# Question on new custom cabinet business ...



## unhique (May 10, 2009)

Good morning everyone.

I thought of posting this in the business section, but it's related to carpentry so I try it here instead.

*==> I really need your advice so please pardon the long post & read everything to advice me. *

I'm currently a GC doing mostly K&B remodel, occasional room addition, about 3-4 custom homes in the last 6-7 years. I've been using low end RTA cabinets since start. And that's where things get ... stuck I guess.

Low profit margin, non-wow factors to generate high-profit potential referrals getting me into exploring "semi-custom" options instead. I posted about this and get quite a bit of useful info from this forum, which I'm thankful of. But then recently after reading a lot of posts on this forum & ran into the senerio described below, I'm thinking about the option of becoming a custom cabinet maker. 

So the story is, I ran into a custom cabinet maker in my area, nice guy I think, who built 2 custom fireplaces for one of my projects earlier this year. Really like his quality. Checked out his cabinets, looks really nice too. But I don't know enough to judge if he would be one of the best around my area as he claims.

Now the question: I've been thinking about 2 possible options I'd like to have advices on:

- I just rented a 6K warehouse I mentioned in one of my other post. It has a 14x17 room up front I can use as a showroom, and a L-shape area in the warehouse area (about 9'x12') as well where I can use as a display area. 2 single restrooms (6x9 each) can also be used as showcase. One big room about 18x26 in the middle can be used as a shop area. The rest I let a non-profit group I'm a part of use. So option one would be to use this place as my own showroom/shop and start my brand new custom cabinet making department. Tools I already have: table saw with router table extension, planner, drill press, and a couple of other. With this option, I would have to learn most of the how-to's (material ordering, finish, good box building techniques, etc. etc.). Ok ok, I need to learn from scratch. :laughing: This location is in an average area of an average city of my area.
- Second option: the cabinet maker I mentioned above has a warehouse/show room about 4K sqft in a very good area where all the big granite & cabinets businesses located. He just moved from a smaller place around the corner, in the corner, to this much more visible-to-traffic place for about 6 months or so. We talked and there are 2 possibilities with him: one is I partner 50/50 with him, which I'm NOT a fan of (partnering that is). Second is to just buy his company out right. If he sells, he will be helping me learn everything for about 3 months. Right now his business is 80-90 referrals, with home shows (about 2-3 shows/years), no other marketing. His average kitchen (cabinets only) is about close to $20K. I've seen a couple of his contracts for $35-$45K. 

Buying his company out is so tempting since I would just take over his claim-to-be on a rise company. So my questions are:

+ which choice makes more sense.
+ For option 2
- how do I determine how much his business worth (multiple of net/gross income?)? How much I should offer him? If he asks for a number, how much I should negotiate back?
- how do I make sure if his cabinets are high quality (so I can keep following the system)? I've only seen RTAs, so not sure how to define a well-built cabinet
- how do I make sure he won't start up a competing company right next to me? We mentioned about signing a non-competing (terminology?) paper and he said he has no problem with that.
- just a glance over his numbers, I figure his net is about $12-$15K/month for the last 11 months, plus some of the ... cash-paid projects on the side. He said 2 years ago his gross was averaging about $2.5M (but on the safe side I'd say about $1.5-$2M) with 18-20% profit, after paying himself. There's a high potential of signing a 1 year contract with a builder for just doing RTA for a potential net of $100K (doing ~$7K-$8/month, just assemble the RTAs & install).
- the purchase would includes everything: display (1 big kitchen display 10x20 dual-used for home shows as well), computers (2), furniture (2), all machines, 1 box van (I think GMC 7x16).

Sorry for the long post as ... usual, but I really need your help on this. I'm really excited about this but not sure if the high end custom cabinet business is still good or not (seems like most of you are moving into bigger places).

Thank you very much.

Nhi


----------



## Jimmy Cabinet (Jan 22, 2010)

Here's what stops me while scratching my head. You are doing custom homes and using RTAs to maximize profits as well as getting referrals? How the hell does that work? High end home buyers surely would not accept RTA junk would they? 

You are already used to a product already made....even though RTA is basically junk. I say junk because.....well they are. Though one of our Contractors here opened my eyes to an American made RTA just this week that caused me to say wow. Please stay away from that foreign junk which is infested with formaldehyde and sulfur, enough to kill a child from cabinet exposure. 

