New Product for TKD Woodworking

Well, part of a company’s marketing and sales effort is the development of new products to sell. I’ve got five products selling on Etsy at this point, and wanted to expand this by offering a nice hinged wood box, perfect for keeping items in. Its called “Tery’s Tea Box” because it was made for my wife, and used to store her various tea samples in. Its made with Cherry and Mahogany, with a Poplar tray.

Like I discussed before, in preparation for this, I had to determine bill-of-materials, assembly process, and Economic Order Quantity. I then had to time myself during the construction to determine labor hours. With all this information, I price my labor ($20/hr) and then I am able to determine a price per unit. Throwing in overhead costs, I can arrive at a final price per piece.

This particular item needed $44.40 in materials (the high-quality Brusso hinges are $28.80 for each box), and took 2.6 hours @$20/hr. With a 40% overhead, this works out to:

  • Materials: $44.40
  • Labor: $52.00
  • Overhead@40%: $38.56
  • Total Sales price: $134.96

Note that this does not include shipping costs.

Again, one of the primary purposes of TKD Woodworking is for me to do the paperwork and calculations, so I can better understand how to run the business. I just had to do my taxes for September, which luckily were $0, because I haven’t sold anything yet. I can see that being difficult in the future.

So far, its been an eye opening experience, and I have enjoyed (somewhat) the process.

Stay Healthy!

Mr. 39 Months

TKD Woodworking is “Open for Business”

Going on Etsy for TKD Woodworking      

Well, I’ve gone through a lot of steps to prepare for selling my product as part of a side hustle

As per my planned timeline, its time to put my product online and begin selling. I started with Etsy, going online with my store on July 9th . I’ve got four (4) items in the store (two cutting boards, two picture frames) and I’m working on a fifth (tea box). So far, no sales (its been a week, and competition on Etsy is pretty fierce), but we’ll see.

Getting setup on Etsy isn’t hard and the costs are fairly moderate to market online. Unfortunately, the Chinese Corona Virus has put a “crimp” on any craft shows I might have been able to attend. We will see how this goes.

Overall, a positive step, in my opinion.

Hope things are going well with your plans for the second half of 2020.

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Mr. 39 Months

TKD Woodworking – Liability Insurance

Is getting close to the time when I want to start trying to sell my product online via Etsy, Ebay, etc. In order to protect myself and the financial assets I have as an individual, I’ve done a couple of things:

  1. Created an LLC – TKD woodworking. The idea is to create a “Limited Liability Company” and sell through this vs. selling as myself. It will provide some protection of my personal assets, provided there is no “gross negligence” involved
  2. Created a separate checking account for running the business, with a separate credit card for charging items. Since I do not mix my personal and professional assets, it will provide a little more of a shield against a lawyer “piercing the veil” and getting at my personal finances
  3. Purchased Liability Insurance, charged to the company (TKD Woodworking). In this case, I went through my regular insurance company (USAA) and though they do not insure small companies, they connected me with the Hartford Co. which does.

For the insurance company, they had a good idea of what I was trying to do (small craft company, selling online) and had some interesting questions to ask before providing me a quote:

  • Was I making furniture, or just small items (cutting boards, boxes, etc.) – I assume furniture would mean more liability
  • Was I making anything with stairs, ladders, etc. – again more liability
  • Was I making anything specifically for children (toys, etc.)

There was a host of other questions on the product the business would be producing. All of these items point to additional liability issues which I would need to consider if I chose to move my business in that direction.

In the end, with an assumed sales of roughly $2,000/year, a $1M liability policy is going to cost me $458.78/year. While that may seem a little steep, it will help me sleep at night, knowing I’ve got some protection for my personal assets.

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Mr. 39 Months

Marketing and Sales with TKD Woodworking

In my timeline for TKD woodworking, May is when I needed to start doing some research on potential e-Commerce and marketing/selling my product on the web. This is in addition to the potential of attending local craft shows and selling my wares face-to-face with customers.

