Prepping for 2025

The national economy seems to bode well for woodshops this fall, despite all the political rhetoric in the air. Inflation continues to decline, as do interest rates. And conversely, a slight uptick in the unemployment rate may benefit smaller employers who have had a hard time recently finding qualified people to hire.

The U.S. Bureau of Labor Statistics reported in mid-August that inflation in July was at an annual rate of just 2.9 percent, which suggests a return to long-term normalcy. The rate of inflation hit an uncomfortable high in the summer of 2022 at 9.1 percent, which occurred in the wake of the pandemic and related global supply chain challenges. Those issues have faded, and with them a degree of uncertainty has dissipated.

Interest rate trends are also encouraging. Interest charges can be the difference between an average and a good year for woodshops because they not only affect the buying materials on credit, but they also cause ripples in the housing market. That can have a drawn-out impact on casework sales in terms of housing starts and remodeling. But there was good news in late August, when U.S. 30-year and 15-year mortgage rates fell to 6.46 percent and 5.62 percent, respectively. The 30-year rates have declined steadily from 7.22 percent in May, and most analysts are predicting reductions in the Fed rate before the end of the year. We probably won't see sub-6 percent on 30-year loans this winter, but the consensus is that we will during 2025.

For woodworkers, the takeaway here is that next year might be a good time to invest in high-ticket machinery, as interest rates are becoming more favorable for both borrowing and housing starts. It may also be a better labor market from an employer's point of view, and slowing inflation should help us get a better handle on operating costs.

Artificial Intelligence (AI) is now an integral part of almost every small business management software suite, and woodshops are no exception. Project management programs aremaking extensive use of machine learning to reduce rejects and increase production rates. AI lets the woodshop's employees and management make more informed decisions because it can create up-to-the-minute analysis of everything from just-in-time buying to projected sales, time management, machine maintenance, utilities and waste control, and any other quantifiable aspect of running a small business.

AI is, in basic terms, the process whereby computers collect data and then make predictions.

Machines obviously can't think like a human, but they do generate numbers that allow a computer to evaluate and advise. A woodshop looking for a comprehensive business management suite for 2025 needs to think about this potential and find a comfortable level of AI. Some software will micro-manage to the point of distraction, while other programs are designed more for high-volume production environments than the custom work being done in a small woodshop.

Choosing software is no longer a simple matter of reading reviews and buying online. It is becoming complex enough that woodworkers are turning to consultants for advice before they buy or rent.

In the office, AI is being used extensively in marketing and communication to enhance the image of small businesses. As woodworkers increasingly turn to social media to display their portfolios and potential, programs such as ChatGPT can help tailor the message. But while software can write paragraphs and correct spelling errors, it can also paint a wooden, unimaginative picture that is often more technology-based than customer oriented.

AI excels at retrieving and organizing information, and this is perhaps where it will become most useful in the woodshop. In-house searches are now lightning fast, and they can comb through countless file formats and versions. That means a shop's entire history with a specific client or supplier can be retrieved quickly. It also means that everyone on the team, from installers to cabinetmakers, spray booth operators to lumber buyers, can all access the same very precise information, and enjoy real-time updates. These are all features that a woodshop manager can ask about when shopping for AI-supported shop software.

But there's one more little bonus in the new generation of programs that can pay extra dividends. Many suites are now offering instant team access to all the shop's data, but when it arrives at each employee's desk, some software is now adding the option to create personal, task-specific tools for analysis. For example, the shop's salesperson doesn't need to spend a lot of time on glue curing times, and the person spraying coatings doesn't care about the fastest driving route to a jobsite. AI helpsindividual employees sort through the mountain of data, extract what concerns them, and then organize and present it in a useful manner.

Part and parcel of the new AI capabilities is a feature called natural language processing, or NLP. This acronym refers to a computer's ability to interpret, manipulate, and understand human language. It basically lets the computer talk to humans using spoken rather than automated language. It's more personal. We hear it when we're put on hold every time we ask for assistance from a large company. NLP lets a computer assess inflection, volume, stress and other factors in human speech, and then replicate it.

Yup, C-3PO has arrived, and he can work in our woodshops.

Another very serious aspect of shop software that managers need to ask about before buying a suite of tools for 2025 is security. This is rapidly becoming a nightmare for small businesses, where evermore frequent breaches are releasing personal data and opening woodworkers up to legal repercussions. It's imperative that shop owners contact their insurance carrier and confirm that they are covered for any negative impact from a data breach.

Despite the most sophisticated software, the simplest solution here is an old-fashioned one. Examine your records and see what you can live without. For example, woodshops don't need to store customers' credit cards or bank records for future purchases. And they don't need to upload customer names, addresses, emails and personal data to a cloud: these are small files that can be stored on a USB flash drive with no online vulnerability. A second flash drive can provide all the backup needed.

The end of the financial year is a good time to do a comprehensive inventory of the woodshop's insurance coverage. Areas to check are general liability, workers' comp, errors and omissions, property coverage, and a relatively new one called environmental liability insurance (ELI). Many business owners refer to this as pollution insurance, and it covers problems caused by pollutants released by the shop to the air, nearby bodies of water, the land around the shop, wildlife, and the local ecosystem. It can also cover human injury or loss of life that derives from chemical or other harmful waste, depending on the policy.

ELI can be expensive, but there are ways to reduce the risks, and therefore the cost of the policy. These include instituting a training program that teaches employees how to deal with potentially hazardous materials — everything from fine dust to solvents, plastic laminate and edge banding waste, even discarded blades and other sharp items. There are also a host of IoT (Internet of Things) devices on the market that can monitorfactors such as smoke, heat, water, chemicals, and even noise pollution, and provide online or Bluetooth-based warnings that can help reduce the negative results from a spill, leak or other emission. Having these in place can help reduce the cost of an ELI policy. ELI often covers problems that are specifically excluded in both liability and property insurance policies, so it'sworth discussing with an insurance agent.

Once upon a time when small business owners wanted to buy a new machine, they visited a bank manager. That's still an option, but now it's just one of many. And while some of the new choices may sound a bit farfetched, it's surprising how well they can work.

Calling the bank manager can involve meeting strict standards, providing lots of paperwork, and enduring a long process laced with inflexibility. Banks are still very conservative, and even more so since new regulations kicked in after the global recession in 2008.

Some nonprofits, government agencies, and even a few large corporations offer small business grants. These are usually industry specific, and they require a lot of research.

Crowdfunding is all about presentation. This is the use of a specific website to raise a loan or a grant from many small investors. It has grown exponentially over the past few years andis becoming a viable option.

Social or Peer-to-Peer (P2P) lending is when another business or an individual investor loans money to a business without going through a bank. There are P2P lending companies that arrange the contact between the borrower and lender, but because there are no bricks and mortar involved, it pays to tread cautiously and investigate thoroughly before committing.

Angel investors are well-heeled individuals who invest their own money in businesses, and they usually ask for a share of the ownership (think Shark Tank).

The U.S. Small Business Administration (SBA) helps small businesses get funding by setting guidelines for loans and reducing lender risk. These SBA-backed loans make it easier for small businesses to get the funding they need.

And leasing can be done through an equipment supplier or a leasing company. While it delivers the machine without the shop owner handing over a large amount of cash, it can be expensive in terms of interest and buyback at the end of the lease.

Originally published in the October 2024 issue of Woodshop News.