Looking at buying shop

[WilliamSK]

I second that. I hired a friend who actually told me he did not expect that I would want him to work as hard as everyone else.

Thank you for the insight. I have read some other posts here after reading this, and I will take this suggestion to heart.

 

[Ox]

Boy doo I have tons, MANY tons - of accumulated Schidt!
Complete buildings full'o, and then some....




Some days it sure is nice to be able to rummage around and find what you don't need to buy today.

Spare compressor?
Spare saw?
A axis or 2 (or.... maybe 4?)
skids of extra material?
Spare screw machine or 7?
Extra CNC lathe and 5x boring mill?
A chip spinner or 3?

Yeah, well that extra Schidt can come in handy when you need it....
Big albatross when you don't.


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

Think Snow Eh!
Ox

 

[WilliamSK]

I am going to say that the "will the customers stay when Bill doesn't answer the phone anymore" concern is a real concern of any other point in history, except now. As a rule, I am going to say that no-one is going to be pulling work until you prove to not be able to get it out the door.

If you can buy a running shop that can make it's own payments as is, for the price of the equipment, if all goes bad, as long as equipment prices don't go down the tubes (Jan 2009) then you really can't get hurt too bad at all. (?)

If you think that there is growth potential w/o having to buy more equipment, then all the better.


I say this - ass_u_ming that you are not including the value of a bunch of legacy equipment that you wouldn't need if you were starting out, but it doesn't sound like it.

It sounds like you might be the right guy for the job.


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

Think Snow Eh!
Ox

Thanks Ox.

The only reason I am considering this shop, is that the machinery is all in tip top shape, and relevant. There is not a single item in the shop of legacy, machine, tooling, etc. The shop is immaculate as far as organization and cleanliness. It's practically the only smaller machine shop in the area that didn't have a bunch of stuff that was horded, either because of owner/management saving for a rainy day (a rainy day that hasn't come in 3 decades, but 1/3 of the shop floor is not usable, just so we might save $200 one day, kinda situation), or revolving staff not actually knowing what things are for.

As for growth potential, the machinery is well selected, with redundancy. I see the shop being able to handle 2 machinists, a machinist/programmer/QC, and myself, with no need for upgrades, unless we can tap a market that makes sense.

About the customers, I have been given permission to contact all customers, past and present, and represent the company for any new ones, to see the availability of new work. I plan on visiting them all to confirm availability of any work, and to inquire if there are any problems they need solved, that currently creating issues.

Regards,

William

 

[WilliamSK]

Boy doo I have tons, MANY tons - of accumulated Schidt!
Complete buildings full'o, and then some....




Some days it sure is nice to be able to rummage around and find what you don't need to buy today.

Spare compressor?
Spare saw?
A axis or 2 (or.... maybe 4?)
skids of extra material?
Spare screw machine or 7?
Extra CNC lathe and 5x boring mill?
A chip spinner or 3?

Yeah, well that extra Schidt can come in handy when you need it....
Big albatross when you don't.


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

Think Snow Eh!
Ox

I've mostly only seen it as an albatross. People tripping over everything because there isn't any space for production. You're list sounds more like a spare machine shop or 2. I suppose the places I have seen didn't know how to hoard properly. Best was, nobody knew what anything was for.

I'm a big fan of clear spaces, with only the necessities. Clear flow, no clutter, and space to do maintenance.

Regards

William

 

[WilliamSK]

"I have managed a machining job shop and foundry for close to a decade. "

I have to ask if you've been doing the above why are you asking for advice? It seems to me you should already know better than any of us whether this is a viable situation.

Hi Doug,

If it was just about operations I would have it down no problem.

To specify, my experience is with running established shops. I did not have to canvas for sales either. The main point of my question was in relation to being able to wrangle up new sales in 3-6 months. I'm looking to see what is plausible/possible to analyze if I should buy a fully turnkey shop, vs a shop with anemic sales.

They both have their advantages and drawbacks. My thought was that with a purchase of a company without great sales, I would be somewhat hedged by holding tangible assets vs good will. If the turnkey company would lose some customers, I would be in the same position, and the balance sheet would be decimated.

Hope that answers your question.

Regards

William.

 

[cnctoolcat]

If you've really got the entrepreneurial bug, I say go for it.

Not often do you find a shop for sale that actually has good equipment that has been properly taken care of! Most shops rag the hell out of their machines, and maintenance consists of only adding coolant and oil.

