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Business: So you want to be a gunmaker...? 01/30/2009 - By Marc Stokeld
Permission given by the American Custom Gunmakers guild
To read more articles from Custom Gunmakers Guild, join as an associate member http://www.acgg.org/membership/
____________________________________________________________________So you want to be a fulltime gunmaker. While sitting at your desk in your corporate office, warming yet another airplane seat, or working in a factory; romantic dreams of being a fulltime custom gunmaker fill your head. You think, "Ah yes, if I could only dump this coat and tie and strap on a shop apron, life would be bliss."
As most readers know, gunmaking is not the most efficient route to generating immense personal wealth. Yet for the chosen few who are bitten by the bug find what gunmaking lacks in financial reward is more than made up for with personal freedom and artistic fulfillment. The beautiful rose of a custom gunmaker has a few thorns, but taking a few steps before making the leap from weekend warrior to full-time gunmaker can lessen their prick.
If you are giving serious consideration to going fulltime I urge you to investigate each of these items. These building blocks of small business are essential. If you choose to do them yourself or ignore them altogether, then that is fine. After investigating each topic you will be able to make an informed decision as to whether you will do them or not. Likewise, if you are currently a fulltime gunmaker and are not making the money you desire or your business is not operating as you would like, then reviewing the ten fundamentals on this list may provide the missing link that will bring you profits you never imagined possible.
1. Insurance
The importance and urgency of buying a private disability policy cannot be overstated. No matter how healthy you may be today your life can be turned upside down in an instant. If you do not have disability insurance and you are stricken with illness or experience an accident, financial ruin is almost
guaranteed. Dealing with the health problems is stressful in and of itself and the stress will be compounded if creditors are knocking at the door.
Disability insurance should be bought before you leave your corporate job, as it is extremely difficult for a self-employed person to obtain the insurance until their business is well established and they can prove they have a steady income at a certain level. Employees with a salary history of at least two years can easily obtain disability insurance due to being able to show a steady flow of income at a fixed or rising rate.
I strongly advise buying this insurance with after tax dollars. The amount saved from paying the premium through the business with pretax dollars is negligible, but the difference in payments to you should you become disabled is tremendous. If you purchase with after tax dollars then the benefit is paid to you in cash with no taxes withheld. Policies purchased with pre-tax dollars are taxed as income, seriously eroding your cash at the time when you need it the most.
Private health insurance policies are available for everyone in the country. I continuously hear how people cannot get insurance if they are not working for a large company, or that they cannot leave their job because they would lose their health insurance. Neither of these statements is true. True, some policies are ridiculously expensive, but there is a wide variety of policies at a wide variety of prices. Find the right agent and you can find the right policy for you. My advice is to start by asking your disability agent whom they recommend. The various discipline agents partner together and I have found it best if you stick with a
group of agents that regularly work together. These same agents can also refer agents for your shop insurance, home insurance, etc.
One thing to keep in mind is that you are guaranteed under federal law to be offered the same health insurance policy you currently have in your corporate job. The program is called COBRA and it guarantees you 18 months of coverage under your current plan. After 18 months the policy is offered to you as a private policy at the current market rate. The private rates may be significantly higher or lower than the group rate that was charged for the first 18 months. Whether it is higher or lower is dependent on the actuarial details of the group at your former work place. All of this information is just a phone call away, so start dialing! Insurance need not be a stumbling block to you leaving a job and becoming a full time gunmaker.
2. Credit and Financing
At the time in your life when you need it the least, get a line of credit for twice as much as you could ever imagine needing. I was given this advice from a very successful man whom I greatly admired. He was given the advice by one of his mentors and it saved his bacon, not to mention his homes and cars. He was given this advice from one of his mentors and it saved his business as well. Banks determine your creditworthiness by examining a number of financial factors, chief among these being earning history and credit rating. The more a person can prove to a banker that they do not need money, the more money the banker is willing to lend the client. If you left your job and are now making wages solely from gunmaking, the banker will only look at your gunmaking earnings history. Bankers are the most risk adverse people with whom I have dealt in the business world. Your steady corporate job and good credit score will give them a warm and fuzzy feeling and they will be happy to extend you credit. Get as large a line of credit as possible. You may not ever tap your line of credit, but it is much better to have it and not need it than to need it and not have it.
Similarly, any financing for equipment should be secured while you still have an earnings history at your present job. Metalsmiths in particular need a significant amount of machinery if they would like to be a fully capable gunmaker. New equipment is expensive and can rarely be paid for with cash. If you need to finance a new CNC vertical machining center, then your creditworthiness is all that matters. Once again, the financiers smile when they see you have consistently earned an income at your present job.
