PUrchasing the shop I'm currently working at. Advice? - Page 2
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  1. #21
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    If the OP ever comes back I would listen intently to Mr SF Bay guy. I doubt any place in California would be worse than there for having a manufacturing business as far as red tape from city hall and all the paperwork and regulations that come with it. Hopefully you are in 29 Palms.

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    Iím still her guys, I expected a notification or something after 3 days I didnít see my post up :/

    Price is being discussed now. Iím not being asked to come up with a large amount for capital or put my home in any type of risk. Iím paying the owner directly and not doing anything through a bank.

    Iíve was even originally recommended by the owner to find a lawyer to represent me as he explained when he purchased from the owner prior it was huge benefit to him.

    I should clarify that there is no request for me to do any of the things I do in efforts to purchase the business. Itís just how I work, I like my job and like working hard to improve at it.

    Iíll post a bit more on my lunch break to frame the structure of all this better.

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    Couple more things to think about if you are going to make a success of this :-

    Who is going to do your job when you take over as owner? You will be too busy learning how to be owner, there is an absolute ton of stuff involved in top level management that you don't think about lower down. The production manager job absolutely cannot be done with a back seat driver.

    In very real terms the hands on owners job is to get out of the way so that your people can do their work quickly and efficiently. Probably got it about right when you are working really hard and the employees say "Boss is a waste of space. Doesn't seem to do owt. Any fool could sit in his chair.". You will know different! The aforementioned view is true enough in a lot of dying firms tho'.

    Does the "internal dynamic" of how the firm works suit the way you would run it? With smaller firms everybody tends to wear more than one hat but, unlike in many larger organisations, its never explicitly set out who wears what other hat beyond what the official job is. Indeed most of the time no-one really knows what the other hats are. Most stuff just gets done well enough with the odd "We forgot..." panic which gets sorted somehow or other with resolutions not to get caught out next time.

    Ha!

    You can change things but its got to be done in the right order and at the right rate. Initially you have to drive the boat the way its used to being driven. Its amazing how small some of the issues are that make the difference between well oiled and squeaky rust. When you do hit such don't assume its folk being obstructive or not being willing to change whats always been done. Can be sometimes but often its because thats the way everything ties together and everyone knows what to do.

    In the UK its said that its bad when new foreman starts by turning the benches round. Was parallel to the long wall now perpendicular. Wastes a butt load of time and end result is about the same.

    Always remember that you can't organise everything. Always 10 or 20 % that won't fit the scheme and has to be dealt with on its own merits. I used to work for a UK MoD research establishment. Essentially same job, certainly same lab for over 20 years. Worked for 4 1/2 (don't ask about the 1/2 OK) "firms" and, probably 20 maybe 25 departments (I lost count and missed at least one change due to a months holiday). Pretty much all of them chasing the 10% that didn't fit the table of organisation. In the real world all the name changing and shifting had negligible effect at great expense beyond convincing all the workers that upper management needed braille instructions on the cubicle doors. Get caught in that sort of cycle, the first step or two is real easy, and you will have a dead firm.

    Clive

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    OKÖ so here is some answers

    1. Owner is carrying the ďslipĒ Iím to pay him not a bank.
    2. Iím not being asked to come up with capital or use the equity in my home as a down payment.(actually being told I may need some cash on hand from him to get through the first few months.
    3. The time frame is dependent on me being ready (If that was today then we begin today) 2 years is when heíd like to be out and done with the sale.
    4. Iíve been recommended by the owner himself to look for a good lawyer/accountant to help me through the process.
    5. I personally deal with all of our customer 99% of the time and have done so for the last 5 years. I feel Iíve developed a very good relationship with them.
    6. Shop is 8800 sqft we have 9 CNC Mills, 3 CNC Lathes, 2 Manual Mills, 1 Manual Lathe , and a lot of random older equipment. We even have an old Metal Muncher thatís just sat here for the last 15 years. Weíve purchased at least 4 new CNCís in the last year.


    Iíd bust my ass this way anywhere Iíd work. I have tooÖ itís just part of me. Iím aware that some people see that as something to take advantage of but am fortunate enough to where I feel itís recognized both in praise and pay from where I work.

    I handle every intricate and difficult part that we produce, I know every part that we make like the back of my hand . Iíve learned that not knowing everything is OK as long as you know where you can find the answer. I WILL LEARN ANYTHING!!! Lol for example Iím now creating a program in excel that will auto populate an inspection report for our operators to fill out based off our master file, it will also only present operators actual dimension to be checked at the machine, there will be an initial login with their employee ID to access it, It will only present them with the data for that operation, and upon submitting/saving it will update the master report, create the folder if itís non existing, and notify inspection through email that this has been completed so they know whatís to come. I knew nothing about VBA 2 weeks ago.

