How Much Does It Cost to Start a Woodworking Business? (Sales Forecast and Breakeven Analysis Included)
ByTony Martins Ajaero
No matter the size of your woodworking business, you should be prepared to spend between $5,000 to $150,000 or even more.
This is so because renting a workshop or studio and purchasing the required tools and equipment alongside other necessities you need will cost you a significant amount.
A woodworking business is one of those businesses that doesn’t have an estimated or approximate amount it will cost you to start the business.
This is because a woodworking business can be started on a very small scale from a garage or on a medium to large scale from a standard workshop facility.
But over and above, certain factors will determine the exact cost or an estimate of what it will cost you to start a woodworking business, and that is what we will discuss in this article.
Estimated Cost Breakdown for Opening a Woodworking Business
Lease of Workshop Space for 1 Year: $20,000 to $40,000
Basic Tools and Equipment: $10,000 to $30,000
Advanced Machinery (CNC machines, planers, joiners): $20,000 to $50,000
Initial Stock of Wood and Other Materials: $5,000 to $15,000
Utilities (Electricity, Water, Internet): $200 to $600 per month, so roughly $2,400 to $7,200 annually
Maintenance and Repairs: $1,000 to $5,000
Website Development: $1,000 to $5,000
Marketing Materials and Campaigns: $2,000 to $10,000
Business License and Permits: $500 to $2,000
Insurance: $1,000 to $5,000 annually
Salaries: $20,000 to $50,000
Contingency Fund: $10,000 to $20,000
3-Year Sales Forecast and Breakeven Analysis
With an initial investment of $150,000, covering equipment, initial supplies, lease, and setup costs. Assuming a year-over-year sales growth of 15% after the initial setup year, reflecting both market penetration and business expansion.
Product Pricing and Costs:
Average revenue per product: $100 (mix of small to medium custom pieces)
Cost of Goods Sold (COGS): 40% of sales, covering materials and direct labor.
Operating Expenses: Fixed costs (rent, utilities, insurance, marketing, salaries) are estimated at $60,000 annually, with a 5% increase per year for inflation and scaling operations.
Sales Volume: Starting with 1,000 units in the first year, reflecting initial market entry.
Year 1
Sales Revenue: 1,000 units x $100 = $100,000
COGS (40%): $40,000
Operating Expenses: $60,000
Year 2
Sales Growth: 15%
New Sales Volume: 1,150 units (1,000 units x 1.15)
Sales Revenue: 1,150 units x $100 = $115,000
COGS (40%): 40% of $115,000
Operating Expenses: $60,000 x 1.05 (inflation and scaling adjustment)
Year 3
Sales Growth: 15%
New Sales Volume: 1,322.5 units (1,150 units x 1.15, rounding for simplicity)
Sales Revenue: 1,322.5 units x $100 = $132,250
COGS (40%): 40% of $132,250
Operating Expenses: $60,000 x 1.05^2 (second year of inflation and scaling adjustment)
Yearly Sales and Profit Forecast
Year 1:
Sales Revenue: $100,000
Total Costs: $100,000 (COGS + Operating Expenses)
Profit: $0
Operational Breakeven Units: 1,000
Year 2:
Sales Revenue: $115,000
Total Costs: $109,000
Profit: $6,000
Operational Breakeven Units: 1,050
Year 3:
Sales Revenue: $132,250
Total Costs: $119,050
Profit: $13,200
Operational Breakeven Units: 1,102.5
Analysis
Your woodworking business is projected to break even operationally in Year 1, considering only sales revenue against COGS and operating expenses, not accounting for the initial investment.
The profit begins in Year 2, with an increasing trend into Year 3 as the business grows and scales.
The operational breakeven point, defined as the number of units that need to be sold to cover operating expenses and COGS, slightly increases over time due to the growth in operating expenses and the scale of operations.
Breakeven Point
To fully recover the $150,000 initial investment plus operational costs and become profitable, your woodworking business would need to generate additional revenue over these three years, which is shown through the profits starting in Year 2 and growing in Year 3.
Factors That Can Determine the Cost of Opening a Woodworking Business
The Cost of Equipment and Tools
The truth is that, without the required tools and equipment, you will not be able to start a woodworking workshop. You need equipment and tools such as a table saw, jointer, planer, band saw, router, drill press, wood lathe, random orbital sander, miter saw, dust collection system et al.
Cost of Lease or Rent of Workspace
The fact that you will need a workspace for your woodworking business means that you must create a budget for it. The only reason why you may not consider creating a budget for workspace is if you choose to start the business small and operate from your garage.
Of course, you know that when it comes to either renting or leasing a workspace, you should budget anywhere from $15,000 to $42,000 per year or $1,250 to $3,500 per month.
Note that apart from the amount you will pay for lease, rent, or mortgage, you should also factor in the cost of utilities, insurance, and any necessary renovations or modifications that you need to put the facility in shape.
The Cost of Your Materials and Supplies
Certainly, you cannot draw a budget for starting your woodworking business without having a budget for materials and supplies. You should have budget for materials and supplies such as:
Agreed, the amount you are expected to spend in this regard will depend on the scale of the business, and also your preferences.
The Cost of Licensing and Permits
Depending on your location and the scale of the woodworking business you want to start, you may need to obtain various licenses, permits, or certifications to operate the business legally, especially in the United States.
If you want to start a small-scale woodworking business that you can comfortably operate from the comfort of your garage, then you may not need to create a budget for licensing and permits.
But if you want to start a standard woodworking business, then you should consider obtaining a Business License, Zoning Permit, Building Permit (if applicable),
Fire Department Permit (if using flammable materials), Health Department Permit (if selling food-safe items), Environmental Permit (if using certain chemicals or waste disposal),
Sales Tax Permit, Employer Identification Number (EIN), Occupational Safety and Health Administration (OSHA) Compliance, and Home Occupation Permit (if operating from a residential property).
The Cost of Insurance
Insurance is essential to protect your business from potential liabilities, property damage, accidents, and other risks. You will need at least:
General liability insurance, property insurance, workers’ compensation insurance, product liability insurance, business interruption insurance, and commercial auto insurance for a standard woodworking business.
When it comes to the amount you are expected to spend on insurance for a woodworking business, the risks your business is exposed to, and other factors will help determine that.
Your Marketing and Branding Cost
The fact that a woodworking business involves designing, building, and selling a variety of wooden items, ranging from furniture and cabinetry to decorative items,
Wooden toys, and architectural elements means that you must be deliberate in marketing and branding the business if indeed you want to generate sales.
Trust me, if you want to be at the forefront in your target market location, then you must be ready to invest a reasonable amount in marketing and branding your woodworking business.
You should at least create a budget that will cover website development, advertising, signage, business cards, promotional materials, and social media marketing.
Your Operational Expenses
Operational expenses for a woodworking business should at least include the cost of your utilities, internet, and phone service, accounting and bookkeeping software, office supplies, packaging materials, shipping costs, fueling, maintenance, and repairs.
No doubt, the amount you are expected to spend in this regard will be dependent on the size of your business, and the level of business activities that take place in and around your business facility. The busier your working business is, the more you are likely to spend on operation expenses.