Since you are used to a product already made why not cut your investment in half and carry a brand cabinet from one of the 70 or so major manufacturers? You can do both if you want. Make your custom line but carry a basic starter kitchen line and maybe one upline. People today want choices. Keep in mind the market is only seeing low end products in demand. I can't even remember the last time I sold a cherry kitchen but that don't mean they ain't selling. Overall trade reports show oak, while always the best seller, has increased even more.

Investigate brands closer to your home. To me, lead time is very important. Most manufacturers are 3 to 14 weeks which to me is more stupid then the current government. My best selling products are in stock (fully assembled) and another by the largest cabinet company in the world who gets me an order in 8 days. Customers don't want to wait. 

You have some basic tools/equipment but you need a lot more to do your custom work. I don't see the draw but to each his own. Go for it if you want to make that investment in these depression times. I'm sure you know this. There are as many so called cabinet shops as there are nail salons and pizza parlors....seemingly on every corner. Competition is fierce. And today the consumer don't give a damn who you are, what product you sell, what the warranty is......all they care about is how low is the price. Period!!!!! 

I like the idea of you buying an existing cabinet store as long as they been there for quite some time. Much of what you need is in place already including hopefully some goodwill. 

I do struggle to believe they were doing $2.5 million in business a year ago. I was doing those numbers during the boom times in the early 2000s but I don't know anyone in this business doing that anymore. And I have connections in this business that run deep after my 3 decades in it. Besides, even half that amount, what's he want for this business? What kind of contract could he possibly have with a tract builder since no builders I know are building at this time but for a contract sale here and there. No spec building is going on anymore anywhere. 

I like a lot what you are looking at but i don't trust a lot of things you seem to be speculating on. Be careful my friend. Perhaps you should get an Attorney to guide you. It will be money well spent. If you need more advice that you don't want public I can help you with that. Good luck to you. It's a wonderful business but it is tough out there.


----------



## unhique (May 10, 2009)

Good morning. Thanks Jimmy, for the hints.

A couple of things:
- I mentioned the custom home (low->mid-end, NOT high end) building just to explain what kind of work we're involving in, nothing else.
- RTA because customers chose it for the price. I did give them 3 options: RTAs (which we have pretty at every corners around here in my area), custom made from a numbers of local cabinet makers (they pay for material), or CraftMaid from one of my current dealers. My labor has always been the same no mater what cabinets they pick out from
- So for those projects, since customers value price over quality, I've suffered from either being squeezed out of profit or very low profit margin just to get jobs for a living. Northern CA contracting business in low end market is VERY VERY fierce.
- And because I've been using RTAs, my projects don't have a wow-factor, hence very low "good-enough" referrals. I only get similar referrals because the price is low, which I don't want to keep having.

That's why I'm thinking about tackle the higher end, deeper pocket clientele. That's why I'm asking for your opinions to see if it makes sense to buy an exsiting cabinet making business, and all those related questions if I do.

I think if I end up doing custom cabinets, I'll probably do as you (Jimmy) suggested: add some semi-custom lines. I actually tried to contact CraftMaid last month but they said I have to commit to high volume before they let me open another dealership. I've never done higher end kitchen before so I don't know what to expect, so I told him the truth and he told me to contact another dealer to buy them from.

It seems like you're using Merillat cabinet with big success. Is that the one who you said can deliver very quickly (8 days)?

Thanks again.

Nhi


----------



## Scribbles (Mar 10, 2009)

One thing I have is found if you want to make good money in construction. Do one thing. A cabinet company would be varying complementary to a K&B remodel company, but they are very different companies.

I have several relationships with companies and I refer to them as partner companies. We are separate but work together, not as a sub but we are able to feed off each other. With one I even share employees. However I would not buy a company. If you want to be a cabinet maker great, but I would not do both.


----------



## Gus Dering (Oct 14, 2008)

I only have time to be brief, please don't be offended.

From what I can tell a cabinet business is only worth the assets it has. Customers hire a person more that they hire a company name when buying custom cabinetry. In short, don't count on all of his clientele sticking with you after he is gone.

Any successful shop that I know started very small and grew slow. One guy in a two car garage then years later they are ready for a big space and employees. You need time to develop a good sound and repeatable system. What we lovingly refer to as ritard proof. No way could I have started any larger than a one man show. But that is just me. You would need a very good lead man at a very good price IMO.

