Small Shop Contract Advice

[newtonsapple]

I've been avoiding a website due to all the unwanted attention it brings. My experience with websites tends to get a lot of traffic, with very little follow through. Lots of tire kickers, interested parties, irrelevant questions, etc. I talked with an advertising/marketing firm once about a website that I was working on (past life) and it has a 4% conversion rate. That is 4% of people that visited the website bought something. They told me that was extremely good. In my head that means 96 emails for 4 sales. To me that is terrible.

So far any customer that has been to the shop has been impressed, though that hasn't always meant that I got the work we discussed. I probably only quote half the RFQ's I get, but I would guess I get 90% of the work I quote. To me the website would certainly open up more work, but I would have to figure out a way to weed out the stuff I don't want.

Put together a website, basic single page Wordpress site. You can do it yourself most likely with some youtube videos. Pictures of some example parts, list of equipment if it is worth showing off at all. It is an important checkbox, you sort of don't exist as a business (even if they are talking to you on the phone/email) to a lot of customers without any website.

 

[newtonsapple]

meantime ,back to the question......a contract is enforcable ,against either party ,and while youd have a battle against a big customer ,I d suspect a customer that was hurt by late or non delivery might enforce his rights against you.

And if your quoting/order acceptance terms are well written, it should clearly spell out that delivery time estimates are not guaranteed (orders have to be pretty big to get make delivery time penatlies worthwhile). It should also spell out that a customer may cancel an order with written notification while being liable for material and time costs that have been incurred, while the customer may elect to to receive the unfinished material on the order cancelation form.

You can make your legal standing more robust by providing regular and timely updates about the status of an order (order accepted, material ordered, material received, production started etc). This sort of move shift the responsibility to the customer.

I once ordered a $20K of a custom version of a stock part from a vendor. They quoted it, I sent in the PO and they responded that they reviewed the order and could only produce the standard version at this time, is that okay?. I was pissed as I made a bunch of plans around that part and just ghosted them (not the best choice). Three months later $20K worth of parts shows up at my door, WTF? Invoice in email shortly after. One very awkward phone call later that went along the lines of "send me a copy of the order acknowledgment described in paragraph three of your quoting terms or send me some return shipping labels." Slapped those labels on right before Christmas, word is that the sales guy just missed a bonus tier.

Moral is that contract processes do matter. First pass is use the boiler plate terms as written. Air tight terms are not always needed and big downside as they can slow things down. Keep a close eye on the big downside risks and don't provide guarantees over things you don't have control of unless you are well compensated for incurring those risks.

 

[Fal Grunt]

I'd say a website that shows off parts and neglects to list an address is your friend. Someone can still look you up through the state paperwork, but that's an order of magnitude more work than right-click-and-search a street number. Pure speculation, but I wonder if the lack of website is more of a negative influence than the small shop itself?

We are in a similar boat (or crop field in our case), and the fact that we are so far off the beaten path means almost no one even considers a site visit.

Going one step beyond, you could set up a DBA with a name and website that suits the work you want to pursue, another step for the more stalker-ish purchasing agents to find your location.

My business is a DBA under my LLC. Anyone that knows anything about business can find my DBA, LLC, and home address in a matter of minutes. But on the surface it does "obscure" the background.

Doo you want to send a PO to someone that is obviously hiding?
.. and if there's issues ?


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Think Snow Eh!
Ox

That's not a bad thought, but today in corporate obscurity, I don't think it's unreasonable. I did work for a large company that, if you do any work for large companies and have to provide a W9, they are going to figure out who you are.

Now, I am jealous of a friends business. If you try to look it up online his paperwork filed to the state is totally blank.

meantime ,back to the question......a contract is enforcable ,against either party ,and while youd have a battle against a big customer ,I d suspect a customer that was hurt by late or non delivery might enforce his rights against you.

That really wasn't the question. I understand contracts are enforceable. The question is how do you assuage the fears of a potential customer?