    Accounting and some business classes Iím more then willing to take, Iíd like to know where I make and lose money. Iím ambitious, I want to expand, and I want to create my own product down the line. Iíve recently gotten back into making my own golf putters (my 2nd passion GOLF). Iíll post a pic at some point maybe 

    The advice you all have given so far has been wonderful.

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    All good advise from others, I don't have much to add except this. Your boss is one lucky SOB to have an employee like you who can and does do it all. You need to find a like minded person to fill some of your responsibilities as you take over ownership, trust me on this, there isn't enough hours in the day when you are the guy doing it all. If you proceed with the acquisition make sure you have the ability right from the start to handle personnel as you see fit. You need to assemble a good team that you can trust and depend on, absolutely critical to having a successful business.

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    Quote Originally Posted by Jetrocket View Post
    Price is being discussed now. I’m not being asked to come up with a large amount for capital or put my home in any type of risk. I’m paying the owner directly and not doing anything through a bank.
    What happens in 6 months when you realize you bit off way more than you can chew? You NEED to know the answer to that up front because chances are, it will happen.

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    Quote Originally Posted by Jetrocket View Post
    Iíve was even originally recommended by the owner to find a lawyer to represent me as he explained when he purchased from the owner prior it was huge benefit to him.
    That should give you the warm and fuzzy's that the owner actually
    wants you to be represented.

    Also that he was in your shoes at one point.

    Ask the owner to ask HIS lawyer who he would like to work with
    on this deal.. 2 lawyers that are used to working with each
    other should make things go a lot easier.

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    You need to buy the accounts receivable, that way you aren't mortgaging your house to get through the first couple months. If the owner routinely keeps 100 grand on the books for emergencies, then you want to have access to 100 grand for emergencies.

    You need the forensic accountant review. Without this, you may not have books that are ready to borrow money against consistent cashflow. What happens if two of your machines crash in the first month and need 50 grand in work?

    A few things concern me. You have 12 CNC's, but you bought 4 this year. That's A LOT of change for a relatively small company. Paid cash, or do you carry that liability?

    Your work ethic. It's good to be a good worker, but when you do it without compensation, you are setting yourself up for burnout. You also can't expect the same dedication out of a single employee, and this is where I find people such as yourself screw up...they think their employees are their friends, or that they should work for them the same way they work for themselves. They believe salary actually means "I own your ass". I'm the same type of worker...until I burn out :-) A buddy of mine works for a company local. Salary there means, the first two hours are on you, from then on, it's still overtime pay. It also means that if you want to go fishing on Friday, and the place can miss you, by all means, go fishing. It's honesty, integrity and "I trust you"...but still "when I need more out of you than an average employee, I'm going to compensate you appropriately". Give and Take...but you have to let them take!

    Finally, the statement about the CMM. Why are customers becoming more nitpicky? Nitpicky is not a positive term in customer relations to me. "It's always been good enough" is similar to, "yeah, it's not to the print, but you haven't noticed for two years and have been ok with it"

    This one is huge to me, in terms of transfer of ownership. Could this company easily become ISO certified? Meaning, is it all tribal knowledge, or are methods documented, and those documents realistic.



    Those would

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    All good advise above.

    As far as replacing your current position if you do buy the business. An alternate thought to that is what does the current owner do that can be done by someone else. I have a customer and know of a couple of other local manufacturing businesses where the owner spends a significant part of his day on the shop floor. Much of the customer and supplier relations are done by a salesman, leaving the owner free to use his expertise supervising on the shop floor. They are always really on top of what is going on in the shop. The businesses I am thinking of are all very profitable for there size.

    I think about what I spend significant parts of my day doing and much of it would be better done by a secretary which my business is not big enough afford at this point. Obviously and owner has to keep on top of the business end of things as well and should be making the big decisions but maybe an office manager or bookkeeper is better doing some of what the owner is currently doing. Audits by your accountant and keeping an eye on things is important but the day to day things can often be done better by someone who has different aptitudes.

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  13. #30
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    Quote Originally Posted by Philabuster View Post
    What happens in 6 months when you realize you bit off way more than you can chew? You NEED to know the answer to that up front because chances are, it will happen.
    All part of the current discussion with him. Between the two of us we are doing what we can to create a situation where I can succeed and he can get paid. No guarantees in life! But itís a risk Iím seriously considering taking. Iím a mix of emotions about the whole thing but I have some faith in myself. Itís gotten me this far.

