the woodworking plans we recommend.


Will you need to hire workers? They won’t work for free so figure out how many employees you’ll need, what their hourly wages or salary range will be, and any other employee-related costs associated with hiring. This Quick Start Guide is not meant to provide an exhaustive list of every expense you may need to plan for so check with federal, state, and local agencies to find out what you need to plan for when hiring.

Legal, Accounting & Payroll Services

Will you need to hire an attorney to draw up contracts or other legal documents? Then plan for that expense. Will you be outsourcing your accounting and payroll services to a CPA firm or some other 3rd party financial services company? If so, figure out how much you will need to spend. If you’re going to be keeping those job roles in-house then add that to your list of employee-related costs.

Business Insurance

Being in business automatically comes with a laundry list of potential risks to you and your business. Plan for those potential risks by investing in the proper insurance.

Here are just some of the types of insurance you should consider for your woodworking business:

  • General Liability Insurance
  • Business Owners Policy
  • Product Liability Insurance
  • Workers Compensation Insurance
  • Commercial Property Insurance
  • Commercial Automobile Insurance
  • Commercial Umbrella Insurance


Get with a reputable agent and request quotes for the types of policies your business needs. Add those to your list of startup costs.

Startup Capital

If you have grand visions of starting a big business then you might need to acquire massive amounts of startup capital to fund your enterprise. Doing that may require you to apply for business loans or use credit cards to fund your startup. And, with borrowed money comes the delightfully annoying accumulation of interest on that borrowed money.

Our recommendation is to NOT start your business this way, but if you do choose to go this route then you’ll want to determine how much you will be paying for that borrowed money over time and factor that into your costs.

What we recommend instead, especially if you’re starting out small, is to save up enough cash to launch fast enough to get the business off the ground and running. Then, over time, and with increased sales and revenues, you can grow and scale to the size you want… without taking on massive amounts of debt that could sink your business later. Start small and scale later. It will teach you a lot along the way, especially if you’re new to business, and keep you from going into debt early on with no guarantee that your business will succeed.

Startup Costs + Buffer = Actual Costs

Now that you’ve figured out what your projected startup costs will be you should go ahead and increase that amount by about 25% as a financial buffer to cover anything you’ve forgotten or didn’t think to plan for initially.

The buffer amount will be used to pay for miscellaneous and incidental expenses that you didn’t think of before. If you find that your initial calculated startup costs are relatively low then it would be wise to add a 100% buffer to your final number instead… just in case. Yes, go ahead and double your calculation so you’ve got plenty of money to fully fund a wildly successful launch.

Now that you’ve determined how much money you’ll need to get the business started you should figure out what it will cost to operate your business from one month to the next, year after year. Those costs will be calculated by making a list of Capital Expenses and Operating Expenses.

Capital Expenses (CapEx)

Capital Expenses are those one-off costs for things like a new tool or piece of equipment, maybe even some new furniture, or whatever it is you’ll buy just once or perhaps once a year or three. If you’ll be making bulk purchases of wood and other materials this might qualify as a capital expense but will most likely be more of an Operating Expense.

Operating Expenses (OpEx)

Operating Expenses are those business expenses that you pay month after month. Things like rent, utilities, cleaning & maintenance services, advertising, vehicle maintenance & fuel, equipment rental fees, insurance premiums, shipping & handling,  and employee wages.

Some other examples would be things like website maintenance & hosting, telephone services, and any fees associated with advertising on 3rd party platforms like Etsy or Craigslist, for example.

These expenses are generally things you pay each month to keep the business running.

Your First Year in Business

Now that you’ve documented and calculated your estimated costs for launching & running your new business let’s figure out what your first year in business looks like from a financial point of view.

You can figure that out by using this formula:

(Startup Costs + Capital Expenses) + (Operating Expenses * 12) = 1 Year in Business

Once you have your number move on to the next lesson: Controlling Costs.

Take It To The Next Level:

Starting a Woodworking Business

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