For woodworking craft items (picture frames, boxes, etc.) the standard online sites are Etsy, Shopify and potentially e-Bay. Some other options include Squarespace, Wix.xom, and Woocommerce. There are pluses and minuses to each, and the internet it filled with commentary on which is best (and what are some other options). Do a search, read and make some decisions.

For me, I wanted to look at my sales plan for 2020 (items I expect to sell in 2020, in what quantities, and the associated marketing & sales costs for each option. So what are the costs for each option?

  • Etsy: Etsy has a $0.20 fee for 4 months for each item, a 5% transaction fee, and a 3% + $0.25 payment process for each sale
  • Shopify: Shopify costs $29 per month, with a 2.9% +$0.30 payment processing fee, and a 2% cost for using payment other than Shopify payment system (note: this is the cost for the basic plan)
  • E-Bay: Ebay costs a $1 “insertion fee” (i.e. cost to publish for bid) and 8.75% for sale

I proceeded to take each of my items and the expected quantity sold, assumed each item would be “listed” twice in six months, and that I’d use the website’s payment system (and hence get charged their transaction fees). Based on this, I came up with the following results:

ProjectTotal Selling PriceTotal Sales for 2020Etsy Cost to sellShopify Cost to sellEbay Cost to sell
Live Edge Cutting Board$77.003$19.53$12.22$23.21
EndGrain Cutting Board$89.383$27.29$14.04$26.46
Breadboard Ends Cutting Board$127.883$31.74$19.70$36.57
Japanese Picture Frame$70.233$21.35$11.22$21.43
Small Standing picture Frame$25.823$9.14$4.69$9.78
Tery’s Tea box$174.163$49.12$26.50$48.72
Arts & Crafts Bookshelf$297.503$72.45$44.63$81.09
Campaign Collapsable bookshelf$249.733$67.26$37.61$68.55
Custom cutting boards – face grain$36.173$13.17$6.22$12.49
Keyed, Mitered Box$137.123$40.23$21.06$38.99
Low Tech Box with Insert$77.803$19.72$12.34$23.42
Monthly Fee$0.00  $174.00 
$371.01$384.23$390.73

It appears the selling & marketing costs are pretty close. I’ve heard that Shopify is the easiest to get started, but I’m not sure it’s the first place folks go to purchase. Most folks can type in www.etsy.com, and start shopping – but its not as easy to find product on Shopify unless you know what you are looking for.  

Based on this, I think I’ll need to do more research in the realm of marketing and which is the best source to get my product out in front of people. I’ll let folks know how its going further on.

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Mr. 39 Months

What are the next steps for TKD Woodworking?

As many of you are aware, I’ve been developing a “side hustle’ to sell my Woodworking items (see contents to right under “TKD Woodworking”). The idea was to sell both online and at craft shows, starting in the second half of 2020. While the Wuhan Corona Virus has placed some limitations on life in general, I’ve worked hard to keep the process moving forward

  1. Laid out my initial plan
  2. Worked out how to build and determine costs for the items I was going to build
  3. Identified how many to build
  4. Began working through my fixed costs (insurance, marketing, etc.) and product costs
  5. Starting tracking my numbers
  6. Created my website to help communicate & advertise my products

So where to next? What is my timetable?

As I see it, over the next two months (May & June) I need to accomplish the following:

  1. Build 2-3 more project prototypes (already identified), price them, and place them on the website
  2. Finalize shipping costs for the items, so I can price everything correctly
  3. Purchase any insurance necessary, prior to opening for business (costs already identified)
  4. Advertise product for sale online (Etsy, Craig’s List, etc.)
  5. Begin looking into potential craft shows, and how I’ll setup my stall

Again, the objective is to have everything ready to go-live July 1st, no matter what the status of the Wuhan Flu is. Plenty to do, and not a lot of time to do it in. Wish me luck!