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    Quote Originally Posted by snowman View Post
    You need to buy the accounts receivable, that way you aren't mortgaging your house to get through the first couple months. If the owner routinely keeps 100 grand on the books for emergencies, then you want to have access to 100 grand for emergencies.

    You need the forensic accountant review. Without this, you may not have books that are ready to borrow money against consistent cashflow. What happens if two of your machines crash in the first month and need 50 grand in work?

    A few things concern me. You have 12 CNC's, but you bought 4 this year. That's A LOT of change for a relatively small company. Paid cash, or do you carry that liability?

    Your work ethic. It's good to be a good worker, but when you do it without compensation, you are setting yourself up for burnout. You also can't expect the same dedication out of a single employee, and this is where I find people such as yourself screw up...they think their employees are their friends, or that they should work for them the same way they work for themselves. They believe salary actually means "I own your ass". I'm the same type of worker...until I burn out :-) A buddy of mine works for a company local. Salary there means, the first two hours are on you, from then on, it's still overtime pay. It also means that if you want to go fishing on Friday, and the place can miss you, by all means, go fishing. It's honesty, integrity and "I trust you"...but still "when I need more out of you than an average employee, I'm going to compensate you appropriately". Give and Take...but you have to let them take!

    Finally, the statement about the CMM. Why are customers becoming more nitpicky? Nitpicky is not a positive term in customer relations to me. "It's always been good enough" is similar to, "yeah, it's not to the print, but you haven't noticed for two years and have been ok with it"

    This one is huge to me, in terms of transfer of ownership. Could this company easily become ISO certified? Meaning, is it all tribal knowledge, or are methods documented, and those documents realistic.



    Those would
    Machine purchases have been a long time coming and have decided we were just tired of putting it off. We routinely receive production work from some of our customers and were just tired of swapping things from machine to machine so often.

    Machines currently are having payments made towards them. There is a definite discussion to come on whether he plans to purchase them outright prior to the sale or if Iím to continue these with or without an additional cost for what he has into them already.

    I should clarify 1 was in replacement of an older machine.

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    In response to the ďburn-outĒ I completely agree and through these last few years Iíve learned that I cannot expect the same from other employees.

    I may have used the term ďnit-pickyĒ in the wrong context. But here is a list

    1. Cosmetic requirements - we follow their standards as we always have in the past yet they ask us to improve a surface finish or remove a tool mark from a part. NO PROBLEM! change your standard or request so on your PO and Iíll be glad resubmit a quote.
    2. CMM data - issuing them a exact measurement for things such as form, true position, circularity etc... became increasingly difficult and time consuming. Initially pass/fails on our reports were completely fine with them up until recently when we were requested (not required) to recreate our inspection report format and submit actual numbers for all measurements. Again we let them know our standard and anything else requested would need be stated on their PO and would require a new quote .
    3. Poor communication between their buyers and QA makes us seem as though we are cutting corners. Buyer request completion of a part in 3 days we say we canít machine it and complete all the required documentation in that time... they say just machine it weíll deal with the rest :/ the current owner has been burned by this so many times. They come back a month later requesting all the documentation! Iíve learned to keep all communications through email so i can have a trail when these things happen

    There is more but none of these requests occurred due to a change in our quality or an increase in NCRís.

    They seem to think request means required (or at least think they are savvy by doing so) they know damn well required means cost more lol.

    ISO is not something in our grasps as of right now or at least while the current owner has final say. Like I said he is old school and where that may work in some situation it doesnít in ISO. Tribal knowledge is what our QA is looking at removing right now. Itís been a struggle.

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    A followup to the OP:

    As has been mentioned above, if you do buy the business, understand that Head Honcho and Chief Bottlewasher is a totally different gig than ops manager, or production guy.
    I was the ops manager before the buyout, and I'm still the lead machinist. I've been trying to get out onto the mill for the past week, with no luck. Nothing but days of chasing unavoidable paper, dealing with supply issues, etc.
    The good news is that'll end soon. I hired someone to be the office manager, and she starts next week. I can get an office manager a whole lot cheaper than I can get a lead machinist. Thus....
    One of the critical things about owning a business is reading "the art of war". Which can be (radically) simplified into a couple of rules.
    1: know your enemy. Which most of the time is your customers. Basically: know the other guy.
    2: know yourself. What are you good at? What do you suck at? What's really the best use of your skills?
    3: Pick your fights.
    (for those who really know _The Art of War_, yes, I'm well aware that I'm *radically* oversimplifying it, but that really is the 3 bullet-point version, as applied to business.)
    In my case, I'm better used running the machines half the day, and touching base with the paperwork the other half.
    What's your plan for that? What's your plan for cross training the crew? How will you handle it if your #2 machinist walks out or gets hit by a bus? Etc.

