Start New Machine Shop OR BUY

M

maslowth

#1
me and my husband want to start our own machine shop and stamping business my husband already quiet his job with 35 year aerospace tool and die experience. i just need some opinion should we start new or buy?
 
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RoxaneB

Super Moderator
Super Moderator
#2
me and my husband want to start our own machine shop and stamping business my husband already quiet his job with 35 year aerospace tool and die experience. i just need some opinion should we start new or buy?
Welcome to the Cove, maslowth.

To be honest, if you and your husband wish to start your own business, you should have some business savvy that would allow you to:

  1. Develop a solid business plan.
  2. Cost out starting new or buying an existing company.
  3. Ascertain market potential.
  4. Determine which venture is best aligned with your business plan and goals.

There are pros and cons to both options. There is also a third option which is to invest in an existing company - especially one that is open to a new partnership.
 

Michael_M

Trusted Information Resource
#3
As RCB stated, there are pro's and con's to both choices and these choices must be weighted against what you can do vs. what you want to do.

For example, if you buy an existing business, you will get (hopefully) the existing customer base, existing machines and building (even if not fully paid off yet), and some type of 'income' walking in. However, you will get an existing company culture that will be difficult to overcome in the short term, any existing company integrity issues, and machine maintenance problems.

A new business has different issues but along the same general lines of thought. Having to find work, having to find qualified people to work for you, etc.
 

RoxaneB

Super Moderator
Super Moderator
#4
As RCB stated, there are pro's and con's to both choices and these choices must be weighted against what you can do vs. what you want to do.
Excellent separation of the two!

Michael_M said:
For example, if you buy an existing business, you will get (hopefully) the existing customer base, existing machines and building (even if not fully paid off yet), and some type of 'income' walking in. However, you will get an existing company culture that will be difficult to overcome in the short term, any existing company integrity issues, and machine maintenance problems.
From a financial perspective, the existing machines level of depreciation could make them seemingly more $$$ but the upkeep and maintenance costs could be higher than those for new machinery. Some business and technical savvy in assessing the state of machinery is a must.

Michael_M said:
A new business has different issues but along the same general lines of thought. Having to find work, having to find qualified people to work for you, etc.
Toss in all the considerations required with ensuring a suitable base of operations - location, utilities, accessibility, machinery...but it's all new and all yours (or the bank's :cool: ).

Either way you go, dealing with the bank will more than likely be a must, as well. Not to mention, familiarity with health and safety regulations associated with this particular industry.

The concept of starting your own business requires a lot more thought and knowledge than the technical side of things.
 

Wes Bucey

Prophet of Profit
#5
Welcome to the Cove!:bigwave:

For my part, I think you need a bit more research into whether you and your spouse have ANY experience running a business, whether it is service, manufacturing, wholesale, or retail. Next, you have to decide if that experience is translatable to the machining business.

When I got into the Contract Machining business in 1990 (in lieu of being paid as a consultant), I had tons of business experience and expertise, but none in the machining business except as a customer of machining services. My one asset to the technical part of the business was that I was an Illinois-registered Professional Engineer and was readily conversant with engineers and designers of components we would be producing.

Having sufficient capital or access to financing is crucial.

Frankly, buying an existing machining business is more risky than starting from scratch with one leased NEW machine and growing your own business. The plain and simple truth is that machine shops come up for sale for one of two main reasons:

  1. the current owner is unsuccessful
  2. heirs are selling a business after a sole proprietor dies
In either case, odds are the machinery is obsolete or nearly so and customers are unprofitable.

When an owner dies without having made suitable provision for succession, it is a big red flag that the business was not run efficiently and effectively.

Following is an excerpt from a long-ago thread where I talked about how I and my partners turned around a failing machining business. None of it would have been possible without my skill and experience in arranging and negotiating financing.
http://elsmar.com/Forums/showpost.ph...6&postcount=20
Quote:
Originally Posted by Cari Spears
Did you do this when you purchased the business? Or after how many years of running it?

What did the employees do? Did they get laid off? Or did you do the gutting in sections in order to keep people working?


Good question!

We made the final decision 3 months after we bought it. Everybody stayed on payroll. All operators were in on planning with architect and conversations with machine tool reps as to what equipment we would buy/lease. Once we began the gutting, operators and others attended training classes off-site to learn how to use the new machines we were getting. We visited various suppliers in small groups (including our operators) to do on-site supplier approval visits. We managed our administrative operations from a small office our neighbor across the street lent us.

We coordinated almost everything we would do over the three month "gut and build" operation BEFORE we moved the first old machine out. The machine tool manufacturers and their representatives were wonderful to work with and allowed our operators to make product we sold to customers during the training period for the operators.

While all this went on, my partners and I searched for new customers to fit the niche markets we had chosen as the major impetus for our makeover. Once we had our targets lined up, we went into a blitz as soon as we were up and running again. All told, it took us one full calendar year from the day we disconnected the first old machine before we had a net profit from operations. It took 18 months from day one before we made a net profit after making our debt payments.

We negotiated a lot of moratoriums and deferred payments to help stretch our equity. It was tough, but almost everything went according to our original plan. We increased our target niche to include manufacturing components for medical devices based on information provided by our machine tool reps. It was a small, but instantly profitable part of our business.