Mr. 39 Months

TKD Woodworking – Building a Website

I have been detailing all the work I have been doing in setting up/building my TKD Woodworking “side hustle.” My thought was to help others who are considering creating their own businesses see some of the steps involved and consider it in their planning. My goal for the business was to generate a little extra incomes, but mostly to work through the processes and tracking necessary for running a business. Sort of a small, personal MBA program.

One of the questions I have had is how to market my product (wood articles like cutting boards, picture frames, bookshelves, etc.). Obviously, I could depend strictly on farmer’s markets & craft fairs, but I also wanted to try out marketing and selling on the internet. A possibility for this would be to sell on Etsy or EBay (or other online retailers). While these companies make it relatively easy to setup, the ability to sell would be enhanced if I had my own web presence as well. Hence, my desire to create a website.

  • To begin with, you need to research and register a domain name (the www. Name). There are many companies you can use to do this, and typically, it costs $10-$20/year.
  • Next, you need to get a company to “host” your website (i.e. store your information on their servers). Think names like BlueHost.com, SiteGround.com etc. (you can search on the internet for a variety of companies). Most folks also use this service to also register their domain. Look for a company that can assist you in building your website. Depending on services required, this can cost around $100/year
  • Once you have this, you can begin building it, with the method you choose to use. There are numerous books, articles, YouTube videos, etc. on building websites.

Therefore, I have chosen Blue Host to host my website, and I am building my website with WordPress (which is used for a wide variety of websites). I have gotten a book, watched several videos, and I am slowly slogging through it. There is always the possibility of paying for assistance as well, since there are many folks advertising this assistance (something I might take up later).

In the meantime, thanks for those who have stopped by www.TKDwoodworking.com. Please let me know what you think, and ways to improve the experience.

Stay healthy!

Mr. 39 Months

TKD Woodworking – 1st Qtr 2020 Books

So with everything else going on in the world, I have continued my work with TKD Woodworking. At the end of the 1st qtr, I have:

  • Established the business legally in the state of NJ and with the IRS (an LLC, or limited liability corporation)
  • Created a separate bank account with credit card for the business (in order to keep the finances separate)
  • Build Four different items and determined labor/material costs
  • Created a basic website www.TKDwoodworking.com (its very rough and a work in progress)

Back in February I reviewed my basic financial documents to date (income statement, balance sheet and cash flows). With the first quarter done, I took the opportunity to review statements, to see what information I could draw from them.

Income Statement

Area1st Qtr 2020
Sales Revenue$0.00
Cost-of-Goods Sold Expense($249.18)
Gross Margin($249.18)
Operating Expenses($871.72)
Earnings before interest and Income Tax($1,120.90)
Interest Expense$0.00
Earnings before income tax($1,120.90)
Income Tax Expense$0.00
Net Income($1,120.90)

So I’ve spent $250 on materials (Wood, finish, etc) and $879 on Operating Expenses (Business registration, website, Travel and Training at a wood class, some equipment for shop). So far, all I’ve done in 3 months is spend money and time. However, that was the plan (my sales plan didn’t call for me to begin trying to sell product till 3rd qtr 2020). Still, lets hope the sales start coming in.

Balance Sheet

Assets
4/1/2020
Cash$2,812.39
Accounts Receivable$0.00
Inventories$283.70
Prepaid Expenses$0.00
Subtotal of current assets$3,096.09
Property, plants and equipment$0.00
Accumulated Depreciation$0.00
Cost less accumulated depreciation$0
Total Assets$3,096.09
Liabilities and Owner’s Equity
4/1/2020
Advanced payments from Customers$0.00
Accounts Payable$0.00
Accrued Expenses Payable$0.00
Short-term notes payable$0.00
Subtotal of current liabilities$0.00
Long-term notes payable$0.00
Total Liabilities$0.00
Owner’s Equity – invested capital$3,096.09
Owner’s Equity – retained earnings$0.00
Total Liabilities and Owner’s Equity$3,096.09

