You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple step guide to starting your prototype design business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a prototype design business?
The costs of opening a prototype design business can be substantial. In addition to having a workplace, Creative Mechanisms recommends that business owners also purchase a:
- Single-tool CNC machine that’s programmable but can also be manually operated
- Multi-tool CNC machine that’s programmable
- Fused Deposition Modeling (FDM) 3D printer
Business owners who have a limited budget might be able to start out renting equipment at a nearby CNC shop. Although this requires working around the shop’s schedule, paying to use equipment on an as-needed basis is much less expensive than buying it outright (and having to maintain it).
Additionally, business owners might be able to get buy at first with only an advanced 3D printer. While a business will eventually need CNC machines, a capable 3D printer will be able to build some prototypes itself. A business can start out making only these prototypes, and expand into other work once the business has enough funds for a CNC machine.
What are the ongoing expenses for a prototype design business?
The ongoing expenses for a prototype design business are manageable. They include rent (if leasing a space), utilities, equipment maintenance, software licensing and material costs, as well as employee wages.
Who is the target market?
Most prototype design businesses focus on serving one of two distinct target markets.
Some businesses primarily work with corporations that want prototypes developed. These prototype businesses are often creating products from formal mechanical or engineering drawings, and they’re interacting with professionals who are familiar with the design and manufacturing process.
Other businesses serve individuals, who are often small business owners and/or inventors. These prototype businesses frequently create products from napkin sketches, and they often offer clients more assistance with the design and manufacturing process.
How does a prototype design business make money?
A prototype design business makes money by offering prototype services. Although the work ends in a physical product for the client, clients usually pay for the service because building a prototype frequently involves several steps. Charging for the service lets businesses adjust their fees based on the time required and work involved.
How much can you charge customers?
The rates that prototype design businesses charge vary greatly depending on a prototype’s complexity, the amount of assistance provided, the turnaround time and the equipment required to build the prototype. Basic rapid prototypes might cost as little as $100, while high fidelity connected prototypes can be $30,000. In some cases, a prototype might even be $100,000.
How much profit can a prototype design business make?
With prices ranging from $100 to (sometimes) $100,000, prototype design businesses bring in vastly different revenues. Some small businesses make respectable yet modest annual revenues, while others may have substantial revenues and profits. At $1000,000, making just 10 prototypes in a year would result in a $1 million gross annual revenue.
How can you make your business more profitable?
A prototype design business can increase its revenue by helping clients with more than just building prototypes. Many clients also need help with designing, developing, patenting, licensing and distributing their inventions. Some businesses also offer low-volume manufacturing.
What will you name your business?
Choosing the right name is very important. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your prototype design business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
For most small businesses forming an LLC is a great option, but if you still want to weigh all your options check our our article, What Structure Should I Choose for My Business?
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a prototype design business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Certificate of Occupancy
A prototype design business is generally run out of a workshop. Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a prototype design business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for your business’ location to ensure your prototype design business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a prototype design business
While a prototype design business can market through search engine optimization, pay per click and social media, more traditional advertising methods often see better success. Business owners can obtain membership lists from relevant associations, and either send direct mailings or make cold calls to all association members. Advertising in trade publications and Inventors Digest is also effective.
Recommended: Get started with local advertising for your business with a $300 credit from Yelp.
How to keep customers coming back
A prototype design business can set itself apart from the competition by offering a high level of service. Many clients will be willing to pay a little more if they’re well taken care of throughout the entire process of making a prototype.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Prototype Design Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Anyone who is highly detail oriented yet also very creative may enjoy running a prototype design business. Creating prototypes requires great attention to detail, but an ability to think outside the box is equally important to making products that have never been built before.
What happens during a typical day at a prototype design business?
Prototype design businesses don’t necessarily have a “typical day” because each new prototype presents its own challenges. On any given day, business owners might find themselves:
- Helping clients refine their conceptual ideas
- Reading (and sometimes refining) product drawings
- Working with any number of materials to build products
- Problem-solving with others who have specialized knowledge
- Helping clients alter and adjust their prototypes
For many business owners, the variety that each new prototype brings is a major reason to start this type of business.
What are some skills and experiences that will help you build a successful prototype design business?
Running a prototype design business requires a significant amount of manufacturing knowledge, including expertise in product design and manufacturing. Business owners may find themselves working with many different plans and creating prototypes with a variety of materials.
In many cases, business owners already have an engineering degree. Those who don’t may want to complete an engineering program or hire an engineer to work with them. Many colleges and universities offer engineering programs, including lots of online options. The University of Southern Mississippi and Regent University are a couple of schools with online degrees.
As part of the engineering training, business owners frequently learn computer-aided drawing (CAD). Business owners who have an engineering background but would like to advance their CAD knowledge can take an online course from Coursera or a similar platform.
What is the growth potential for a prototype design business?
Most prototype businesses have a single facility where they build prototypes, but the internet makes it easy to serve clients from all over the world if a business wants to do so. An example of a business that primarily services a local area is Armstrong Rapid Manufacturing in Syracuse, NY. Kickr Design and Mako Design + Invent are two other businesses don’t focus on servicing a particular area.
TRUiC's YouTube Channel
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One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
What are some insider tips for jump starting a prototype design business?
Business owners must network, and not only with potential clients. Having a strong network of industry specialists gives business owners many consultants to draw from when they face problems and challenges that are outside their area of expertise. Ultimately, it’s business owners ability to help clients solve these problems and challenges that will make a prototype design business successful.
How and when to build a team
Business owners who have a strong network of industry specialists can start a prototype design business without any employees. Specialists can be consulted on an as-needed basis and paid a fee whenever they’re called upon. As demand for prototypes grows, business owners can hire employees to help with their workflow.