Starting a Small Business

Learning how to make a well-crafted wheelchair is just one part of starting a wheelchair manufacturing business. It is equally important to learn the skills necessary to start and manage a successful small business. Your business is less likely to go bankrupt in a few months if you plan carefully, project your start-up costs accurately, and raise enough money to last until your shop can produce and sell enough chairs to begin to make a profit. It takes careful planning to accurately project start- up costs. We have seen a wide range of estimates, from groups whose start-up costs exceeded their estimates by 300% to the Asociacion Del Rehabilitacion Del Impedido De Asuncion, a well organized association of disabled people in Asuncion, Paraguay, whose cost projection came within 20% of actual costs.

Your business is less likely to go bankrupt in the long run if you have a person experienced in accounting to keep your financial records and provide you with the financial information you will need to make wise business decisions. For example, to determine a selling price for the wheelchair, it is important to include not only the direct costs involved (materials to make the chair and a mechanic's labor); you must also calculate the overhead or indirect costs that are incurred (rent, payment on your loan, truck rental, depreciation of tools and equipment, office expenses, taxes, etc.). Without the help of an accountant it is not always obvious whether your business is making money, breaking even, or losing money until it is too late.

This chapter includes information that should help you to answer the following questions:

• What sorts of skilled workers will we need to operate a successful shop?

• How can we estimate how much money it will take to start our shop?

• How much does it cost to produce each chair?

• Are there enough customers in the area who will be able to pay for a wheelchair?

NECESSARY WORKERS

Even the best mechanic in the world cannot run a successful wheelchair manufacturing business without some skill in accounting. Without a qualified accountant, you may be surprised to find that your business has not been going as well as you thought. One small business kept trying to increase the volume of sales to pull themselves out of a bad financial situation. They did not have an accountant nor adequate financial records; consequently, they didn't know that they were selling their product below cost. They successfully increased their sales, but this only increased their debt. Eventually, they went out of business.

The first successful start-up that we were able to observe, the factory in Asuncion, Paraguay, obtained the services of an accountant who set up their bookkeeping system before they began to manufacture wheelchairs. Their accountant continues to work one half day a week, keeping the books up to date. We highly recommend that you hire someone experienced in accounting to be directly responsible for the accounting on an ongoing basis. He or she can provide the information you will need to make sound business decisions.

The business will also need a master mechanic who has worked with sheet metal and who is a competent welder. A mechanic who has also had experience working with light metal tubing would be ideal. Experienced autobody workers or bicycle makers and repair persons will have skills that are transferable to making wheelchairs. In addition, it is important that the mechanic be comfortable with the mathematics involved in measuring angles and lengths.

The best way for someone to learn how to build our wheelchairs is to visit an established wheelchair shop. Currently, there are wheelchair businesses building the ATI-Hotchkiss Torbellino type of chair in Nicaragua, Mexico, Peru, Paraguay, the Philippines, Colombia and the U.S.

The cost analyses presented in this chapter have been based on a business that employs three mechanics, one master mechanic, one administrator, and an accountant who works 1/2 day per week.

HOW MUCH MONEY WILL IT TAKE TO START A WHEELCHAIR MANUFACTURING BUSINESS?

Starting a wheelchair manufacturing business from scratch (with nothing donated) that can manufacture between 10 and 15 wheelchairs a month will require an initial investment of between $9,700 and $11,300. This figure is based on 1984 prices and will vary from one country to another.

Detailed price lists of all the tools, machinery, and materials are found in Chapter 2.

Start-up costs should cover all expenses until the shop begins to sell wheelchairs. It will probably take six months or more before sales are large enough to cover all expenses. Start-up costs can include modifying the shop and office to make them wheelchair accessible, installing electric circuits, bending equipment, and other machinery, incorporating and setting up financial records, training the staff, and many other items. Start-up costs will vary greatly from one group to the next, and are easy to underestimate.