Our country's manufacturing sector is experiencing a downturn with many jobs going overseas. This has led to traditional US brands closing their doors for good. As bad as this is for the country as a whole, it can be a boon to someone looking to outfit a home shop. Used machinery is plentiful and the prices are often just above the scrap value of the machine. This is particularly true of the manual machines that are often used in home gunmaking shops. There has never been a better time to buy top brand US lathes, milling machines, surface grinders, etc. The machines are often available at prices where a prospective gunmaker can pay cash on the spot. If you find the used machines of your dreams and see that the price tag is beyond your means, then have no fear. Just as insurance is available to individuals, financing for used equipment is available for anyone with decent credit and a steady income (seeing a pattern here? get the financing BEFORE leaving your job!). Search online for machinery brokers and equipment financiers and you will be one big step closer towards moving the machine of your dreams to the place of honor in your shop. These people are hungry for new clients with a little money and a lot of
credit score.
3. Professional "Back Office" Team
When you own a business, especially a one-person shop, you wear many hats every day. As we used to say back in Louisiana, "You have to be able to pick, plow, AND hoe!" At the same time, a business owner needs to recognize which activities they are capable of performing, which activities they do well, and which activities generate income. The latter is the bugaboo of the gunshop. Working on your accounting and associated "office" paperwork does not generate income and it does not help you get that new rifle to the client before the beginning of hunting season. Farming out the office work costs money, but it also allows you to log more hours at the bench. The problem is that someone has to do the office work, and it will not go away if ignored. Work at your bench and not your desk. Farm out key items that require special training or experience.
Corporate attorney
There are several forms of business structure, with each having advantages and disadvantages. My standard recommendation to a prospective business owner is to research the structures and then meet with an attorney to get their take on the matter. The more you know about business legal terms, the more you can get out of your initial meeting. A lot of business books can be bought for the price of an hour or two with the attorney, so do your homework ahead of time! The personal help and real world experience you can gain in a one-hour meeting with a corporate attorney is well worth the cost. Many attorneys will meet with you gratis as an introductory meeting to determine if you are a good fit for each other. Each business structure has tax and liability protection strengths and weaknesses and the attorney can educate and help you understand your options.
Bookkeeper
You need to run things like an actual business if you want to succeed, so you might as well start acting like a business today. A good first step is hiring a bookkeeper to organize your finances and track your expenses. Successful business owners can tell you their current cash flow situation off the top of their head at any given moment. These people are successful in part because they can consistently keep more money coming in than going out, resulting in the holy grail of all business owners-positive cash flow!
In most places around the country a bookkeeper can be found in the $30-$35/hour range, with many having a three hour minimum. For roughly $100 you can see your entire personal and business finances laid out in perfect order. You will be able to see your accounts payable, accounts receivable, reserve funds, retirement, and anything else in your financial life. This is an incredible tool for scheduling your work in a gunshop. If you see you have major bills coming up next month then you can complete work that will provide income before the large bills are staring you in the face. If you have a cash reserve and only normal payables over the next three months, then you can afford to knockout some of the difficult or time consuming work that has piled up in the dusty corner of shop.
I have been in business where I was really not sure of where I was, and I have been in business where I could hand you one sheet of paper and show you everything down to the last cent. Trust me, the latter is better. Getting a bookkeeper will help you get there.
CPA
A Certified Public Accountant is required to file the taxes for several business structures. Even in instances where a person is not required to use a CPA, doing so greatly reduces the risk of an audit. Tax law can be difficult to understand and it is constantly changing. It would take a gargantuan effort for a lay person to know the current law well enough to maximize their return and minimize the likelihood of an audit or fine.
Some CPAs offer advice on tax savings throughout the year. Many medium and large firms will regularly send emails or newsletters with tax tips and advice. As the laws change, they will keep you in the know on new ways to avoid paying unnecessary taxes and how to avoid penalties come tax time.
It should be noted that CPAs can perform your bookkeeping duties, but their rate is significantly more than a bookkeeper's rate. If you do not already have a bookkeeper, then my advice is to ask your CPA for referrals. I prefer to work with vendors or clients who commonly work together. This smooths things out and reduces stress, which is good. Making a living through gunmaking is tough enough and we do not need to throw gas on the fire.
These professionals are your advisors. It is up to you to make the call, as long as it is within the law. Look at it as you being the CEO of a company and these people are your division managers. What they say is important and should be closely studied, but ultimately it is you who must decide which route to
take.
4. Mentor
Just as a CPA, bookkeeper, and attorney can add value to your business, so can a mentor. While the CPA will give a business owner facts and data, a good mentor can provide general business philosophy, esoteric business management principals, specific gunmaking help, custom gunmaking business counsel, and emotional support. Never, under any circumstances, discount this last item. Make no mistake about it-owning a business is an emotional roller coaster and a mentor can help pull you out of the valleys, as well as making your peaks higher and more enjoyable.
Look for a mentor who has lost more money than you have grossed in your life. If you can find that person, then they can tell you A LOT about how to make money and what practices to avoid. Most successful people in any field are very giving of their knowledge. They had assistance to achieve their success and helping newcomers is a way they can give back to their profession or avocation. For the price of a lunch, you can have a 90 minute long one-on-one coaching session. Pose your problem to your mentor and absorb every word. The mentor protégé relationship can be near magical at times. In its purest form is a true symbiotic relationship with both parties gaining equally from the other. The better the personality fit, the closer the bond. This does not mean the protégé has to be a carbon copy of the mentor, but the closer their learning and behavior styles, the more benefit to be gained.