So I’ve got $3,096 in assets (mostly cash in the bank). The four finished items I am just assuming the cost of materials as their value at this time. Good cash position going into 2nd quarter

Cash Flow

Cash Flow from Operating Activities1st Qtr 2020
Cash collections from revenue$3,933.29
Cash payments for Expenses($1,120.90)
Total$2,812.39
Cash Flow from Investing Activities
Investments in new long-term operating assets$0.00
Cash Flow from Financing Activities
Increase in short-term notes payable$0.00
Increase in long-term notes payable$0.00
Issuance of additoinal capital stock shares$0.00
Cash distributions from profit to shareowners$0.00
Total$0.00
Net Increase of cash during year$2,812.39
Beginning Cash Balance$0.00
Ending Cash Balance$2,812.39

Started the quarter out with almost $4K in case for the business. I’ve got almost $3K left, but if my cash drops below $1.5K in my bank, they start charging me a monthly fee for the account, so I really only have about $1,300 left in cash. I have three other items I intend to manufacture prior to starting to sell, and the material costs for those are around $1,075. At that point, I’ll need to start selling items to fund additional manufacturing.

So we are off. I’m excited about the business, and learning about tracking the work. We will have to see how it goes.

Mr. 39 Months

Initial Finance Documents for TKD Woodworking

Therefore, I have done some reading on financial documentation for small businesses and side hustles, and so I have started creating those documents for TKD Woodworking. I will be using accrual based accounting (vs. simpler cash-based) to track my finances.

The three basic finance documents for a business are:

  1. Budget/Profit & Loss Statement: A document, which shows, by month, the amount of money you are bringing in and the money you are spending to create the products/services. This is what many people think of when they do a family budget.
  2. Net Worth Statement:  A listing of the assets the company possesses (real estate, machinery, raw materials, etc.), the cash and accounts receivable (what is owed the company), as well as the debt and accounts payable (bills the company owes). All of this rolls up to the overall value of the company for that “snapshot” in time. 
  3. Cash Flow Statement: With the accrual based accounting system, you often log in expenses and income after a sale. This leads to better tracking and tax accounting, but can lead to a major issue. You may be actually spending cash, but not accounting for it in the P&L statement until months later. You need a third report, cash flow statement, to track the in/out flow of cash in the business – or you may run out of cash while still appearing to be “profitable.”

Each of these reports are linked and effect each other (ex. you can spend money in the cash flow, and increase the net worth statement with inventory, but not affect the P&L statement until you sell the items). The idea behind them is to record the base/start, and track them as the year progresses – in order to look for variances and changes, which need to be addressed. Once the year is up, they are the foundational documents for figuring out taxes.

For my P&L statement/budget, I arrived at a sales plan that assumed I’d start selling halfway through the year, and sell three (3) of each item I’m building. Based on that and current spending (remember, I’m having to purchase raw materials – which impacts my cash flow – but not getting real credit for it re: taxes until I sell something) my P&L looks like this:

Area Annual
Sales Revenue $3,518.94
Cost-of-Goods Sold Expense ($1,148.71)
Gross Margin $2,370.23
Operating Expenses ($1,407.58)
Earnings before interest and Income Tax $962.66
Interest Expense $0.00
Earnings before income tax $962.66
Income Tax Expense ($362.03)
Net Income $600.63

For the Net Worth, I am in a little bit of a pickle. For most companies, the equipment and workspace would be considered part of their assets. However, I am using my shop at home (in my garage) and the machinery (table saw, band saw, etc.) that I already own. The result is that my net worth is actually rather low to start. I am adding in the initial startup case ($3,000 – cost of some checks) and the material costs for the inventory I have built so far.