Put together a website, basic single page Wordpress site. You can do it yourself most likely with some youtube videos. Pictures of some example parts, list of equipment if it is worth showing off at all. It is an important checkbox, you sort of don't exist as a business (even if they are talking to you on the phone/email) to a lot of customers without any website.

Wordpress is a good idea since it is practically undiscoverable via google

And if your quoting/order acceptance terms are well written, it should clearly spell out that delivery time estimates are not guaranteed

Moral is that contract processes do matter. First pass is use the boiler plate terms as written. Air tight terms are not always needed and big downside as they can slow things down. Keep a close eye on the big downside risks and don't provide guarantees over things you don't have control of unless you are well compensated for incurring those risks.

Qouting/acceptance terms are something that I should work on. 9/10 they are verbal and conditional due to the nature of a lot of the work I do, and as I get into doing more quantity orders I should get a standard set of terms made up. Usually the order is something along the lines of "we have a machine that has to ship next week can you make this by thursday?" I always say I will do my best, but as you mentioned, there are no guarantee's. Or my favorite, "we needed these for a job 6 weeks ago, how soon can you have them done?"

 

[LOTT]

Doo you want to send a PO to someone that is obviously hiding?
.. and if there's issues ?


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Think Snow Eh!
Ox

It's not hiding, the goal is to make sure they see the type and quality of work before seeing the building. My quotes have our address, it's not a secret by any means. No different than saying "we" when it's just Fal and his dog...

 

[DanielG]

Now I have a customer who I've ended becoming the sucker who bids and makes the stuff that nobody wants to make, or makes stuff in a couple of weeks where everybody else is at 4-8 weeks.
Well the last time I was delivering some parts, the young engineer says "we plan on making a visit to your shop to see your capabilities"
I'm thinking f', last thing I need. It'll take a long weekend to make it moderatly presentable. I'd have to sort out the material racks, clean the bathroom etc etc.
Well Plan B, I have a friend who has a largish shop up in Compton. I talked to him and asked if I could use his shop for the visit, He said yes no problem. The downside though will be when they see the 5-axis machine they'll be designing even more parts that are hard to make. Of course when I tell them the shop is in Compton (and not the best part), they might change their minds.

This sounds like an incredibly bad idea. Any place I've worked, a lie like that will get you blacklisted.

 

[Freedommachine]

My business is a DBA under my LLC. Anyone that knows anything about business can find my DBA, LLC, and home address in a matter of minutes. But on the surface it does "obscure" the background.

Don't quote me on this because I'm still learning but... If you register an S corp; you (as a sole proprietor) should be able to sell your trade name to the corporation. This would essentially keep your public facing business identity the same and assign a registered agent for the new S corp.

It will appear as a new entity but corporate restructuring happens all of the time. It can easily be explained as a sign of growth rather than obfuscation. There are a lot of large companies owned by other large companies.

Some private companies make it virtually impossible to know who actually owns and operates them short of a deposition.

An S corp can be helpful during tax time as well. Being a separate legal entity; you can charge the business rent and lease assets to it.

You also won't be charged FICA tax (15.3%) on the businesses whole income but only on whatever salary you decide is "reasonable" to pay yourself.

There are a lot of good books that explain the in and out of corporate structuring. It's boring as hell but the more complete your structure appears the more "professional" people think it is - company with employee(s) vs sole proprietorship.

Combine that with a simple website full of fancy words and a little b.s. about diversity and sustainability...and you've got a fortune 500 business.

You could even "sell" the business to another corporate entity and now you become; "ABC machine LLC, a Globodyne industries company."

FWIW, I enjoy reading about this subject but I have yet to do it myself, I'm still learning. I just wanted to share that there is a possible way out of the identity trap.

 

[Doug]

Don't quote me on this because I'm still learning but... If you register an S corp; you (as a sole proprietor) should be able to sell your trade name to the corporation. This would essentially keep your public facing business identity the same and assign a registered agent for the new S corp.

