A handshake is fine when greeting potential customers, but it’s not the way to seal a deal. If a customer wants something from you, get it in writing; that’s the only handshake that counts. Unless you have a client’s signature (two signatures if you contract with a married couple) on a document that specifies exactly what you promise to supply and for what price, you will have no recourse if the client decides not to pay you for your work. You could end up owning someone else’s custom cabinets (not always such a bad thing but not your goal).
Run your business with the hard and fast rule that no work will be performed and no materials will be purchased unless you receive a signed quotation from the customer. (When the quotation form is signed by all the parties involved, it becomes the contract for the specified work.) In custom work a substantial deposit (enough to cover materials) should accompany the accepted quotation. This way, you have some protection even in a worst-case scenario, such as the sudden death of the client. The quotation form I’ve used for nearly 20 years is available at most print shops or office supply stores; the print shop adds my letterhead at the top, but otherwise the form is unchanged. Buy a two-part carbonless form. For each quotation, keep the copy and give the customer the original.
When filling out the form, accurately record the full name and billing address of the customer and the address of the site for product delivery. Note the phone numbers and e-mail addresses for the customer’s office, home and site (if different), and double-check them for accuracy. If a general contractor is involved in the project and the cabinetry is included in that contract, submit the quotation to the contractor. (Since the contractor adds a certain percentage to the bid, it isn’t ethical for you to tell the customer the quoted amount.) If the cabinetry has been omitted from the general contract so that the customer can shop and contract for it independently, submit the quote to the customer directly. If you’re not certain how matters stand, ask.
The main body of the quotation form is for the precise description of the product. Include the grade as well as the type of materials that will be used, the style of the product (referenced to a sample number if possible), specific sizes and configurations and the type of finish. Be careful not to infer the inclusion of items or processes that are not quoted, such as counter surfaces and their installation. If there is not enough room on the form, don’t condense the descriptions; instead, use another sheet and cross-reference it. Have the customer initial your copy of the additional specification sheet.
Immediately below the product description, present the bid itself. (See page 109 for information on pricing.) As in issuing a check, write out the amount in full. If your state has a sales tax, specify “plus tax” after the amount. I generally avoid including sales tax in a bid because it is too easy for a client to perceive my bid as high in comparison with others where sales tax is not quantified. The payment schedule is up to you and the client. I usually ask for one-third down on acceptance of the quotation, a second one-third halfway through the project and the final one-third on delivery. Avoid specifying the date of delivery in the contract if possible. Since delivery can mean different things to different people, specify whether the cabinets are f.o.b. (free on board, i.e., loaded on a truck) your shop or freight paid (delivered to the site).
Acknowledge the receipt of a client’s check with a standard receipt form, as shown below. I use a Rediform version, which provides two extra copies. I put one in the client’s file, which also contains my copy of the contract, and the other with my income ledger. Note that this type of receipt also provides a space to show the amount of the account and the balance due. This eliminates the need for a separate invoice form to keep track of the account. Look for the form at your local office supply store.
Note that installation is a separate matter entirely. In some states, you must be a licensed subcontractor to perform any work outside your shop. Other states have specified limits. If you intend to do installations (and you probably will, to ensure the best results), check with your state’s labor department or contractor’s licensing board to see what is required. In any case, it is never wise to include installation within the terms of the original quotation. Installation of custom cabinetry is notorious for unpredictability and labor overruns. The contract for installation should be negotiated, if at all possible, on a cost-plus basis.
A cost-plus contract can take a variety of forms, so specify to the client which of them you mean. One standard version is to charge the cost of labor plus a 10 percent markup on materials. Another method groups labor and materials and adds a specified rate of profit. Sometimes a customer will ask that a ceiling be placed on the contract price. In this case, you’re probably better off going with a fixed bid at the top end of your personal estimate. I try to avoid ceilings as I usually find myself working on top of them — without pay of course.
