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Thread: What kinds of shops stay in business

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    kpotter's Avatar
    kpotter is offline Diamond
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    Default What kinds of shops stay in business

    I have been thinking about this for a while. I have been to tons of auctions and one thing that has stood out is the shops that are up for auction because of bankruptcy are usually the supper nice ones. The dumpy rat infested holes are never bankrupt they are up for auction because the owner died or is in the process of dying. The last few auctions that I have been to this year have been in beautiful shops with top of the line machines and great buildings. These places cost millions to put together and now they are being torn apart by the vultures. Have any of you noticed the same thing.

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    Tom3197 is offline Hot Rolled
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    They look "super nice" because everything is "new" and the "bank owns it". The work dried up and the bank wants their money.

    Simple as that.

    The other shops actually own their equipment. To stay in business long term and have nice stuff is a constant balancing act between buying "newer" or new machines and paying off older machines. Not getting too far in debt.

    Some people (like... even yourself) have figured out they don't need the newest stuff (or... even manual, older cnc) to make money.

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    dkmc is offline Diamond
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    Oh yea......always noticed in the auction flyers where they list the
    years of the machines in the top corner of the photos.
    They run along fairly consecutively for 5-6-7 years.....then...
    We're havin an Auction!

    Those are the same guys that laugh at the smaller shops with 'junky'
    machinery.....a lot older than 10 years or so.

    You can always buy NEW.
    NEW is what makes the economy go-round.
    Machine Shops are supposed to buy a new machine, finance it for 5 years so the bank can make it's interest, run it like hell 3 shifts a day, and you simultaneously pay it off and scrap it out at the end of the 5 years, then buy another new one. I think that's they way the banks and machine builders would like it to go anyway....

    Probably the worst thing is when a company keeps the machine till it's depreciated, and beyond...way beyond...
    The when they finally scrap it out, I show up and short-circuit the process, rescue the iron, and go on using it another ?? years or resell it for cash.


    I do know the auto makers would starve if they were waiting for me to buy a new car....
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    SND
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    The few large auctions near me the last few years were that, they get millions from the Gov and other investors, nice new equipment, sometimes great product even one where the work was guaranteed, dumb management is all that could be figured. Left a bunch of people in the hole including one of my customers for about 13-15K and that was lucky, some lost many times that.

    Those are the shops that are generally started by those who dream big, have the right connections, and generally don't seem to put a cent out of their pocket. It's a little odd when they're there buying things backs for pennies on the dollar at auction though...

    I did see a few auction listings come up with old beat up equipment, where you can tell they would have a hard time competing today and is probably a good part of why they are closing, but maybe they knew the work was going and preferred to ride it out on paid equipment then to invest in a dying market. Then one day they pull the red handle and say get me the eff outa here.
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    FlatBeltBob is offline Stainless
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    Even before the recession , I noticed the same thing .
    Shops with nice , 2,3 year old CNC's going up for auction .
    I have to wonder what went so horribly wrong in 2 years . Was it a last ditch effort to save the business by getting new machines ?
    Bought the machines in anticipation of the big order that never came ?
    I guess the world will always need dreamers to stick their necks out , and not every dream has a happy ending
    FBBob
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    helocat is offline Aluminum
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    What gets me is who in the first place loans them all the cash to set up the fancy epoxy finished floors w/natural lighting shining down on the rows of matched late model equipment? This is where you hear of the owners selling it all off and starting another shop the next month.

    I guess the rest of us are stupid for paying our bills on time and showing fiscal responsibly running our small business. This just goes back to all the Gov bail out $$ from 08-09'. I always said the best economic recovery would be to issue small stable long standing business just $10k outright and tax free. Owners of small business that are successful but responsible would turn that into $50k added back to the economy easy. Where as the big corps. that got the millions blew 2x that each day on donuts for executives.

    Mark
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    dkmc is offline Diamond
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    Quote Originally Posted by helocat View Post
    What gets me is who in the first place loans them all the cash to set up the fancy epoxy finished floors w/natural lighting shining down on the rows of matched late model equipment? This is where you hear of the owners selling it all off and starting another shop the next month.

    I guess the rest of us are stupid for paying our bills on time and showing fiscal responsibly running our small business. This just goes back to all the Gov bail out $$ from 08-09'. I always said the best economic recovery would be to issue small stable long standing business just $10k outright and tax free. Owners of small business that are successful but responsible would turn that into $50k added back to the economy easy. Where as the big corps. that got the millions blew 2x that each day on donuts for executives.

    Mark

    Hum........reminds me of Wedtech....you guys remember Wedtech right?
    The Looting of Wedtech - New York Times

    If you don't now, you'll surely feel like small potatoes after you read just this one page briefing.
    THIS is how you make the big bux in the Machine Shop biz.....
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    ewlsey is offline Diamond
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    I've seen just the opposite of what you guys are saying.

    One was a small tool and die shop. The guy was doing mold work and mold repair, but had no CAD system and only one CNC knee mill. How much mold work can be out there that can still be done cost effectively with pencil and paper and a bridgeport? He ran out of work and closed his shop. I think offshoring of injection molding was a big part of it.

    Second is not really a failure, as the owner was an old timer selling off his equipment so he could retire (he was probably pushing 80). His shop was a time capsule. Everything in it had a War Board tag on it. The newest machine he had was an early 80s Taiwan knee mill. That was a sad auction. The old guy was devastated that his prized turret lathes would not even fetch scrap prices. He had reserves on most machines and they did not sell. He actually ended the auction early when he saw the low prices.