It will appear as a new entity but corporate restructuring happens all of the time. It can easily be explained as a sign of growth rather than obfuscation. There are a lot of large companies owned by other large companies.

Some private companies make it virtually impossible to know who actually owns and operates them short of a deposition.

An S corp can be helpful during tax time as well. Being a separate legal entity; you can charge the business rent and lease assets to it.

You also won't be charged FICA tax (15.3%) on the businesses whole income but only on whatever salary you decide is "reasonable" to pay yourself.

There are a lot of good books that explain the in and out of corporate structuring. It's boring as hell but the more complete your structure appears the more "professional" people think it is - company with employee(s) vs sole proprietorship.

Combine that with a simple website full of fancy words and a little b.s. about diversity and sustainability...and you've got a fortune 500 business.

You could even "sell" the business to another corporate entity and now you become; "ABC machine LLC, a Globodyne industries company."

FWIW, I enjoy reading about this subject but I have yet to do it myself, I'm still learning. I just wanted to share that there is a possible way out of the identity trap.

I think this a very poor idea. If I was contracting out work I would run fast from anybody with a setup like this.

When I downsized to retirement I had a lot of bar fed work, real simple parts that were profitable to me. I looked over companies that might be able to do the work and referred customers to them. I went to the shops to see their machinery, get some idea about their employees and a general feel about the companies. This was done as a favor to my customers.

Nothing good can come of trying to hide your true identity. And as I said previously nobody in their right mind is going to issue a large contract to a one man shop.

 

[DanielG]

It's boring as hell but the more complete your structure appears the more "professional" people think it is - company with employee(s) vs sole proprietorship.

No sane person actually runs a sole proprietorship. If you do, there's no limited liabilty; all of your personal assets are at risk.

If you, like most people, have an LLC, you can elect to be taxed as a sole-proprietorship, S-corp, C-corp, or partnership. The only way a customer has of knowing which you chose is by getting a W9 from you. I've never heard of a customer caring about the tax details of their vendors.

 

[Freedommachine]

I think this a very poor idea. If I was contracting out work I would run fast from anybody with a setup like this.

There were a number of possibilities in there. I'm not saying that all of them would be necessary or particularly useful for a machine shop.

The majority of businesses in existence use corporate structuring and do many of the things I mentioned. Trucking companies in particular use every trick in the book.

If you looked up a company on google maps and saw the registered address was a lawyer or accountant, would you run? Or would you call them back and request a shop visit?

When I downsized to retirement I had a lot of bar fed work, real simple parts that were profitable to me. I looked over companies that might be able to do the work and referred customers to them. I went to the shops to see their machinery, get some idea about their employees and a general feel about the companies. This was done as a favor to my customers.

Well sir, that's just due diligence. Taking care of your customers and having integrity.

The OP did not even get a chance for a shop visit. He said his call went well but he was refused their business when they looked him up.

What I am suggesting is not unethical, it's business and you do what you have to. If management has to approve a new vendor, chances are they will look you up...on Google.

Make them like what they see and maybe they'll send someone out to the shop. That someone likely won't be a robot with an MBA degree. It will probably be the engineer in charge of the project.

If a guy is confident he can do the work, he should have the opportunity to prove it in person.

 

[macgyver]

Something that seems to work for me is that I make it a point to have a relationship with my customers and vendors, some better than others of course. Most of the time I deliver my stuff and I will usually pick up material myself if it makes sense. For me, the customer seeing me often and getting to talk to them often and getting to see what they are working on helps keep me in the loop and providing them with what they need. I think if I were to have their people come get it or ship the stuff it would not have turned into as much work as they have all sent my way. I also know who the people are in the offices as well. If I goof up some sort of paperwork it is much easier for me to beg forgiveness etc from someone I know than a stranger on the phone or screen. Or the other way around, they goof up something I have a much easier time to helping remedy the issue.

