|Disclaimer: I am not a spokesperson for the US Coast Guard or ABYC. For an official interpretation of regulations or standards you must contact the US Coast Guard or other organization referenced.. More.....|
The Business Of Boat Building
The major reason why many beginning boatbuilders fail, is they forget they are running a business!
About 400 boat builders go into business each year. About 400 boat builders go out of business each year. (The above statistic is based on my analysis of the USCG manufacturers database over ten years.)
That's a very sobering statistic. Many of those who go out of business never get through the first year. Why? Because they get so caught up in the building of boats they forget about the business of building boats. They don't keep track of their costs and their income and simply don't make any money. Most people go into this business knowing that they aren't going to get rich building boats. But, also most boat builders think that they can make a living at it. They can, if they use a little business sense.
First, I recommend strongly that you go to your local community college and take a basic business courses. There are terms you need to know. What is profit? What are accounts receivable and accounts payable? What about taxes, licenses, and environmental regulations that affect your business? You need to know business terms and practices so that when you discuss your business with the bank, an accountant or the IRS, you know what they are talking about.
Here are some basic business courses you should take:
Business 101: This is the most basic business course. But it covers all the basics of running a business, big or small.
Accounting: You need to know how to track the cash flow of your business. Do you know what cash flow means? Do you know what a General Ledger is, and what receivables, and payables are? Are you going to run your business on a cash basis? This is the basic stuff of money management, so you have some left over (profit) at the end of the day.
How to write a business plan: Many colleges teach this as a seminar type course and it only takes a day or two, but it is vital for you to have a plan. You need to figure out what your business is, where you want it to go, how you are going to finance it, and when you want to break even (another business term you need to know)? How are you going to price your product? What is your target market? All of these need to be in your business plan.
Marketing: A basic course in marketing is essential. Many builders get started by building a boat for themselves. A friend or neighbor sees it and says "Will you build one for me?". Word gets around that you build a really good boat. Word of mouth is very good, but after you've sold a boat to your friends and neighbors, how do you sell them to the larger world? You need to know the basics of marketing your product to people who don't know you or your boats. You need to know where your boats fit into the world of boats. What is your market niche? You need to know how to differentiate your product from all the rest. Simply put, what makes your product different and unique from all other boats? You need to know how to position your product in the market so it will sell. Also you need to know that there is a big difference between marketing and selling.
Resources: There are lots of resources available to the small business person. Some of them are:
Your local Chamber of Commerce.
Your local Community College.
Your local bank or financial institution. If you take out a small business loan banks and financial institutions will help you with advice on running your business. They want you to succeed so you can pay your loan. They also know that if your business succeeds it's good for the whole community. They have a financial interest in your business, so take advantage of it.
State Agencies: Most States have a department that assists small businesses. Look on the internet for your state government web site. USA.Gov has links to all of the states and territories web sites.
Your library probably has a business section. They may also have references to local, county and state agencies that help small businesses.
The Small Business Administration. Yes! Uncle Sam has something for you that you pay for with your tax dollars! SBA has regional offices. There may be one near you. They also offer SBA on-line training. They have a site for developing a business plan. SBA Business Plan Web Site
If you are a woman the Woman's Business Center is an excellent resource.
If you are a minority SBA Special Interests is very helpful.
There is SCORE. They offer free business advice to small business.
There are Small Business Incubators. Beware! These are businessmen and women, who will invest in your small business, and will help you get it going. But they also have a vested interest and expect to make a profit on their investment. So before you go to one of these make sure you think about it and know before hand what you are getting into.
Business Basics: stuff you need to know.
The very first thing you need to know about is money. If you spend more than you make, you lose. Sounds basic doesn't it. But many people who go into business for themselves have no idea how much they are spending. They only see the in flow, not the out flow.
The following assumes you are working for yourself, and are not employing anyone else.
Profit = Income - Expense
Again, it sounds simple, but how do you know if you are making a profit?
