I have a side woodworking and machining business and John is correct about thinking about risks to your business. I am lucky to live in an area where the town doesn’t care if you run a business out of your house as long as customers don’t come on site and you don’t get many deliveries. My immediate neighbor gets almost daily UPS deliveries, so they certainly won’t complain about my occasional work related deliveries, especially since we get along very well. I analyze the risk of any products I make, or repairs, and if it’s going into something risky where someone could get hurt, I pass.
When I started, I created a spreadsheet of all my costs and factored in what I want to earn per hour. Without factoring in “renting” my workshop, that was $50/hr, so $60/hr for a hobby shop is not bad, but if you had any plans on getting larger, it would be best to have a market rate since it will be harder to raise rates later without losing customers. The one thing many start up companies never factor in is replacement cost of machines and tooling. Your costs should not be what you paid for your machines, rather what it will cost to replace them since you might not ever find that deal again.
One area where you might get bitten is accounting for shop supplies and tooling. It’s easy to forget what you spent over the course of a year, but it can add up. It’s tempting to claim the tools you buy as going to your hobby shop, but if you were not doing outside work, would you buy those tools? The nice part about tracking this on a spreadsheet is you can update them as you get more information. Starting with your best estimate is perfectly fine, but after a year, you may find some of your assumptions were not correct and you need to adjust rates. The best way to do that is to keep a good track of your expenditures.
