Selling my business, value help on Haas Machines and other

Hello there.

I am possibly getting bought out and was wanting to find out from you guys, what a fair value is for my machines.

1) 2001 Haas VF3 horizontal tool changer 4th axis. Low hours and in real nice shape, only used it to cut aluminum and plastic. Has all the bells and wistles except chip auger.
2) 2008 VF2 high speed machining, horizontal tool changer. Low hours, used to cut only plastic and aluminum. Real nice shape as well. All the bells and wistles except chip auger.

No chrashes on either machine, as it was me only running these and I know what they went thru.

The place that I do most of my work for is considering buying me out.

I have over 200 part number programs that I have in my computers also, what should I charge them for these? I don't have set-up sheets for them though, as I went from my memory and could use the programs to decifer all info for set-ups.

Finally, they would like to hire me to head up their machining operations, what is a fair wage for a head of machine shop person? Someone that will operate, oversee others, purchase and run QC as well?

Thanks a lot fellas

Jimmy

Are they buying your business complete, or piecemeal?

If selling as a complete, viable business, ask yourself why you're considering selling (to make a profit....to have less headaches in life....etc etc) That's the main Q that will dictate the value/price.

The following 'advice' (FWIW) probably only applies to a piecemeal sale-

Can't help you on the machine values.

how much time did you invest in the programs? What's your time worth to you? Did you bill them already for that programming time? I'd guess the value to be slightly less than what they could pay someone to write them over again.

As far as you going to work for them, running the business that they're buying as a new department/division: full market value + value of your specialised knowledge of the process for someone in a management position (supervisor level at the very least)

I don't know what fair market value is in your area, but it's available here:

Wages by Area and Occupation

If you were doing work for other customers, consider that loss into your "new salary"...

I don't see how you could put a value on the 200 programs as I am sure you billed them for programming time, why would they pay for them twice? The value of a business beyond equipment is the customer base, and they don't need any of that. I would shoot for machinery value + $50,000 and see if they jump on that. Go to competed sales on E-bay to judge equipment value, asking prices are very misleading. Don't know in your area, but in Southern California your average machine shop manager either punches a clock at $30 an hour or is on a $70k-$80k salary and expected to work as much overtime as the workers he supervises, with a minimum of 9hr a day.

I'd say there should be a reasonble dollar amount placed on your initial few months of employment. If they hired Joe Blow of the street to manger their machining operations, they would pay him $XXX and he would take a while to get everything up to speed and running efficiently. But you have ALL the intricate knowledge of the machines, programs, fixturing, inspection, and parts, and that has to be worth something. Get the market price for the machines, tooling, physical assets plus a little extra for the wallet and take that dollar amount and add to it an intial startup "fee". $10K-20K? Maybe more/less? After it's up and running, you could fall into a regular employee/employer relationship.

Dualkit said:

I don't see how you could put a value on the 200 programs as I am sure you billed them for programming time, why would they pay for them twice?

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Dualkit, no offense intended, but I see that differently. Although a percentage of the payments the company made were likely to compensate for the programming time, unless it was specifcally agreed that the company also was to own the generated programs, they don't have any rights to them.

I'm sure if at some point they had asked you to transfer those programs to a competing job shop for no charge as they had "already paid for them" you would have refused and stated that you owned these programs, not them. Its the same issure regarding any fixtures you may have created, unless it was specifically agreed that they were to own those, they don't have any rights to those either.

So in the same way that you would refuse to transfer to them to a competing job shop for no charge if they asked you to do that, there is also no reason to give them to this company for no charge either.

However it is a little sticky as you will be becoming one of their employees and don't want to create any ill will. Although they have no legal rights to the programs, they still may feel like they are getting squeezed if you ask for compensation for them, even though you legally correct in doing so.

I'd open this issue with them and see how they feel about it. My favorite approach with something like this is to blame the bad news on someone else so they don't hold it against you personally, along the lines of:

"I hate to bring this up, but my accountant (or financial adviser or whoever) is insisting that I get fair value for all my assets, including all the programs and fixtures I created. His viewpoint is that they have significant long term residual value to me as I invested a fair amount of initial un-reimbursed effort to create them, with the expectation that I would recover that investment over time as the programs and fixtures were used".

This is the classic "good cop/bad cop" approach and it typically works really well. You can end up being a hero, ie:

"my accountant is still insisting that I get full value for the programs and fixtures, but I'm overulling him and I'm willing to accept 60% (or whatever) of his numbers just because I want to get off to a good start with you guys".

Good luck-

Paul T.
Power Technology

Paul T, I am looking at it from the buyer's point of view. The 200 programs would not be something to bring up in negotiations, they won't see it the way you do. The skills to run their parts as efficiently and profitable as possible, gained by years of running their products and the correct machinery to go with it is what he should be selling. Not programs and fixtures he has already collected payment for. They will see items they already paid for as something that should be thrown in on the deal.
You are right, if someone asked me to send them programs of their parts to a competitor, I probably would have an "accident" and hit the delete button.