You may need to write into the quotation specific clauses, sometimes referred to as jump-out clauses, to protect yourself from legitimate contingencies. The generic quotation form already lists a number of these clauses: the requirement of a written order to initiate any change in the quoted specifications, freedom from liability due to delays beyond your control and the requirement of the customer to carry his own site insurance. Other contingencies, if predicted, should be covered in a separate clause. These may include the right to substitute materials if the specified materials are unavailable or would unduly delay the project, the right to change the quoted price due to the substitution of items at the client’s request and the exemption of liability if the client supplies or requests unconventional or unknown materials (particularly finishing products). In general, if you can foresee the possibility of any contingency that will affect your control over the final product, get it down in writing. If you should think of one after the contract has been signed, write it on all copies and have the client initial it.
The signed quotation form (now a contract) offers a basic guarantee to the purchaser: The product you supply will be the one specified and will be constructed in a workmanlike manner according to standard practices. If you wish to add to this rather nebulous promise, that is entirely up to you. A time frame within which any defects in workmanship will be corrected without charge can be stipulated in writing, but I find it better to leave this unwritten and open. It seems to me that specifying a 30-, 60- or 90-day limit implies that the work will fall apart one day after that time period.
Finally, be sure that your quotation, once accepted, is complete. If the client accepts your bid with the specified deposit and a hearty handshake, you still do not have a contract. Look at the bottom line, the one provided for the client’s signature. That signature makes the document legal and binding; don’t do business without it. If the unthinkable should occur and the client reneges on subsequent payments, the terms of the contract ensure that the products belong to you and can be liquidated to cover your investment in them. If, however, you slipped up and delivered the cabinets without taking the final payment, your only recourse may be to place a mechanic’s lien on the client’s property and take him or her to small-claims court. Consult an attorney, or do it yourself after reading up on it (see Appendix 2).
Unfortunately, innumerable things beyond our control besides a client’s disinclination to pay a bill are beyond our control. Fortunately, in this country we have a booming insurance industry in this country ready and willing (for a price, of course) to protect us from the vagaries of nature and the inhumanity of man. To protect business and personal assets, cabinetmakers need to purchase two basic forms of business insurance: loss insurance and liability insurance. If the shop has employees, workmen’s compensation and disability insurances must also be obtained. Consult your state’s labor board to ascertain from whom this coverage gets purchased and the amounts required.
Protection against loss due to fire is provided in a three-part package: “Basic” insures your equipment, inventory and the building, if you own it; “legal liability” covers a rented building and is necessary if your landlord won’t include a “hold harmless” clause in your rental agreement; and “property damage” insures other sections of the building not occupied by the business. Optional extended coverage protects against loss from causes other than fire, such as smoke, storms, explosions, vandalism and theft. The premiums for these policies are relatively high for woodworking businesses but can be reduced somewhat by installing dust collection and sprinkler systems and by using nonflammable finishing materials.
Liability insurance offers protection from lawsuits in the event that a non-employee sustains an injury while in your shop. (Have you ever watched helplessly as a curious customer picked up a gleaming 2″ chisel, said “This looks sharp,” and proceeded to slice off a chunk of thumb?) Of course, liability insurance also protects customers if they should suffer from any ineptitude on your part (for example, when you show a client how sharp the chisel is by slicing off the end of his or her thumb). “Product liability,” sometimes called “works completed” coverage, covers you in the event that your product, once beyond the shop’s doors, somehow manages to injure somebody or cause damage. Don’t laugh: I once had a lazy Susan go berserk, literally flying off her hinges and strewing $75 worth of exotic spices across my client’s kitchen floor. If someone had slipped on them, it wouldn’t have been something to sneeze at. Liability premiums depend on the amount of coverage desired, the projected gross annual income and the number of employees retained. Since I have no employees and do not operate as a subcontractor (I am considered a vendor), I have not had to buy workmen’s compensation or disability insurance. In addition to a basic package of loss and liability insurance, I purchase my own medical coverage. To keep the rate on the latter down, I accept a large initial deductible.
For all these insurances, select a broker who has experience insuring woodworking shops. A knowledgeable broker can help determine the amount of coverage you need and clarify the details of the coverage as they relate to the woodworking business. Stay away from brokers without commercial experience because they will not know how to specify the details of your operation or ask the right questions to obtain the lowest premium rates.
Jim Tolpin is an author for Popular Woodworking books.