An unquantifiable asset that a mentor brings to the table is life experience. I will freely admit to committing age discrimination in choosing those from whom I will seek tutelage. I like to have mentors who are more than a few years older than me. If nothing else, you can ask them if an idea makes sense to them or not. A 70 year old has many more days on the earth than I do, and what they have seen and done in those days is applicable to my life. In "great fit" mentor protégé relationships the mentor becomes not only the business coach, but a life coach as well.
Up until this point I have only mentioned mentors from a business point of view, but it also applies to gunmaking skills, or anything else for that matter. Much knowledge can be gained from reading books and the Internet and then trying the new task in your shop. Even better is having a person with real world experience making guns that is just a phone call away. This is where your gunmaking mentor comes into play. The ability to have step-by-step instructions for making a quarter rib, cutting a chamber, finishing a stock, or laying out a fleur-de-lis pattern is worth its weight in gold. The life lessons from drilling through barrels and having gaps in inletting is worth significantly more than what you can read from the written word.
5. Business plan
In a nutshell, a business plan is a summary of the potential venture, with a heavy emphasis on future challenges and plans of attack for each one. The future gunmaker puts their random thoughts on paper and organizes them into a document that summarizes how they intend to make money through making guns full-time. Sound reasons must be given for why the business will be profitable and how it will be able to overcome known and unknown pitfalls awaiting our fair gunmaker.
A strong business plan is beneficial on multiple levels. If you must seek outside financing, your business plan is your sales pitch to the prospective investor. The stronger your sales pitch, the more likely you are to seal the deal. Or put another way, the stronger your business plan, the more likely you are to procure outside capital. Bankers are impressed by a well thought out and packaged business plan, while they are notably unimpressed by entrepreneurs who provide a thin and unprofessionally packaged business plan. Even worse is the entrepreneur who says, "I have it all in my head!" and smiles as he taps his temple with his trigger finger.
Writing the plan is the single best exercise that gives the prospective business person an insight into what life will really be like in the new venture. As with financing, the better the business plan, the better the potential insight into your life two, four, or ten years down the road. Having this theoretical "crystal ball" allows you to see things that would have otherwise have jumped up and bitten you in delicate places, so now you can plan accordingly and reduce risk. This planning forces you to think through everything. Every single person I know who has written a business plan has said they knew more about the future venture and felt more secure about what laid ahead as a result of writing the plan.
Topics to be discussed in a thorough business plan include, but are not limited to:
Clearly defined business concept
Current state of the market and market projections
Marketing plan
Financial plan
Operating plan
Each of these topics should be explained in detail. To a point, it can be said that the more detail, the better. I have been asked how long a business plan should be, and my response is, "As long as it takes." This is not a glib response, but rather the truth plainly stated. This is not the writing of a novel, but rather explaining in written word what you will do in your new business. Currently the business is just a theory in your head. Putting it on paper brings it one step closer to reality.
Your business plan should be able to tell the reader what you are going to do, how you will do it, how many expenses you have, and how much you will make. If an entrepreneur cannot make a business work on paper, then they will have a difficult time making it work in real life. Starting a business is hard enough as it is and there is no need to make it harder by not planning for success, for that is what you are doing in a business plan. You should be able to describe in black and white while your future gunshop will succeed when so many before it have failed. The plan is designed to identify risks and state how you will handle each one. This is not the place to wear rose colored glasses and assume things will always go in your favor. Each risk should be thoroughly investigated and
honestly evaluated.
It is a good practice to arrive at three answers for each scenario involving risk-best case, worst case, and most likely. Develop a plan for dealing with every risk at all three levels. The time you spend doing this before you start can easily pay off in scores of thousands of dollars in lost revenue on down the road. Yes, writing a good business plan is not necessarily fun and consumes a significant sum of your valuable time, but it is worth it. Remember, if you want to own a business, start running things like a business. Set the precedent even before you give your two weeks notice.
A key section of the business plan is the pro forma. In the pro forma, you model the anticipated financial state of your business. You need to anticipate all business expenses and realistic earnings. The best way to do this is to create a computerized spreadsheet that tracks and calculates projected payables and receivables and calculates your profits or losses. It is easy to see what effect changes make over a period of time. The trick is to find the most realistic number for future costs and payments. Amentor can come in handy here by helping you come up with realistic numbers. This plan is yours, so work to get the most accurate estimates possible. Update the pro forma each time real dollars are known. If you find that phones will cost more and end mills will cost less, plug the new numbers in the spreadsheet.
Some companies have a living, breathing business plan, meaning that it is updated from time to time to account for any changes. Once your projected costs are known you can plug them into your plan's pro forma. Once risks are realized or disappear, this can be addressed in the business plan. A living business plan is an excellent resource for long term planning.
Stay tuned for the items six through ten in the next issue of Gunmaker!