And most shop owners looking to sell ask an exorbitant amount of money for said beat-up equipment. They all seem to want a fortune for the "goodwill" of the business. Well, unless a shop has an established product line, goodwill for a contract shop just isn't worth that much, and can evaporate fast if you're not a good people person, and good at sales.

Like Ox says, the customers won't be in a hurry to take the work to another shop, because in today's economy, there aren't a lot of other shops with open time available. I know in my area there are less shops now than they were two decades ago, and the ones still here are doing well.

There's more contract machining work out there than you can imagine, you just have to look!

If you can't manage money, then don't do it. Money management sounds so simple, yet most of us aren't worth a lick at it, especially in business.

Good luck with your decision, and keep us posted.

ToolCat

 

[reggie_obe]

Thanks for your input Lott.

Agreed somewhat that the sale is the equipment. There is a small customer base that will carry the business for a year or 2. I might be wrong, but this customer base is the most important to me, vs just buying the machines, as it will provide some cash flow.

Regards,
William

His customers may choose not to become your customers. No guarantee of loyalty once the original owner's name is not attached to the business.

 

[DouglasJRizzo]

Good day all,

First post, but have been lurking here for the better part of a decade.

I have the opportunity to purchase a nearby shop, at the price of machinery (multiple mid-tier CNC mills(3 and 5-axis) and lathes, about 8-10 years old).

The downside is sales are stale. I would make just enough money to pay the bills. The shop has never marketed, and does not have an online foot print. They reject work, that in my opinion would cover sunken costs of the business, until the marketing engine makes some moves.

The owner works alone, but it should be a 3-4 man show. He has lost the customer that put him over the top, and is unwilling to find new work and would rather retire.

Upsides:
It comes with ISO and AS.
Very clean and organized.
Best maintained machines have seen in a long time.
Being sold at asset price allows for easy access to loans.

Question for you is, is it possible to start building up a customer base in 3-6 months, or should one walk away from this situation?

The way I see it is that I'm buying used machines, that I could buy 1 or 2 at a time as needed instead, but I wouldn't have any base to work off of.

Thank you for taking the time to read my post.

Regards,

William.

How good at you at marketing and sales?
This is a classic example of what I would call an "old time" shop, where the owner has more or less retired even tho he's still there.
Is the work coming in holding up the day to day expenses? Is it steady?

If "yes" then you could allot yourself a year or two (or more) to build the business and get it cooking.
At this point, you're buying something that is just above water - and some nice tools.
Have your attorney do a search and make sure nothing is pending - like a lawsuits or collections.
It could be brought back, if you're willing to pound some shoe leather and start with an online presence.

 

[Bobw]

I'm a big fan of clear spaces, with only the necessities. Clear flow, no clutter, and space to do maintenance.

Most people are, though there are some that HAVE to have a pile of crap around them.
Its the application of organization where most of us fall down.

I really wish I was good at cleaning and organizing. But I'm just not. Or maybe
I am, and I just hate doing it.

 

[WilliamSK]

How good at you at marketing and sales?
This is a classic example of what I would call an "old time" shop, where the owner has more or less retired even tho he's still there.
Is the work coming in holding up the day to day expenses? Is it steady?

If "yes" then you could allot yourself a year or two (or more) to build the business and get it cooking.
At this point, you're buying something that is just above water - and some nice tools.
Have your attorney do a search and make sure nothing is pending - like a lawsuits or collections.
It could be brought back, if you're willing to pound some shoe leather and start with an online presence.

Marketing and web presence will be no problem. I have a site ready to go, with blog articles relevant to customers....which will help with the SEO. In 6 or so months I will be the top search in my area.

Sales I have no idea. I've been successful closing proven leads, but that is a completely different story.

My plan is ensure a great web presence, network and add contacts, call every single shop for overflow work, and cold call businesses that require machined/assembled parts, by offering services for parts they are having trouble making. The forte of this shop has been solving manufacturing problems, but they didn't realize the impact they had.

I have some interest from the maker space. I'm not sure if it is a very profitable sector, but it allows to build a gallery of very interesting parts. A lot of the younger guys/gals in purchasing these days are heavy users of instagram and reddit. Not putting much stock into this, but it is perhaps worth a try.

Current business is holding steady. There are a couple of other customers I have been asked to go speak with, that have historically placed orders. They have been slow the last couple of years, but show signs of recovering.