    From what you've said, it sounds like a good deal. Get a lawyer anyway. This is too big to take on faith.

    Best of luck,
    Brian

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  19. #34
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    Running a buisness in part requires all the skills of being a whore, you have to get screwed, you have to smile and you have to then be able to get paid all whilst smiling. 95% of customers are tossers, they all want something for nothing. Your job is to keep em happy and smiling. Above all keep em coming back. That means you can't piss em off. Its a skill you have to master and don't want to learn it on your main customer!

    Poor communication is a std buyer strategy. Its how they play there game and you have to be ahead of it. Absolutely keep impeccable records and logging inspection data is a must. Presumably if they want full part data these bits are some what of a mission critical nature, hope you have other customers too.

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  21. #35
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    I've done M&A professionally in the SME market (small & medium sized). Its a very long list of things to think off, figure out negotiate, document and manage, some of which will matter and some of which won't in any particular deal. Many guys close deals through blind dumb luck and it works, others fold in a year because they didn't think enough and missed stuff.

    About half the advice here I would say is good and half not so, you really need to figure it out on your own and learn enough finance and accounting that you're able to do so. Accounting is the language of business, don't know it and you are illiterate in the world of structuring, valuing, negotiating and closing a business sale.

    Not so good advice is "get a good lawyer". I mean, it really is good advice, you do need a good lawyer, but it suggests all the things you don't know is a hole easily plugged by have "a good lawyer". You need a good a lawyer to help with legal details or make sure title is clear etc, but you need to drive the bus...on everything. A lawyer if experienced in M&A (you better know that THAT is what "good" means in this context - the guy that did your sisters will is NOT the guy) will be able to point out a lot of considerations and know how to document, but he's not valuing, structuring, financing or negotiating the deal. And have you priced a "good" M&A lawyer lately? Use sparingly.

    A "good" lawyer might for example say "do a asset deal" (vs shares), well what if the vendor says I want a share deal (they will). Do you understand the ramifications? are you going pay the lawyer $750/h to explain? If it was a $100MM deal, sure, hand it over to the lawyer and say make it happen....but we're little guys and have wrestle every detail ourselves or your legal bill will be more than the purchase price.

    Next, do you know exactly what you are buying? Figure that out.....not just machines, but all the intangible assets. How are you going to handle working capital (best is a set amount with adjustment provision imo). Do you know enough accounting to know how to calculate working capital, to go through general ledger and do due diligence, etc?

    Then, do you know what the business is worth? Do you know how to value a business? How to normalize the stated income, how to estimate free cash flow? If you pay too much for too little its a noose. Depending on how its valued, its future cash that is primarily what you are buying.....so you need to be able to look under the hood with as much knowledge as it you were buying a used Bridgeport

    Getting good advisors are for sure important (and expensive), but you should drive the bus on every aspect as they won't take on that role. Be somewhat cautious about just following the advice of a guy who bought a business once, you don't know his knowledge level or luck level - at certain times of the day or just being lucky you could run across the highway without looking.

    I suppose the point I'm trying to make is, having done this many times, try to understand everything, don't think you don't need to sweat it because it sounds legal and you have a lawyer. Keep peeling the layers back and anything you don't understand, learn, quickly. There has to be no one else on the planet who knows more about how best to do this deal from A-Z than you, then get the lawyer to help refine the documentation, title searches etc. A bright person can do it, ("if another person can, I can" sort of thing) but only imo if you keep ownership of every aspect.

    Incidentally, the advisor that does do everything you need to get from where you are to a good closed deal that will work is an investment banker. All the stuff listed above is what they do. Problem is in our world there is not enough zeros to afford one, so you have to figure it out yourself.

    Thats just the deal side.......haven't even got to running it post closing and how skilled are you at the rest of the business outside of Ops. Good luck, post your Q's, I'll help if I can along the rest of bunch

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    First off Congratulations!
    Second, get a good lawyer! These things are fraught with complications, and the better protected you are the better off you will be long term.
    You have had a taste of what shop ownership is like. Now you'll be immersed in it. I've been in the industry all my life, and, there's nothing else I'd want to do.


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