Key Components of a Machine Shop Business Plan

[ediaz700]

Hello everyone, after scanning over the forums on multiple occasions I've finally decided to make an account and start being more active.

I am fairly new to the world of machining although I have been around it my whole life. My father has been a machinist for over 30 years and started his own shop in California. Unfortunately, that did not last.

We are years removed from that first initial shop and now I am a young man that's recently graduated from college. My goal is to "resurrect" the shop my Dad had. From what I can gather it was a lack of planning that doomed the first shop, and now that my father is older and I will be taking on the responsibility of both business management and to a lesser degree shop management, I want to make sure we are well prepared this time around.

That said, I would greatly appreciate any advice from shop owners on this forum. What helped you all in establishing your shop and what advice what you have for someone looking to write a comprehensive business plan? What key factors would you suggest I include or be aware of?

Although I will also be partly relying on my own finances, I am also planning on raising capital so this is why I am focused on creating a comprehensive business plan.

Thank you all for your time.

 

[Covenant MFG]

As the saying goes, plans are useless but planning is essential.

You'll need two main skills- machining and business. If you don't have a strong knowledge of both, it's gonna be rough. Doable, but you need to assume you're going to learn some VERY expensive lessons.

So, if you don't have at least a strong sense of knowing exactly what it is you don't know, I'd recommend starting small and learning the hard lessons on your own dollar first. Once you've graduated the school of hard knocks, then spend the $$ to get a big operation. Investors are going to be way more confident in a guy who's proved he can run a great profit on a beat up old machine than in a guy who's got a smooth tongue and money backing him.

Bootstrapping is slower, less glorious and more tedious but that's it. If you can be in a spot where the work completely dries up and you just say "ok no biggie" without losing your house, that's where it's at.

 

[David Ferguson]

Key parts of the Business Plan:
- Defining what you do well
- Determining the basic costs of making that product, or providing that service.
- How you will find customers that need the product / service you do well.
- How much will these customers need your product/service (how much will they spend, and how often).
- How many customers like that do you need to hit your break-even, and growth goals.
- What resources are required to grow the business?
- How will you finance getting those resources.

 

[kustomizer]

Some dumb luck helps too

 

[LOTT]

The question that just keeps on giving...

What kind of shop? Milling, turning, Swiss, etc? Job shop or product based?

And can you raise capital for a job shop? Is that a thing? I understand getting loan for a machine, but "raising capital" has a different connotation.

 

[triumph406]

Don't do it if your trying to ressurect a distant memory

Why did the shop fail first time around?
What are your machining skills?
What is your ability as a businessman?

If you don't have good machining skills then how are you going to quote jobs, and do the work. Obviuosly you can hire people, but imho you need to be able to supervise these machinist, and without knowing how to machine it could be problematic supervising the machinists.
If you don't have a decent head for business then your completely wasting your time.

Unless you have customers willing to send you work, your wasting your time. You would be better off starting in a garage, keep your overhead low, and then expand if you get the work.

If I had a chance to do it all over again, I'd have been better off with a proper job with benefits, 401k etc etc

 

[john.k]

My opinion is depends entirely on location..........my first shop was very successful because I was next door to a big bacon factory ,and very near about five other big factories in the pre CNC era..........by the time I closed in 2001 ,the big places and all closed and been sold for real estate,and the smaller places were being run by idiots who didnt want to pay ,unless under extreme duress....I was told right at the start...avoid truckies,earthmovers,mechanics ,and builders.........which by 2001 was all that was left.

 

[jatt]

Hmmm, yep the start in a garage idea is where I would start off. Learning about some of the business ins and outs at this stage will help you for sure.

Thats where my show started.

Business plan, yeah next question..... You can have all of these wondereful ideas, but its grabbing opportunities as they come along, some will work out well, others not so. Many changes in direction will probably occur, be open to it. Plenty of examples out there of that. Mazda comes to mind.

Seen plenty of folk come thru my door claiming that they will "change the world", so to speak. Few do. Be wary of them.

Dont be too surprised if what u envision and how things turn out are completely different.

Keeping your finance to a bare minimum at the early stages is important in my humble opinion.

 

[Freedommachine]

What do a machine shop, a hotel, a bakery and an apartment complex all have in common?

They all serve the exact same purpose to those who control them; to act as an engine that generates cash flow. If a 'thing' does not serve that purpose, then it is not worth doing.

I'm only 2 years into my own entrepreneurial adventures. Maybe I can offer a slightly different perspective and some insight gained the hard way.

First, I would advise learning how money works before you ever consider starting a business. Seriously, your new hobby and passion in life should be studying money.

Read books like; Rich dad Poor dad; The richest man in Babylon; Think and grow rich; and The art of money getting.

Using your current income and expenses, turn your life into a mock business. Create quarterly profit and loss statements, cash flow statements, accounts payable... All that stuff. Save all of your receipts and classify everything based expense type. Develop a system and routine for doing this and never break it.

Your books are the most important part of your cash flow generator i.e. 'business'. You will need that information to make important decisions, obtain lines of credit, deal with taxes and possibly to win large contracts.

Learn how to obtain near perfect credit for yourself and work to achieve a 5 digit credit card limit. - Don't use it irresponsibly, just obtain it.

Study LLC, S-Corp and C-corp entities so that you understand the differences in how each one handles their finances and tax liability.

Become very familiar with the different methods a business might use to obtain a line of credit, a lease, or an advantageous contract with another business.

The more you know about money, business finance, basic business etiquette and the like, the better off you will be.