I used to tell people that if I got to go visit a potential customer where we got into the actual shop floor or they got to come to my place, then at some point I'd get work from them. I don't think of myself as a salesman, but in the right circumstances I do well.

On the vendor side, I have one place I have done business with since before I went on my own. They have the same manager as the first day I stopped in there 20+ yrs ago. We have gotten to know each other and when I started on my own I got a job were I needed material and just couldn't afford it. I told him what was up and he offered to cover me until the customer paid me for the job. This happened twice the first few years and it made a big difference for me.

Taking the time to make these visits is a big time suck and distraction, but for me I think it has made the difference.

Side note, I was able to buy a commercial building mostly from opportunity and availability rather than it being a priority at the time. I honestly don't know how much that has played into the results. I do expect it may have at least some affect with some people just based on what Wheelieking has said in his thread and a few others have as well about shops located at home.

 

[triumph406]

This sounds like an incredibly bad idea. Any place I've worked, a lie like that will get you blacklisted.

So far I've discouraged the idea of a visit.

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About a year ago this customer was on the verge of going bankrupt, I had a decent sized invoice (probably small for the rest of you PM'rs) It was getting way behind, their D&B was showing they were way behind with all their vendors. (250k to Xometry at one point)

I didn't freak out, when they needed some parts made, I made them, I was civil, kept communications open. And when they got funding I got paid. They guy I was dealing with said I was one of only a few vendors who remained civil and continued to supply parts.

I took a risk, but it paid off, and it continues to pay off with the good will generated.

Zero chance I'm going to get blackballed.

 

[triumph406]

This sounds like an incredibly bad idea. Any place I've worked, a lie like that will get you blacklisted.

Plan C might be to have the Compton shop as a partner shop to mine, rather then my shop, would be entirely plausible. and less dispruptive.

This is potentially going to cost me a shit ton of Pizza and BBQ (Jay-Bees is up the street and they do the best BBQ in LA (Compton gang member approved)) luckily none of them drink.

 

[john.k]

I once got a lucrative job because the engineer in charge was impressed by how I "Drove around in an old hillbilly truck as a PR stunt".

 

[Freedommachine]

No sane person actually runs a sole proprietorship. If you do, there's no limited liabilty; all of your personal assets are at risk.

If you, like most people, have an LLC, you can elect to be taxed as a sole-proprietorship, S-corp, C-corp, or partnership. The only way a customer has of knowing which you chose is by getting a W9 from you.

My mistake, my brain got stuck between tax structures and legal entities. The OP did say he had an LLC. I meant to say that the op's DBA could be transferred to a new legal entity. The operational benefits of S corp status are accurate though.

I've never heard of a customer caring about the tax details of their vendors.

You're probably right but 1099's do not have to be issued to corporations (Or LLC's electing a corporate tax status to be technical). If a company has a bias against small shops and they see a 'sole proprietor' tax status when recording a W9, it could possibly become the thread that unravels everything.

If the goal is to "blend in", it would be best to look like every other vendor.

Somewhat unrelated but; I have had two different vendors refuse to even respond to an RFQ without first providing a tax exemption form. I file sales tax every month - it's easy, takes 10 minutes. They are opting out as a front line measure to avoid doing business with the public.

 

[Ox]

So far I've discouraged the idea of a visit.

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About a year ago this customer was on the verge of going bankrupt, I had a decent sized invoice (probably small for the rest of you PM'rs) It was getting way behind, their D&B was showing they were way behind with all their vendors. (250k to Xometry at one point)

I didn't freak out, when they needed some parts made, I made them, I was civil, kept communications open. And when they got funding I got paid. They guy I was dealing with said I was one of only a few vendors who remained civil and continued to supply parts.

I took a risk, but it paid off, and it continues to pay off with the good will generated.

Zero chance I'm going to get blackballed.