The cabinet business is hard enough to make good money when everything goes just right. Throw in learning curves at every phase and you may not be a happy camper.

It's not like me to discourage someone from plunging forward but this time has the hair on my neck up. Be careful is all I'm saying


----------



## Jimmy Cabinet (Jan 22, 2010)

Gus Dering said:


> I only have time to be brief, please don't be offended.
> 
> From what I can tell a cabinet business is only worth the assets it has. Customers hire a person more that they hire a company name when buying custom cabinetry. In short, don't count on all of his clientele sticking with you after he is gone.
> 
> ...


I sure have nothing more to add to that. You said it all and sealed it in a jar. And you said it well. Now if I can only convince myself to get outta this businesssss............................ Nawww I think I'll stick around a bit longer.


----------



## Leo G (May 12, 2005)

When I started cabinet making gasoline cost 97¢/gal, cabinet grade birch was $35/sh and maple was $38 for A1. Now gas is $3/gal and birch is $88/sh and maple is $96/sh. Clients expect rock bottom prices for high quality custom cabinetry because they saw almost the same thing in HD for $100.

It is a tough time to start up just about any business. And even harder to start up a business that is construction related. Let alone to say you have little experience in cabinet making. You are really not making it easy on yourself.

I was pretty poor while making cabinets for the first 7 years. It took that long for my name to get around to the richer towns. Had to give good deals for quality cabinets for many years. Long hours and insufficient tools. 

It sounds like you have the capital for start up better than a 1 man garage. If youcan buy the business and all the guys are willing to stay on with you AND you can keep 70% of the guys clients you might be able to pull it off. But times are tough, competition is stiff and people are willing to work for wages right now just to survive the economy. Not an easy place to start.


Gee, to negative? :blink:


----------



## Bergstrom (Mar 14, 2009)

Leo G said:


> Gee, to negative? :blink:


Truth is not negative or positive, it is just the truth.....and I completely agree with what you said :notworthy


----------



## Jimmy Cabinet (Jan 22, 2010)

I also agree you are not being negative. You are being truthful. Those who like to say they think positive and say how great things are going and are going to go are not only dreaming and praying but they are setting unrealistic goals that are just setting themselves up for failure. 

For 3 years I been saying home values will continue to fall. Yet the positive thinkers all said oh no by spring things will turn. Then it was by fall things will turn. Turns out they were wrong every time and I was right. That don't make me smarter or better. It does make me honest and truthful. I am not influenced by what the govt tells the news reporters to tell the Sheep. I report what I see and feel.

Ok I'm done ranting. Now where's my customers????????


----------



## Leo G (May 12, 2005)

And I just looked, he is in the great state of California. No extra regulations over there......


----------



## Bergstrom (Mar 14, 2009)

Hmmm...Gus has anyone approached you about buying you out? If so I am sure we could be more positive and tell him that custom shops are easy to run and worth their weight in gold. I'll be over to pick up the CNC this weekend........:whistling


----------



## Kent Whitten (Mar 24, 2006)

I have jumped into the cabinet making business, but I am not 100%. What I have going for me is that all of my tools are paid, my land and shop are all paid and I have a decent grasp on how to build and how to finish thanks to Gus and Leo. It only goes up from here.

It is not easy, but nothing worthwhile ever is. I think that 10 years ago if I tried this without the knowledge here along with the patience and help of Gus and Leo, it would of lasted one kitchen then back to what I was doing.

In any business I would recommend to anyone, keep the overhead low. Buy tools and equipment out of pocket. Unless you have something like a cnc in the works.

I am fortunate to talk with the people I already do business with about doing the cabinets for their projects. I give them a little sample of what I can do and I convince them. Not too easy a task when everyone considers you a lifetime framer. But I hold my own. 

Buying someone's business? I would check all of his financial records. Anything that you feel is missing or downright doesn't feel right, I would be severely cautious. If it is incorporated, make sure he doesn't have any outstanding judgments against the corp.


----------



## Gus Dering (Oct 14, 2008)

Bergstrom said:


> Hmmm...Gus has anyone approached you about buying you out? If so I am sure we could be more positive and tell him that custom shops are easy to run and worth their weight in gold. I'll be over to pick up the CNC this weekend........:whistling


Buy what out?