When it's time to buy machines, lease a space, meet with new potential customers, ect. You will know what to bring, what to ask, what terms are acceptable and you will naturally carry yourself like a guy who really knows his shit.

I really wish this site had a section for the business aspect of running a machine shop. There are some brilliant people here who have built business of all shapes and sizes.

I'm sure there are a more than a few like myself who could benefit from that type of wisdom / mentorship from time to time.

 

[implmex]

Hi ediaz700:
I applaud you for wanting to plan before you commit, but it's critical for you to understand and differentiate those things you can nail down and those things that are hopes, wishes or fantasies.
I say this because most business plans project rosy growth and stable expenses, neither of which can be assumed with confidence, but which just about every business planning guru invites you to pretend to believe in.

So the most useful tool I've ever seen is a projection of what happens when things go wrong.
The one I've seen and liked used Excel spreadsheets and mapped graphically how the business would tank and over what period of time if you got whacked by circumstance.
You could set the circumstance in the spreadsheet, let it run the calculation, see the effect of the remediation options you had graphically, and thereby shape your thinking well before you needed to panic in real life.
I have no idea who wrote that spreadsheet or if it's commercially available, but there's got to be something equivalent out there.

For example, what happens when you've committed to an expenses burden of X dollars/month predicated on Y dollars of revenue and your revenue is suddenly halved, or you take a big expenses hit?
What happens if a machine is down a month?
What happens if you lose a contract?
What happens if a customer stiffs you?

The best of these plans lets you see what happens if you have to fire a guy, or move into cheaper digs , or stop maintaining your toys, or whatever.
All have ripple effects, some of which you can map out to help you shape your thinking if the awful event actually happens.

That gives you a better sense of the turf you're actually playing in, and what kind of financial, mental and emotional cushion you need to have. (Yes, all three are important)
All the pro-forma income and expenses projections I've ever seen are bullshit, and yet many still rely on them to create their dream and then pretend they've done some real planning.
When you stress test the fantasy in the way I've described you get a better sense of what you really have to be prepared to do.

Cheers

Marcus
www.implant-mechanix.com
www.vancouverwireedm.com

 

[Michael M.]

Some dumb luck helps too

A booming economy doesn't hurt either.

 

[camscan]

Niche.
You need a niche....

Why does he need an itch?

 

[kustomizer]

Why does he need an itch?

Once you have an itch you can scratch it.

 

[Orange Vise]

Hi ediaz700:
I applaud you for wanting to plan before you commit, but it's critical for you to understand and differentiate those things you can nail down and those things that are hopes, wishes or fantasies.

Yup, I can attest to this.

There is no substitute for experience. Without it, your business plan is full of guesses. Most people starting out don't have much experience, so most people's business plans are full of guesses.

That's the bad news.

The good news is that CNC Machining is one of the few industries that can be successfully run at home while keeping a day job. Such an arrangement is a low(ish) risk way to test the waters. You gain experience while simultaneously being able to put food on the table. Eventually you'll also be able to keep your machines running at home while you're at your day job.

Also consider it a litmus test of whether you can juggle a 40-hour/wk day job with a 40-hour/wk machine shop business. If you can't, ask yourself if you'd be able to survive running a 80/wk do-or-die business full time.

Your day job can literally be anything, including flipping burgers. Hustle does not discriminate. You'll get a lot further raising your own capital and being self sufficient.

 

[Freedommachine]

Yup, I can attest to this.

There is no substitute for experience. Without it, your business plan is full of guesses. Most people starting out don't have much experience, so most people's business plans are full of guesses.

That's the bad news.

The good news is that CNC Machining is one of the few industries that can be successfully run at home while keeping a day job. Such an arrangement is a low(ish) risk way to test the waters. You gain experience while simultaneously being able to put food on the table. Eventually you'll also be able to keep your machines running at home while you're at your day job.

Also consider it a litmus test of whether you can juggle a 40-hour/wk day job with a 40-hour/wk machine shop business. If you can't, ask yourself if you'd be able to survive running a 80/wk do-or-die business full time.

Your day job can literally be anything, including flipping burgers. Hustle does not discriminate. You'll get a lot further raising your own capital and being self sufficient.

This is the state I'm in currently. I have to farm out a fair amount of production because I just don't have the in house capacity yet. I still work 48 hours a week, run as much production as possible in my own shop and maintain my property as well.

It is a long slow process but I feel that I'm much better off for it. Had I gone to the bank to finance my venture, I would have missed some very valuable lessons and possibly lost it all anyway.

I enjoy the fight. When I do finally quit my job, I will have a shop full of machines and tooling all paid for. The lowest I could fall would be making enough to pay for the basic necessities of my family. Anything above that is positive cash flow.

Side bar question; out of my own curiosity, Do you make Orange vises? Or just a username?

 

[hvnlymachining]

As my dad said many times, "starting a business to get rich is a good way to go broke" and "Owning and operating a business allows you to choose your coworkers but requires far more work for less pay"

It all depends on motives on how you move forward with a new business.

 

[huleo]

Let's start here...."I recently graduated college".......with a degree in what exactly?

 

[mhajicek]

Business plan:

1. Find people who want parts.
2. Make da parts.
3. Git paid for da parts.
4. Profit!

 

[Garwood]

Business plan:

1. Find people who want parts.
2. Make da parts.
3. Git paid for da parts.
4. Profit!

Brilliant! It works exactly like that!

 

[Orange Vise]

Side bar question; out of my own curiosity, Do you make Orange vises?

Yup. I'm the founder.