 

[Ox]

Well, make sure to let us know if you go with this, and keep us up on how it goes.

It is always good to hear stories - hopefully ones that end well.


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

Think Snow Eh!
Ox

 

[metal-ica]

I would ask him to carry some paper. Give him 25% down, terms of 5 years + maybe some percentage of the profit. If it's legit he will make more money on the deal and you both win. If it goes south he takes the equipment back and you're off the hook without owing a bank.

 

[DouglasJRizzo]

Marketing and web presence will be no problem. I have a site ready to go, with blog articles relevant to customers....which will help with the SEO. In 6 or so months I will be the top search in my area.

Sales I have no idea. I've been successful closing proven leads, but that is a completely different story.

My plan is ensure a great web presence, network and add contacts, call every single shop for overflow work, and cold call businesses that require machined/assembled parts, by offering services for parts they are having trouble making. The forte of this shop has been solving manufacturing problems, but they didn't realize the impact they had.

I have some interest from the maker space. I'm not sure if it is a very profitable sector, but it allows to build a gallery of very interesting parts. A lot of the younger guys/gals in purchasing these days are heavy users of instagram and reddit. Not putting much stock into this, but it is perhaps worth a try.

Current business is holding steady. There are a couple of other customers I have been asked to go speak with, that have historically placed orders. They have been slow the last couple of years, but show signs of recovering.

It sounds to me like definitely worth a shot then.
Knock it out of the park!

 

[WilliamSK]

Does the shop have a niche, or will you be competing with every other shop in the world?

Current company is a solutions provider for difficult to machine parts and materials, in aerospace and mission critical components. I will be further assessing more definitive specializations, that I can use to target specific customers. Your point has moved to the core, and foundation of my sales strategy, of defining who we are, and what we can do, and being honest about it to ourselves and customers. This will also drive us to develop into areas we should be targeting for capabilities and self-growth.


To all...Thanks for the great feedback you have provided. I will be doing DD and assessing the feasibility over the coming months. I have incorporated many of your suggestions, and have added or re-prioritized any of the risks brought forth by the comments. I cannot believe how helpful this community is. Thank you!

However it goes, I will provide updates once the situation comes to some resolution, and hopefully some shop and parts pics down the road.

Regards,

William

 

[david n]

I really wish I was good at cleaning and organizing. But I'm just not. Or maybe I am, and I just hate doing it.

Yeah, tell me about..............

My shop "looks" organized...........it's just an orderly mess. Neat stacks and piles on shelves.................

 

[chuckg7442]

Not that my opinion means much, not being a shop owner, but I would talk to those customers ASAP. Make sure that they want to continue to do business under new management and that whatever product the company provides has the same terms as with the old owner. My company is one of those shops that are grandfathered in with a few of the existing customers, when it comes to specs/requirements (not exactly using proper terms to explain myself). As long as the dies make parts that meet the print and function, the dies are accepted. You would be the only employee or...?
I have been thinking about buying a shop myself, the only hang up is employees and a consistent customer base.

 

[chuckg7442]

Whoa, be careful of counting on being grandfathered in. I did CNC work for a small, 1950's style mom and pop shop. They retired by selling the operation to their shop foreman. Looked like a good deal for everyone involved. Nope, with the new owner the grandfather'ing ended with the customer accounting for 60% of their work so the shop would have to qualify as a new vendor, insurance, ISO, etc killed the deal.

Exactly my thoughts. Just because the current owner has a deal with the customers, doesn't mean that they will have the same deal with the new owner. Friendship goes a long way.

 

[mrplasma]

When I started my business, Torchmate, I began small, using equipment that would fit in my basement and garage. I let sales growth dictate my expansion. Rather than go into it all here, I will suggest that you take a look at my story here:

The Beginnings of Torchmate

And suggestions for a startup business here:

Suggestions for Startup Manufacturing Businesses

The type of business is different, but hopefully it will be food for thought.

Good luck!

 

[otrlt]

The true monetary worth of any business has very little to do with property or equipment.

It's all about who your customers are in your pocket.

 

[Garwood]

The true monetary worth of any business has very little to do with property or equipment.

It's all about who your customers are in your pocket.

So you can sell that customer to somebody else for money?

If you have products and develop a recognizable brand then, in a way, you can sell your customer base.

Otherwise I think the opposite of your statement is mostly true for manufacturing businesses- Take away the owner and the only value is the property and equipment.