Like I said, people hire Wayne and I along with all that we bring to the table. Take us out of the equation and there are just some dusty old tools and a robot. :laughing:


----------



## unhique (May 10, 2009)

Leo G said:


> And I just looked, he is in the great state of California. No extra regulations over there......


haha.


----------



## unhique (May 10, 2009)

Big Thanks to everyone for chiming in your straight to the point insights. That's what I need from insiders like you'all. 

I do realize that it's very tough. But I read some where some of you praise about your custom cabinets standing against those from big companies anytime, and I like that. Secondly, since I used to be offering RTAs only, with cheap customers and been loosing money for that. So I want to get out of that senerio, and getting to a higher profit margin pool of projects (hopefully custom cabinet is one of these). So I guess my options would be (A) offer semi-custom cabinets from those great brand names you guys been pointing out for me, or (B) make my own lines of cabinets.

And if I go with option (B), right now I think I have two options as well (as mentioned above: (1) to buy out this guy's business, or (2) to start one from scratch myself.

Just to recap:

- for option (B1), this guys filed tax for all of his check-paying jobs, which I can verify ahead. Also, he has about 30+ jobs since the beginning of this year, a great showroom & all tools + 1 box truck total I think about $70K, roughly. He's booked for the rest of the year (about 3-4 medium-high jobs), plus one of the 1 year contract with a condo remodel with average about $5k-$7k/month, which should cover all of the monthly expenses. ==> with this option, I'm not sure how much I should max out my offer with him
- option (B2): I just moved in a 6000sqft warehouse which I shared with my non-profit youth group. I still have the front for display, and a big room in the middle for shop (17' high ceiling, I think it's 18x26). I also have pretty much all of of my wood-working tools, 95% brand news (bought for woodworking, but focused on general construction/remodel instead). In starting out by myself, I still need to learn a lot, especially finishing.

To framerman: you're lucky to have Gus & Leo show you as you mentioned. I wish I can have teacher like that, then I can just start out of my current warehouse with my current tools. So Mr FramerMan, can you please, please show me how you get the pro to guide you like that? Please :help:

Thank you everyone for showing great sport with me. 

Best regards,

Nhi


----------



## Gus Dering (Oct 14, 2008)

unhique said:


> So Mr FramerMan, can you please, please show me how you get the pro to guide you like that? Please :help:
> 
> 
> Best regards,
> ...


You are doing right now.:laughing:

Ask questions and you will get answers. Quite the concept when ya stop and think about it. :jester:


----------



## Scribbles (Mar 10, 2009)

Mods like Liquer and whores :thumbsup:


----------



## Kent Whitten (Mar 24, 2006)

unhique said:


> To framerman: you're lucky to have Gus & Leo show you as you mentioned. I wish I can have teacher like that, then I can just start out of my current warehouse with my current tools. So Mr FramerMan, can you please, please show me how you get the pro to guide you like that? Please :help:


Unless I am completely stumped with something, I try not to bother anyone with questions or help. I will search and read, search and read. And if I do ask someone for help/advice, I'm more of a groveler :laughing: I feel like I am bothering the other person. 

I guess the best thing I can tell you is, just ask...and be grateful for the other persons time. 

Gus has helped me business wise, strongly suggesting how to mainstream some things, where to spend money, etc. Leo has been the guiding force of me going from someone who can build things to someone who can deliver a top quality finished product. And I would not be where I am today without CT and all the other helpful guys here. Woodweb is also a great place when you run into trouble. 

But in the end, it takes an unwavering desire to do this. Look on craigslist in your area and see how many cabinet makers are selling everything and closing the doors. 5 years ago, I just didn't have the desire to do this, it was too tedious and I had no patience. Totally different today. The timing may be just right for you.


----------



## Leo G (May 12, 2005)

Kent bothers me 3 times a week with all kinds of questions. Kid won't leave me alone...:w00t:










J/K


----------



## Gus Dering (Oct 14, 2008)

framerman said:


> Unless I am completely stumped with something, I try not to bother anyone with questions or help. I will search and read, search and read. And if I do ask someone for help/advice, I'm more of a groveler :laughing: I feel like I am bothering the other person.


There still are people that enjoy helping someone figure out how to achieve their goals. 

So the real question is this;

Why would you want to deny someone's pleasure of helping you? 

This site is supposed to be a place for fun and support. lets not forget that shall we? For the most part I think we do pretty well helping those that ask for assistance. But with your comments, I wonder how well we do about asking for help. Hmmm......


----------

