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  1. #1
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    Default Looking at buying shop

    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.

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    Does it come with all the support equipment? Are you paying for that?

    Without customers and a way to generate cashflow RIGHT NOW, that means you have 3 - 6 months to find customers, and learn how to run a profitable job shop. No way I could have done it that quick when I was just starting on my own. Not sure I could even do it again that quick.

    It sounds like the overhead is too much for a one man show, so you would really have to hit the ground running.

    Seems like a better deal for somebody with an already profitable venture that just needs more spindles right away. Or maybe good for somebody who has substantial experience with sales and admin, and plans to bring a crew to run the place.

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    Agree with the above, saying "easy access to loans" sends up a red flag. Banks are not falling all over themselves to lend money to start up machine shops. With used machines you will end up with short terms and high interest rates on more machinery than you need currently, all while needing to beat the bushes and drum up some customers. If I were you I would not even attempt it unless you are sitting on enough cash to pay all the bills, business, personally and take care of your family without making a dime in 12 months.
    Last edited by CITIZEN F16; 08-30-2021 at 10:19 AM.

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    It sounds like you're not buying a business so much as a set of equipment. Is it the exact set of equipment you would buy to start a a shop?

    Will you have the capital to float things for a while? Do you have the contacts to start soliciting for work immediately, or preferably yesterday?

    My understanding is that ISO and AS may be a big help depending on your target market, someone more knowledgeable could probably put a dollar figure on it.

    Edit to add: Repeated some of the above points, Citizen types faster than I do.

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    You are buying blue sky at this point. What about the building? Bought my shop this way 25 years ago. Did not sleep for a few years, now life is gravy. If you want it you want it.

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  9. #6
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    Quote Originally Posted by boosted View Post
    Does it come with all the support equipment? Are you paying for that?

    Without customers and a way to generate cashflow RIGHT NOW, that means you have 3 - 6 months to find customers, and learn how to run a profitable job shop. No way I could have done it that quick when I was just starting on my own. Not sure I could even do it again that quick.

    It sounds like the overhead is too much for a one man show, so you would really have to hit the ground running.

    Seems like a better deal for somebody with an already profitable venture that just needs more spindles right away. Or maybe good for somebody who has substantial experience with sales and admin, and plans to bring a crew to run the place.
    Thanks for the response. I really appreciate the feedback, and the concerns you share, are why I haven't pulled the trigger.

    It comes with all the support equipment. The sale is for the complete shop, and existing customers, which currently make enough to cover rent/expenses, loan payments, etc. I can live without pay for a while, and most likely will.

    I have managed a machining job shop and foundry for close to a decade. I've owned manual machines in the past (bridge port and 18x44 lathe) and have some time on the Fanuc controllers which the machines run on. I'm not too worried about the shop part of the business. It's the sale that will be the challenge, which I will be starting this week pre-emptively, before i decide on the purchase.

    The overhead is absolutely too much ATM. I have my friend who previously dealt primarily with machine shops (castings and subsequent QC) dealing with working on getting overload from other shops. This will probably be the fastest way to add another body on the shop floor. My wife and I will be pushing new sales to find some quality customers.

    My goal would be about 80k in new sales, and 40k in overload for a 12 mos period.

    Thanks

    William

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    Quote Originally Posted by WilliamSK View Post
    I'm not too worried about the shop part of the business. ... My wife and I will be pushing new sales to find some quality customers.
    You can try that first, and see how it works out. Promises to give you work and even purchase orders are just pie in the sky but if you can't get even that, maybe think harder before you cough up the cash.

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    Quote Originally Posted by CITIZEN F16 View Post
    Agree with the above, saying "easy access to loans" sends up a red flag. Banks are not falling all over themselves to lend money to start up machine shops. With used machines you will end up with short terms and high interest rates on more machinery than you need currently, all while needing to beat the bushes and drum up some customers. If I were you I would not even attempt it unless you are sitting on enough cash to pay all the bills, business, personally and take care of you family without making a dime in 12 months.
    Thanks Citizen.

    I do have enough cash equivalents to cover the business and will be putting down about 30%. The high rates is an excellent point, and during the next week, the interest rates on the loan will be confirmed. If it's unreasonably high, I walk. I also will not be putting all my financial eggs into one basket.

    On the family front, we have enough passive income for the necessities of life. Additionally the wife does well on her own accord, so the security of the family should not be of concern, fail or not.

    Regards,

    William.

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    Quote Originally Posted by EmanuelGoldstein View Post
    You can try that first, and see how it works out. Promises to give you work and even purchase orders are just pie in the sky but if you can't get even that, maybe think harder before you cough up the cash.
    100% agreed. If I get zero traction, all bets are off.