I think I'd agree with Dualkit, particularly if the existing programs are indeed those which the OP will continue to run on 'their' machines. I'd imagine that the OP having those programs, and knowing how to set up and run them is a part of the advantage that the new buyers are hoping to obtain by offering the whole deal to begin with. Charging (outright) for them may blow the whole deal.

It might be more palatable to demand to take less of a hit on the machine depreciation and then bring up the fact that you are already throwing the programs in on the deal as a freebie.

I wouldn't mention a value on the programing either, but I would put a fairly decent price that makes me happy on the machines, and simply mention that the programs to make them run already exist. They can figure out themselves if they could get the machines for less $ and how much it would cost them to program everything from scratch.

Dual and Hu, I agree with your points that the buyer may not receive the message that he is expected to specifically pay for the programs (and fixtures if they exist) that well.

But I also don't think they should be thrown in for nothing as they do have some value that legally the buyer doesn't have a right to get for nothing.

At a minimum I would still put a dollar value on those assets and if I decided not to specifically charge for them (ie they are getting thrown in) I would definitely make it clear to the buyer that he is getting something of clear value with those assets, and I would definitely use recognition of this extra value to get the best overall combined offer possible.

Paul T.
Power Technology

PaulT said:

Dual and Hu, I agree with your points that the buyer may not receive the message that he is expected to specifically pay for the programs (and fixtures if they exist) that well.

But I also don't think they should be thrown in for nothing as they do have some value that legally the buyer doesn't have a right to get for nothing.

At a minimum I would still put a dollar value on those assets and if I decided not to specifically charge for them (ie they are getting thrown in) I would definitely make it clear to the buyer that he is getting something of clear value with those assets, and I would definitely use recognition of this extra value to get the best overall combined offer possible.

Paul T.
Power Technology

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As a software developer I see it differently. Here in Australia ownership of copyright belongs to the author unless there is a written contract stating differently.

Turn it about. If you had all the programs and none of the machines, how long would it take to get the first widget off a machine?

Now if you had the machines but no programs, how long would it take to get the first widget off a machine?

In that gap lies the value of the intellectual property represented by those programs.

PDW

PDW said:

As a software developer I see it differently. Here in Australia ownership of copyright belongs to the author unless there is a written contract stating differently.

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PDW, I definitely agree with you on this point, and I also believe that in the US that same interpretation is made of authorship and copyright law.

I'm not sure all the job shop owners here fully understand that.

If a customer doesn't specially state in a RFQ that they are to receive a copy and take ownership of the design files generated in the process of completing their job, then they have no rights to receive a copy of the design files. They can certainly ask for them, but its fully your right to set the terms for that to happen, or refuse if you choose to.

I'm sure if they explicitly made such a request in an RFQ, as you should you would likely quote the job pretty differently as it allows them to more easily jump ship to a different supplier.

But this case is a little different as the buyer is intending to purchase the whole works, and may not react well to a proposal to pay a separate full value for those programs. But as I've stated I'd still make them acknowledge the value of the programs and at a minimum use that value as leverage to get the best overall deal possible.

Paul T.
Power Technology

For starters, I'd come up with a lump sum price that I was satisfied with and give them that price. Itemizing works to their benefit in negotiating, and never to your benefit. Obviously, they're not machining in house now so its a safe assumption their knowledge of the nuts and bolts of it are limited. They won't know what makes up a lump sum offer, but they'll know whether or not its something they're willing to pay, or if they think they need to try to negotiate down some. OTOH, if you itemize, then you can bet some dickhead accountant that wouldn't know a boring mill from a quarter inch drill motor will start perusing each item and dreaming up numbers to attach to them that are more "fair". The fact that he doesn't know shit from apple butter about what he's analyzing won't deter him at all, because the mindset of today's business whiz types is that they don't need any knowledge. They already know it all. Furthermore, any itemization would be an aid to them in deciding whether to buy you out or buy some machines and start up their own thing without you.

The fact that they're your best customer, only customer, or whatever, should have no bearing on the price. It should be the same price you'd give to a stranger you'd never met before. The only qualification would be whether or not you place some value on the offer of a job as a part of the package, and how much value you might choose to place on that.

Part of my offer to them would be an employment contract. An agreed # of years at X dollars per year.

Of course the contract would require certain performance metrics to be met by you as well.

metlmunchr said:

For starters, I'd come up with a lump sum price that I was satisfied with and give them that price. Itemizing works to their benefit in negotiating, and never to your benefit.

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I agree completely. If they're buying the business, they're buying the business. If they're offering employment plus compensation for the owner shutting down his business, that's a different game.

I have a clause in my contracts that states that any 'prior art' code that I bring to a project stays mine, and I grant a source licence for unlimited re-use to the client for those libraries etc. I know just how long it takes to generate code and it's quite possible that the effort in terms of hours spent generating those machining files represents a value at least equal to one of the machines. After all they're useless (pretty much) without files to drive them.

Agree with the contract of employment/consultancy stating term and payment over X years. What's the downside of telling them you want things to continue as they are now? If they went away, what position would your business be in? If you refused to do business with them, what position would they be in?