Assets
2/15/2020
Cash $2,973.65
   
Accounts Receivable $0.00
Inventories $232.42
Prepaid Expenses $0.00
Subtotal of current assets $3,206.07
Property, plant and equipment $0.00
Accumulated Depreciation $0.00
Cost less accumulated depreciation $0
Total Assets $3,206.07
Liabilities and Owner’s Equity
2/15/2020
Advanced payments from Customers $0.00
Accounts Payable $0.00
Accrued Expenses Payable $0.00
Short-term notes payable $0.00
Subtotal of current liabilities $0.00
Long-term notes payable $0.00
Total Liabilities $0.00
Owner’s Equity – invested capital $3,232.42
Owner’s Equity – retained earnings $0.00
Total Liabilities and Owner’s Equity $3,232.42

Another interesting feature of this for the future is that if I purchase tools/machinery in the future for the company and eventually leave/sell out – I will need to separate those items from my personal equipment. More paperwork!

Finally, the cash flow. I have started tracking what I have spent so far, and my expected cash outflows going forward. I put in roughly $639.60 before I started up the company in early February (for inventory, training, some tools, etc.) – so I added that to my initial cash pile.

Cash Flow from Operating Activities Annual
Cash collections from revenue $3,639.60
Cash payments for Expenses ($696.19)
Total $2,943.41
Cash Flow from Investing Activities
Investments in new long-term operating assets $0.00
Cash Flow from Financing Activities
Increase in short-term notes payable $0.00
Increase in long-term notes payable $0.00
Issuance of additional capital stock shares $0.00
Cash distributions from profit to shareowners $0.00
Total $0.00
Net Increase of cash during year $2,943.41
Beginning Cash Balance $0.00
Ending Cash Balance $2,943.41

The last two things I did for the company’s financials is setup a separate business account at a bank (where the $3K was deposited) and to get a business credit card – where I will charge all my future business expenses. As I noted previously, you need to keep your business and personal charges separate if you want to be successful in this (and prevent the possibility of being sued and losing your personal assets).

With the finances in order, it is time to move onto my next steps for the business. Those consist of:

  • Creating a website and building a marketing plan (March)
  • Complete building of samples to determine time/cost for each as well as potential shipping costs (April)
  • Acquire sufficient insurance to protect myself and the business (May)
  • Begin selling on Etsy, Craig’s List and Craft Shows (June)

I will let you know how I am progressing

I hope your own efforts are bearing fruit!

Mr. 39 Months

Opposition Research for TKD Woodworking

So, I’ve done some of the work, built three different items (two types of cutting boards and a photo frame). I’ve got plans for another frame (pretty cool) and some boxes. Now that I’ve built some items, I know the material costs, labor time, and my estimated overhead costs. With that, I can start determining estimated sales cost for each item in order to recoup my time/costs. Time to do some opposition research!

One of the big places to sell arts & crafts online is Etsy.com (I’m sure a lot of you are aware of it). You can purchase a wide range of items, of all shapes and sizes, crafted by people throughout the world. It’s a major “side hustle” location, and lets you create your own Etsy store, where someone can click on and see all the crafts you sell. You can check out your competition there for their prices, quality, and variety of items – and compare to what you are thinking of offering. What did I find out?

I have to improve my game a lot!

Obviously, the items I’m starting with are very easy to make and sell, so there will be a lot of people to compete with. In addition, it’s a worldwide market place, so I will be competing with labor costs that might be well under my estimates (I’m going with $20/hr. for my time). They may also have the ability to setup and make large runs, which can bring down the cost-per-piece of an item. Still, what I’m seeing is impressive:

  1. Costs are all over the board. There are items similar to mine which are selling for 50% – 200% of what I was going to ask
  2. Quality looks pretty good. I definitely can’t try to sell stuff that is not up to par
  3. There are a lot of sellers with 5-star ratings, so when I’m first starting out, I’ll be behind the curve
  4. The options some of the sellers have are tremendous. One person lets you pick the wood your cutting board will be made out of, the pattern, etc. Other ones do personal engraving. All of this for competitive costs to what I was thinking of charging.

I know I’ll need to build a bigger assortment in order to both compete and to see what sells. I’ll also need to look into making items which aren’t as generic as cutting boards.

At least I’ve got an idea of what I’m up against!