    I think the old guy had plenty of work for his old machines. However, by never upgrading to newer technology, he was left with almost no asset value.


    In summary, the shops I see failing are the ones that do not keep pace with the technology needed to stay competitive in their area of expertise. A repair shop doesn't need a $400k HMC with 200 tool hive, just as a JIT production shop can't get buy with a gang drill and a set of tumble fixtures.

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    Ox's Avatar
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    I think the old guy had plenty of work for his old machines. However, by never upgrading to newer technology, he was left with almost no asset value.
    I would like to extend a high amount of caution to that way of thinking.

    Sure - it would be swell to be able to sell out and cash in. But to buy equipment with intention of having value when Aretha sings will have you buying $200K equipment so that you can sell it in 5 yrs at an estate auction for $50,000.

    This looks great at the auction, but there was a $30,000/yr loss on that machine. If you have it busy and was making money - great! But if that is the case - you didn't buy it with intention to sell it, you bought it with intention to run the piss out of it. If not - you just threw away good money after bad.

    There is absolutely nothing wrong with milking it to the bell if you can.

    Your 1983 VMC may not be able to make that part as fast, but if it runs good and reliable, you can run it at half the rate of the other guy and make just as much! If you don't have a long term view - why not milk it?

    With that said:

    No No No No! | Todays Machining World


    -----------------

    Think Snow Eh!
    Ox

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    wrustle is offline Titanium
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    The question was............



    "What kinds of shops stay in business?"



    That my friend is very easy to answer.........


    Profitable ones!

    Best Regards,
    Russ

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    Laurentian's Avatar
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    Thanks Ox, good link !
    Nice cat also

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    PaulT is offline Stainless
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    > What kinds of shops stay in business?

    My 2 cents is the more you can specialize, the more captive your customers will be and the more margin you can justify.

    On the flip side, the more generic you are (ie a Haas hogging on 6061 parts) the less captive your customers will be and you will have a race to the bottom on your margin.

    Hard parts, small parts, special materials, big parts, medical, quick turnaround, prototypes, machining plus design services, high precision, multiple services (machining+EDM+welding+laser+water), . . .

    Most of the shops that I've seen that are doing really well have found a specialized niche that drives customers to them and keeps them there, and for this specialization they accept higher rates.

    Paul T.
    Power Technology
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    SND
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    Part of me would think that a shop that survives is probably one that can do many, many things and quickly jump at new opportunities they've never done before. Every niche dies at some point, if you don't have a niche nobody's to say what you do, you do everything.
    I thought I'd have a niche in doing smaller fancier stuff, or having quick turn around, problem is when its what you do, at some point its all you get, and good luck trying to get known for something else when that dies off

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    Metalcutter's Avatar
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    A fairly young son in his fathers business, used to go to auctions and they would buy use machinery for the business. The young man said to his father, "It looks like, when the floor space of the office, becomes larger than the manufacturing floor space, the business goes bankrupt."

    I thought that was salient.

    Regards,

    Stan-

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    How about having the ability and balls to say NO we can't help you with this. So often I've seen shops take on more then they can handle. Either the equipment isn't right, the programming is too intensive, too cheap to tool it correctly, not enough time or no setup material, poor quote, the list goes on...

    Too often shops get too big to fast.

    The shops that are still in business most likely own most or all their equipment.

    I hope to join that group this year.

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    FlatBeltBob is offline Stainless
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    Hey OX , thanks for the link to TMW.
    I miss the hard copies , so Just signed up for the EMail list .
    I liked the article about a for profit CNC training school .
    $5,000 to learn solid , marketable skills makes a lot of sense.
    Maybe some of those public tech school teachers should enroll too !
    FBBob

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    jdj
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    Shops that go out of business?...where they make stuff that they SHOULD be buying to free up the machines to make the more complicated stuff that the customers are waiting for. For example, WASHERS! NO WAY most people can make them cheaper than buying them.

    Jeff

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    SND
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    Interestingly I've made a fair few washers in SS, +/-.005 od/id, usually only .001 thickness, and has to be flat within half that, not too fancy overall... $10each(only 10-20qty) goes in the final product, sold as spares at $100-140 each.

    See you can spend a day or 2 working on 1 little fancy part that doesn't weigh an ounce, but everyone's gonna think $100 is crazy expensive for, let alone the $1000 it should really be.
    OR you can spend 2 days making a bucket full of simple parts, say $1500 for those 2 days, and wow what a deal we got a bucket full of them. Quantity vs price matters a lot more in a persons mind and perception of value, than what it really is to the real world(if no people were in it..)
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    dkmc is offline Diamond
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    Quote Originally Posted by jdj View Post
    Shops that go out of business?...where they make stuff that they SHOULD be buying to free up the machines to make the more complicated stuff that the customers are waiting for. For example, WASHERS! NO WAY most people can make them cheaper than buying them.

    Jeff
    How about hollow rivets?
    I made 16000 3/8 OD 1018 rivets a couple years ago for $.33 each
    Now they are buying 60,000 from china for .08 each and throwing out
    all but the 16000 good ones in the lot.....do the math.

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    SND
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    And they're probably not counting how much it costs to sort them or the potential risk if they're made from some crap material that doesn't meet specs or has some other hidden flaw. But I'm sure in some weird accounting scheme they can write all that crap off and come out ahead, so they think.

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