I had a customer that I knew would end up bankrupt at some point. I ran mostly multi-spindle work for them, and I was down to a one man shop at that time, and I had otherwise open capacity, so I figgered that my main costs on their parts was material and electricity.

So we kept running for them, for prolly 3 more years. During this time we never got into any big numbers in the receivables like we had in the past - which I was good with. Over that time we likely ran $100K or more? And in the end we got stuck for $10K.

I won!


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Think Snow Eh!
Ox

 

[DanielG]

My mistake, my brain got stuck between tax structures and legal entities. The OP did say he had an LLC. I meant to say that the op's DBA could be transferred to a new legal entity. The operational benefits of S corp status are accurate though.

The benefits you mentioned are true, but not complete. The sole-propietorship vs S-corp election used to be a simple calculation of whether the saved payroll taxes outweighed the additional accounting costs. With the advent of the Qualified Business Income Deduction, the decision became much more complicated. It now depends on you filing status, how much your spouse makes, how much your employees make, etc.

 

[Fal Grunt]

A lot of discussion and posts, one I would like to comment on is building personal relationships with your customers. This has always been a big thing for me. I like to know what is going on both at work and in people's lives. The problem I have had is turnover. I have some vendors and customers where I have quite literally never talked to the same person twice.

On the flip side, when I worked for my grandfather, he had people that he had been doing business with for 30+ years. When people talk about the current work/job/labor issues, I don't think it started because of 2020, I think it started in 08-10 and has been slowly getting worse since. 2020 was the straw that broke the camels back and made people finally see what was happening. When I started my company in 2010, there were numerous companies and lots of people that if I needed to... I could quietly mention who my grandfather was. It was dumbfounding the doors that would open. Not that he was rich, or influential, or any of those things. He had 30 years of relationships. Not a single salesman, machine shop, toolmaker, etc that knew my grandfather remains since I started my business in 2010. Many were younger and left the industry or did I don't know what. The wire shop that did all of the zero clearance carbide die details closed, the owner sold the machines and disappeared. Several companies were bought, and all the competent people quickly disappeared.

I do have a local shop I have been meaning to get out and meet, might try to do that this week and see if they have any work I would be a good fit for.

 

[Doug]

If you looked up a company on google maps and saw the registered address was a lawyer or accountant, would you run? Or would you call them back and request a shop visit?

Damn rights I would have run. All my customers were very straight forward, no funny business. My customer's shops were their listed locations. And I knew the person responsible for paying invoices who most times was at the shop location. I only dealt with local businesses in the greater Seattle area. And I never replied to RFQ's.

Nobody Googled to find small shops like mine, if potential customers approached me it was likely from a referral. If I approached them I never tried to represent my business as anything but a small shop that could be to their benefit. Being small you're lean and mean. You can serve customers with quick turnaround, help with design issues and a more personal interaction than they get with a large shop.

It's just a fact of life, big corporations usually aren't awarding long term, high dollar contracts to us small guys. I worked for 10 years with a customer developing a medical product. Got an NIH grant for the development research and made good money. Once it was ready for production they asked why I wasn't bidding on production quantity runs..... simple reason, as a small shop I didn't have the equipment to be competitive in high volume.

 

[Ox]

Lots of talk here about small shops able to have quick turn-around.

Well, yeah, if you're slow .... It can actually go the other way once you get a lot to doo.

I really don't see that issue holding much water.


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Think Snow Eh!
Ox

 

[Doug]

A lot of discussion and posts, one I would like to comment on is building personal relationships with your customers. This has always been a big thing for me.

That is one very important advantage a small shop has. Whenever I had the opportunity I'd deliver parts to customers. This could lead to a discussion of the part function, design or its manufacturability. Time flies, sometimes the discussions could go on for an hour or so. I saw it as relationship building. After a while one company bookkeeper called to ask why I never invoiced them for my "consulting" time. We got to the point they'd often invite me to their design meetings and I billed at shop rate.