PDW

Hey guys, didn't know I had a post....let alone this many!

Hey, on the subject of programs. I would let them have them if I charged for them, but I didn't. I bid the parts from time and materials only. I don't charge programming time....even though some programs took many hours to make.

Even if I did charge them programming time, I would still take a percentage for them. Such as what I deemed adaquate for storage and back-up of those files over 9 years. Even though I wrote 1 time, i still backed those files for several years and stored them on several back-up devices. Not including the countless times I would have revised each program for print revisions. I said 200 part programs, but I would say that I wrote over 1,000 different part programs for them...and most had more than 1 operation. I would say in the 200 range is production though... the others were prototype or short early runs. Not too mention they would probably be buying my other customer programs.


To the intitial poster:

There are a couple reasons why I would WANT to get out. The first is its just too much stress meeting deadlines, though I know heading up the shop that it wouldn't be much less.

The other is so I can spend more time with my growing children. Just don't want to miss time with them...a person never really knows how much time they have...

This is life anymore...totally running around all the time. Even if I took the other job, I'd still be running around... so really no getting away from that in this case.

I'm debt free though...so its not a huge deal no matter. Maybe I'll see if they want to just buy the equipment and assessories and maybe I'll get a job doing something totally different. I love machining...I just like to have legitimate deadlines. Too often the customer wants this or that right now....just too much running around....and its never ending.

SO anywhoo. Say I sell all the equipment in my shop for 65,000. Then take a job with them. I'm thinking around 50,000/year. I made 3 times that clear last year. and 2 times that clear this year so far. 3 years ago I made 4 times that clear. (downward trend)

If I stay, and loose them as a customer, or very little from them, I still think I can hit 35,000 a year clear and have about 6 months of the year off LOL. If it could really work out this way, I guess its a no brainer then Cause $50,000 (pay I would get employed -30% (taxes working for a business) is $35,000/clear. Same pay for a lot less work LOL.

Anyway, for real, its a tough decision...we'll see how it works out. I guess right now I'll look up and see how much I can get off my machines from ebays ended listings.


All and all I really don't want to end my business, but its getting to the point where I need to grow or I will start loosing this customers business. I know I don't want to grow, so I figure maybe its time to just throw in the towel. I'm not money hungry...never have been that ambitious...really I'm just a guy that likes to make things.

Thanks a lot fellas

No one so far has mentioned a non-competition agreement. That could come up if they don't hire you as part of the sale of the business. Some of these have been held to be burdensome in the event that they are too far-reaching. For example, if they want you to refrain from all machining work for ten years in your state. They have to be reasonable in time and distance.

Of course, if they don't hire you as part of the sale and the subject doesn't come up, then you would have no limitation. It's wise to think about this since you may want to go back into your own business at some point.

Just an idea. Good luck!

conceptsmachine said:

There are a couple reasons why I would WANT to get out. The first is its just too much stress meeting deadlines, though I know heading up the shop that it wouldn't be much less.

The other is so I can spend more time with my growing children. Just don't want to miss time with them...a person never really knows how much time they have...

This is life anymore...totally running around all the time. Even if I took the other job, I'd still be running around... so really no getting away from that in this case.

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Dude, STOP! Don't do it!!! I've been there and did that and I've been kicking myself in the ass for it ever since. You think meeting deadlines is stressfull? Wait till you have to try to make someone else's deadlines THEIR WAY when their way SUCKS, their tools suck, their machines suck and their people suck and there's not a damn thing you can do about it but point fingers and whine.

Mr.Obvious said:

Dude, STOP! Don't do it!!! I've been there and did that and I've been kicking myself in the ass for it ever since. You think meeting deadlines is stressfull? Wait till you have to try to make someone else's deadlines THEIR WAY when their way SUCKS, their tools suck, their machines suck and their people suck and there's not a damn thing you can do about it but point fingers and whine.

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LOL....I hear you...I've been there. Nothing worse than working around a bunch of idiots. Some are children in a grown persons body. I don't miss that aspect of it. However, this place is very professional and I don't see that happening. However, the deadline stuff, I do see happening because its happening now.

I'm boardering right now on saying I'm gonna just keep doing what I'm doing. We'll see what they say...maybe they will just continue down the path that we're going, or maybe they'll still end up buying some machinery on their own and hiring someone else. If this happens, I say its only about 70% of my work. I should be able to go out and fill some of the void and return to make over what I would working for someone else.

I think if you want more time with your kids, keeping the shop is likely the best way but you would have to make the decision of how much work/time you really want to put into it and essentially focus on the better paying work and only that when its there. Not easy to balance, but worse case at least you're still making more $ than running around as much or more trying to run it for them for a plain wage. Next thing you know the hire a monkey for less$ thinking it will just run itself and you're 100% on vacation in a few months wondering what to do next.

Maybe you could sell one machine, the programs, and "consult" ??
while keeping your own thing going, ideally from home or something with low overhead and good profits.