Mr. 39 Months

Determining Cost for your product in a side hustle

As an Industrial Engineer/Supply Chain professional who has run a few manufacturing operations, I thought I would go through some of the basics on how to determine the price for an item you may be manufacturing. I’ve already covered how to estimate the size of a production run on your product (EOQ), so we’ll assume you have done the math. I’ve also covered the fixed costs for an operation, which you will need in order to determine the sort of gross margin you’ll need to charge in order to meet your profitability goals.

The simple equation is basically Price = Cost of raw materials + Cost of Labor to build + Gross Margin

I’ll use a recent cutting board project I made as an example.

With that, the first thing you need to do is to determine what you want to try to price, and create a  bill-of-materials (the items which go into your product) for that item. With this you will be able to determine the cost of your raw materials. In this example, I used a simple piece of maple (a good item for a cutting board) and used a can of finish for cutting boards and bowls. I didn’t put in any additional money for sandpaper, brushes, etc.

DescriptionLWTBFCost
Maple12811$10.50
Finish    $2.00
 $      12.50

The next step is to try and determine the steps and labor necessary to build the item. When I did my EOQ analysis, it came out to be about 4 per run, so that was the plan. I determined the steps, and as I built the 4 boards, I timed how long it would take. When I totaled it, I added a 15% PF&D (Personal time, fatigue and delay) factor to the time for breaks, delays, etc. This is fairly common in the manufacturing industry. The result was:

Simple Cutting Board Lot Size 4
STEP DESCRIPTION SECONDS TOTAL TMU’s
1 Get Wood Down from Storage 58.2 1,617
2 Crosscut four (4) pieces with handsaw to rough size 120.0 3,336
3 Joint edges on 4 pieces 122.0 3,392
4 Plane 4/4 wood down to 3/4″ thickness (four pieces) 911.0 25,326
5 Rip & Crosscut to final dimensions 706.0 19,627
6 Setup Router Table 825.0 22,935
7 Rout roundovers on both sides of Four (4) cutting boards 325.0 9,035
8 Setup Drill Press for hole 180.0 5,004
9 Cut hanging holes of four (4) cutting boards 184.0 5,115
10 Setup small router to roundover hanging holes (4) 241.0 6,700
11 Cut roundover on hanging holes (4) 136.0 3,781
12 Sand cutting boards to 400 grit (100/180/220/320/400) 2,169.0 60,298
14 Clean off boards with mineral spirits or denatured alchool 120.0 3,336
13 Apply 1st coat of finish to four(4) cutting boards 534.0 14,845
14 Apply 2nd coat of finish to four (4) cutting boards after 8-12 hours 534.0 14,845
15 Sand with 400 grit – four (4) cutting boards after 8-12 hours 433.8 12,060
17 Clean off boards with mineral spirits or denatured alchool 120.0 3,336
16 Apply 3rd coat of finish to four (4) cutting boards after 8-12 hours 534.0 14,845
    TMUs 229,432.8
  Standard Fatigue Allowance: 15.5%
  Seconds Per Unit: 2385.0
  Avg Units Per Hour: 1.5

A “TMU” is an engineer’s term – it is a “Time Measurement Unit” and 27.8 TMUs = 1 second. So it took me roughly 2 hours and 40 minutes total to build 4 of them, or 0.667 hours/40 minutes to build one. At $15/hour (what I’m paying myself) this works out to $10 for labor.

Finally, I looked at my gross margin, what I’m using to help pay for all the fixed expenses. I’m using a 40% margin goal, which is about middle of the road for manufacturing. This is going to be used to cover my liability insurance, website, machinery purchases, etc.

So the equation looks something like (12.50 + $10) * 140% = $31.50

Based on this analysis, I could sell this item for around $31.50. In looking at Etsy, however, I’m seeing similar product selling for $50-$60. I’ll have to research to see how much of a “cut” Etsy takes, and if shipping is part of the price.

I hope this was useful.

Mr. 39 Months.