Construction and new machine installation went like clockwork (almost "plug and play.") We used sample parts our guys had been making while learning how to run the machines as our marketing tools when we dealt with prospects. We sawed them in half, glued them on a card with one advertising line: "If you need parts like this, you need us!" plus contact info and sent them to our target market. Inquiries accompanied by part drawings came in so fast, we had to install a second fax machine and then a third to assure no customer got a "busy signal."

Instead of sitting down to quote the part, we turned traditional contract machining marketing methods upside down. We picked up the phone and called the customer with questions like:
  1. Do you currently use this part?
  2. How many do you use a year?
  3. Do you currently make it yourself or buy it?
  4. Why are you seeking a quote?
    (If the chooch said anything remotely resembling, "Just checking the market." We replied, "Sorry, we only deal with folks who need the product. No quote. Goodbye!")
If it was an existing part, the one answer we wanted to hear was that they were unhappy with their current supply, either for price or quality. We then went into our concurrent engineering mode and asked them to elaborate. If it was a quality problem, we asked them to send us samples of the nonconforming parts with their inspection sheets so we could "diagnose" the problems. Our whole stance was to position ourselves as "partner" first, before WE ever quoted.

If price was the issue, we'd ask, "How much do you need to buy it for?" Then we said, "That might be doable. If not, we'll tell you straight out that it isn't. If we suggested some design changes which would make it less expensive to manufacture, but still have same fit and function, would you be able to work with that? Are there mating parts which would be affected? Can you send us the assembly drawing and the drawings for the mating parts so we can look at that as part of our analysis?"

Usually, by the time we were finished with the introductory give and take, we had several phone calls, talked to design engineers and manufacturing managers. Soon, the problem of "price" was the furthest thing from the mind of anybody at the prospect's organization. We were busy establishing ourselves as the "go to" folks.

If it was a new part, never made before, we asked about potential real use (we didn't quote a blind spread of quantities and price breaks.) We asked about mating parts, end use, etc. Finally we asked the big question, "What do you think you need to buy this for to be able to have a marketable product yourself?" Then we went into our pitch, "That might be doable . . ."

If we spent as much as an hour qualifying a prospect, it was much more cost efficient than sending quotes out on the fax like oysters spawning in the ocean. We had names, extension numbers and "rapport" established. We would call up before we sent out a formal quote with the oral one, telling the recipient to go to his fax machine and pick it up, stay on the line and then tell us if it came through clearly. Our quotes NEVER got lost in the shuffle. We asked for a target date when he would have the answer and the order. We followed up, eager to help if there was a glitch at their end.

By our third year, our regular customers would call us first, ask if we had time to look at a drawing, then send it over by fax while WE waited for it to arrive. Often, they said, (before we went into our interrogation):
  1. We currently use this part.
  2. We use ____ thousand a year.
  3. We've been buying it from John Doe, tell us if we're getting a good deal or not. We currently pay $_____.
  4. We're asking you to look at it - if you can come close on the price, we'd rather deal with a known quantity like you. Sometimes these guys act like they don't need us as a customer.
  5. What more do you need to know?
Sometimes, just sometimes, the plan works! Our plan was for our customers to think of us as partners with whom they could share confidential information. It worked because we never betrayed the confidence. Many times, we'd tell them they were already getting a good deal. If the quality was a minor problem, we'd offer to consult with their current supplier to help him overcome the obstacle to good quality. Our pitch to the "competitor" would be that we were partners with them in satisfying the customer. A happy, satisfied customer was easier for everyone to deal with. We sometimes used these "competitors" to outsource some of our overflow once we got their quality systems up to snuff. Our point was, "If you have similar machines, you should be able to do similar work. Let us help you tackle the quality and service issues."

:topic: This was probably way more than you needed to know, but I am passionate about running a business smoothly and profitably. In my mind the strategies involved in Business Management Systems and Quality Management Systems are interchangeable. They all revolve around making yourself indispensable to your customers.
 
Z

Zeusasa

#6
Business depends on customers - and you won't have customers untill you have a business ...... Its like a vicious circle, I've been through that,
Buying existing business is very good option if :
A)Zero debt
B)Paying customers come with it
Starting new machine shop good if :
A)Confirmed orders of paying customers
 

Wes Bucey

Prophet of Profit
#7
Business depends on customers - and you won't have customers untill you have a business ...... Its like a vicious circle, I've been through that,
Buying existing business is very good option if :
A)Zero debt
B)Paying customers come with it
Starting new machine shop good if :
A)Confirmed orders of paying customers
I don't agree confirmed orders are necessary BEFORE starting new machine shop, BUT a business and marketing plan IN WRITING is almost essential. Checking the plan over with a qualified consultant before implementing it is a very good idea.

The idea of where to get consulting advice from free or low-cost up to expensive consultants is grist for a new thread.
 
P

PaulJSmith

#10
me and my husband want to start our own machine shop and stamping business...
And so you should, maslowth! Don't take the replies in this thread as an attempt to dissuade you and your husband from pursuing your dream. They are not. The guidance given here is from the vast wealth of combined experience of The Covers. These guys (and gals) have "been there, done that," sometimes several times over. Use their sound advice to make informed decisions about how you might pursue your new business.

Good luck, and be sure to keep us informed. Your success could inspire others as well.
 
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