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    Quote Originally Posted by LOTT View Post
    It sounds like you're not buying a business so much as a set of equipment. Is it the exact set of equipment you would buy to start a a shop?

    Will you have the capital to float things for a while? Do you have the contacts to start soliciting for work immediately, or preferably yesterday?

    My understanding is that ISO and AS may be a big help depending on your target market, someone more knowledgeable could probably put a dollar figure on it.

    Edit to add: Repeated some of the above points, Citizen types faster than I do.
    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. They are perhaps not the exact machines I would buy, but very similar in capability. The choice of machinery is well selected for the size of the shop. Offer will most likely be in between assets price of machines, and the liquidation price, if an offer is made.

    I have the capital to float things for a while. I have met with tool suppliers, sales people, other machine shop owners(past and present), to get some insight, and determine who to go after. My plan is to start going after sales aggressively before I commit to the purchase, to get a better idea of what to expect. Worst case, I make some connections, send work to a shop I don't buy, and look for something else to purchase. I'm working on an agreement to be able to represent the company, and also contact past customers that currently do not have open orders with this shop.

    Regards,

    William

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    Quote Originally Posted by workin stiff View Post
    You are buying blue sky at this point. What about the building? Bought my shop this way 25 years ago. Did not sleep for a few years, now life is gravy. If you want it you want it.
    Thank you for the comment workin stiff. Glad to hear your venture worked out.

    The building is a rental. Good amounts of electricity, good transportation and manufacturing network around.

    I want it, but it needs to make sense. They'll be other ones on the market if that's the case.

    Regards,

    William

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    Quote Originally Posted by WilliamSK View Post
    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. They are perhaps not the exact machines I would buy, but very similar in capability. The choice of machinery is well selected for the size of the shop. Offer will most likely be in between assets price of machines, and the liquidation price, if an offer is made.

    I have the capital to float things for a while....
    My concern on the customers is that they may be sending PO's to "John Smith", the owner/operator who they've known for 30 years, more than "ACME Machine Co". Being a one man shop his customers might have that dynamic. Or not, just throwing it out there.

    That said, you have experience running a shop and the wherewithal to build up cash and passive income, so I'm betting you can make it work, regardless of the current customers sticking around long term.

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    In case I missed it in previous comments . Who says customer base stays. They might only be around cause of existing owner relationship . I’d see if I could talk to them see what there plans were and NOT count on them 100%

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    Don't even consider starting a business on credit. Not calling it "buying a business' cause It doesn't sound like much of a going concern. so you are basically 3-4 steps past a startup on this deal.
    Seems like this would be a good deal for a larger shop to acquire and carry, especially if they had unique or complementary equipment.

    As the wall street big brains say it " low risk. high uncertainty"
    your plan is clearly high risk, high uncertainty

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    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

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

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    If you said you were getting all the support equipment for free, or really made any indication that you were getting an amazing financial opportunity here; then we'd be telling you to get after it! I wish I could have bought a turnkey operation. The startup phase is hard. So what you are pursuing does have some merit.

    At the same time I see a lot of red flags that indicate a slower approach might be better though. Heavily involving the spouse can work, but IME it's awfully rare that both partners are equally invested in the dream. A lot of business get hamstrung by a reluctant admin/accountant.

    Involving friends is even worse. I can't think of a single instance where the owner hired a friend and it worked out.

    Managing a shop is great experience, but did you do sales, accounting, admin, etc??? If you can't learn all of that stuff really fast, the overhead is going to destroy you. If you have a pile of cash, it might make more sense to put a couple used machines in your own space and take your time learning how to run the business all by yourself.

    What you want to do can be done, and has been done. It's just a lot riskier than letting the business grow naturally. Since you aren't getting a huge value out of the sale, why take the risk?

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    Quote Originally Posted by boosted View Post

    Involving friends is even worse. I can't think of a single instance where the owner hired a friend and it worked out.
    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.

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    Already been stated.

    But I want to know about the building. Machines are great, support equipment is great,
    years of accumulated shit is great (sometimes).

    But where is ALL the stuff going?

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    Quote Originally Posted by Bobw View Post
    Already been stated.

    But I want to know about the building. Machines are great, support equipment is great,
    years of accumulated shit is great (sometimes).

    But where is ALL the stuff going?
    Hi Bobw.

    (Comment based on if shop is purchased)

    The business will stay in the same building it is currently in. It is a rental unit. As a backup, I have inquired about rigging, and new facility, so I can be ready to move if needed, say eviction or large rent increase.

    There is no accumulated shit, which I like. Just tons of tools, in great condition and well organized.

    Regards

    William


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