Operating capital is money used to purchase materials in large quantities and to provide an ongoing cash reserve to protect the business during dry spells. Many small businesses fail because they try to begin manufacturing before they have raised enough money. Accurately projecting how much capital the business will need, and then raising the full amount, are two of the most important steps to take to insure the health and survival of your new business.

There are several ways to go about raising capital. If the business is set up as a charitable organization some of the money can be raised through donations, either from private individuals or from foundations. However, both nonprofit and profit-making enterprises are likely to raise most of the money through bank loans, private investors, or some combination of the two. Any lending agency will want to look at a well thought out business plan before loaning money. The following analysis of how much it costs to manufacture one wheelchair and the list of potential expenses should help you to begin to develop your business plan.

ESTIMATED COST PER WHEELCHAIR

It is important when calculating what it costs to produce a wheelchair to include the indirect costs such as shop rental, utilities, truck rental, etc., as well as the direct and obvious costs of materials, a mechanic's labor, and finishing (chrome plating and painting). Two of the indirect costs that many groups forget to include are equipment depreciation and debt retirement.

Equipment Depreciation

Tools, machinery, jigs, and equipment will not last forever. At some point your business will need to buy new ones. If your saber saw is expected to last for two years of hard use, and it initially cost $24, it will depreciate at a rate of $1.00 per month. This $1.00 per month is an expense that must be added into your calculations of what it actually costs to make wheelchairs. Considering that your initial investment in tools, jigs, machinery and equipment may be close to $4,000, it is important to calculate how quickly these various items are likely to depreciate. No one wants to use up the life of their tools and not have any money set aside to buy new ones. From

our experience we estimate that by setting aside $110 a month as a depreciation expense, the business will have enough money saved to replace the jigs, equipment, and machinery as needed. Placing these funds in a savings account will also earn the business some interest which can help to cover the increase in prices due to inflation.

Debt Retirement and Interest (Paying back a Loan)

In calculating the expected cost per chair, we have assumed that the total capital investment of $11,300 was borrowed at a interest rate of 18% over a period of three years. This results in a monthly payment of $409. This figure will vary from one group to the next. Some groups will not need to borrow this much money (they may already have an established metal shop), and finance terms are likely to vary a good deal from one country to another. Be sure to use your actual figures to calculate your expected cost per chair.

The following chart is based on the first year's operation of the wheelchair factory of Asociacion Del Rehabilitacion Del Impedido De Asuncion, Paraguay. They have established a business with three mechanics producing 12 chairs a month; we have applied those figures to a four worker shop producing 14 chairs per month. This is 78% of a typical production capacity of 18 chairs per month. Fill in the blanks with the figures from your particular country and situation to estimate your own costs.

Locally produced wheelchairs using old-style, heavy frames that lack important features sell in several countries for $200 to $400. Locally produced imitations of Everest and Jennings chairs sell in some places for $300-$600, and full-featured imports sell for $600-$1500. Our Torbellino wheelchair, a full featured lightweight chair selling for $200 to $250, has sold quickly in these markets.

CUSTOMERS

Unfortunately, $200 to $250 is still more than many people will be able to afford. It is important before beginning production to determine if the people who need chairs in your area will be able to buy the chairs you produce or will be able to get a loan to buy them. If adequate consumer credit is not available, you may need to come up with some funds of your own. The Philippine group has hired a salesperson who travels throughout the area visiting customers, and when possible, arranging for donors to help pay for chairs for some of the poorer customers.

Some groups have considered providing consumer financing, but at this time, none have had large enough financial reserves to do this. One possibility is the establishment of a revolving fund for consumer credit. The maintenance of the fund would be based on the likelihood that disabled people who are currently underemployed could earn a better living once they have better mobility. Thus, they could maintain a reasonable schedule of payments, and the money could be used again for consumer credit. The money for this fund might come from a charitable contribution, or be built up slowly from the profits from sales of wheelchairs to other customers.

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