Accounting: You need to have a system to track how much you spend and how much you make. Most start-up small businesses operate on a cash basis. That is they pay cash, and they take payment in cash. They don't use credit. Why? Because there is a cost to credit. Credit card companies charge you, the business, when you accept payment by credit card. They also charge you interest when you pay by credit card. Cash doesn't carry any extra costs, or expenses. There are exceptions to this. Start-ups usually have to lay out large amounts for equipment or materials. They are usually purchased using a credit card or a loan.
The first thing you should do is set up a system of tracking costs (expenses). You don't need a full blown accounting system. You can do this with a notebook or a computer. Label the note book or computer file expenses. Whenever you buy anything for your business, get a receipt! Have an in basket or box where you put all of your receipts. Mark on the receipt what you bought. At the end of the day write each expense in your book. Have a column for date, amount and item description. You can also keep this information on your computer using a spreadsheet or an accounting program. By doing this you are tracking all of your expenses, or in account speak, debits. Include everything that goes out including sales tax if you have to collect sales tax for the State. Include your overhead costs. Overhead costs are utilities, rent, fuel for your truck, business supplies. These are things that cost you but don't go into your product. Keep the receipts in a file. You may need these for the IRS.
Have another notebook or computer file labeled income. (money paid to you). Whenever you receive a payment put it in the book. If they pay by check make a photocopy. Keep the photocopy in the income file. Give the customer a receipt. You can buy receipt books that have your business name and address imprinted on them at your local business supply store. Keep the copy of the receipt of payment in the file. You are now tracking all your income or credits.
A note about receipts. There are duplicate and triplicate receipts . The original is white, generally there is also a yellow and a pink. When you buy something they give you the white or the yellow. The pink is the business's copy. So it's easy to keep track of what is expense (white or yellow) and what is income (pink).
At the end of the month (or whatever period you want to do it, such as weekly) add up your expenses and your income. Subtract Expenses from Income. If Income is more than Expenses, you made a profit. If Expenses are more than Income you spent more than you made. Caution! Most startup businesses take a while to BREAK EVEN. Breaking even is the point at which you start making more than you have spent. This is because there are usually start up costs,, and those have to be paid before you can be considered to be profitable. This may take six months, a year, or more depending on how large your start up costs were. You have to pay off your startup costs before you are profitable.
At the end of the year you will have all the records you need to file Income Tax returns and itemize your expenses. However, I suggest you hire a tax consultant to help you, so you do it right.
Resist the temptation to have a PETTY CASH FUND. That is simply a
box you keep cash in to pay for incidentals. It is too easy to dip
into the petty cash fund for things not related to your business, such as
for a night at the local pub, or a case of beer for the boys! Also it is
too easy to dip into petty cash to buy something and forget to enter it in
Do you need an Accountant? Not necessarily, especially if you are a one person business. But if you have employees, or are incorporated, then you should have an accountant come in occasionally to check your books for errors. They will be able to tell if you labeled something as income when it was not or an expense when it was not. They can also help you to understand and keep the books.
If you get bigger, have several employees, begin building a lot of boats, you may need to hire an accountant or at least someone with accounting experience to keep the books, make payments, take payments for you, do purchasing and track your inventory. In other words do all the financial stuff. However, if you do this, make sure you specifically assign yourself or someone else that you trust the duty of authorizing all payments, This person does not have to be an accountant. This is standard business practice and minimizes the risk that someone will have their hand in the till.
Revised 12/11/2013 © newboatbuilders.com 2007 All rights reserved
Offsite Links Referenced in the Text
Small Business Accounting Basics http://www.myownbusiness.org/s7/
|This Web site may contain copyrighted material the use of which has not always been specifically authorized by the copyright owner. I am making such material available in my efforts to advance understanding of educational, economic, and scientific issues, etc. I believe this constitutes a "fair use" of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this Web site is distributed without profit to those who have expressed a prior interest in receiving the included information for nonprofit educational purposes. For more information see: www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this Web site for purposes of your own that go beyond "fair use", you must obtain permission from the copyright owner.|