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  1. #1
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    Default Looking at purchasing an exisitng shop

    Hello All,

    First, I just wanted to say thank you. This forum has been a wealth of info and has been very helpful to me already.

    I currently have the opportunity to buy an existing fab shop. My father has know the owner for a very long time and I actually worked for him when I was 17 for awhile doing basic shop labor. The owner has a good reputation and is a terrific fabricator but not the best business person. They show around $100,000 in gross annual sales with maybe $40,000 showing as profit. In addition to that, the owner is pocketing 20-30k per year in cash jobs. The owner has agreed to say on in purely a designer/fabricator role for the next 12 months as the business transitions over to me. I do not have his skills and would hire another lead fabricator once the year passes. A few of my thoughts and concerns are listed below;

    1 - He is currently doing ZERO marketing. No website, no listings, no referral programs in place, etc. All his customers are long time repeats or word of mouth referrals. By adding in a nice website and hitting targeted online marketing, I think revenues could be brought up by around 25% pretty easily and in a short amount of time. The only possible downside is we may not be able to initially handle the increased workload.

    2 - He is out of room at the shop. I want to put a shipping container on the side of the building and use that for material storage and equipment that is not frequently used in order to bring in some additional automated equipment and make the work flow a bit better.

    3 - Would like to convert over to solar power to get rid of long term electric bills.

    4 - The shop is currently on his home property. I would not be purchasing either building, but all of the shops equipment (the equipment alone is worth 100k+), customers and "goodwill". I would have to personally move as well to a location where I could have a large freestanding shop on my personal property. I don't think the business can support rental or lease payments for the building right now.

    5 - I'm 36 and have a lifelong background around motorsports and general fabrication. I have been in financial sales up until this point and find myself beyond unfulfilled. I hate not having total control over my current business and the work environment has changed over the past 2 years. I feel it's time to do my own thing. This seems like a solid opportunity to me, as I can purchase the business and all equipment for $100,000. I have revenue coming in from day 1 and have plenty of ideas to cut costs along with bringing in additional work (motorsports - current owner builds race car chassis, but has not expanded outside of 1 class. We have strong opportunity in the market to branch out to other forms of motorsports. In addition to that, I was thinking of remote welding/repair, free pickup and delivery of parts within a 25 mile radius, general expansion of commercial and retail jobs). I think we can reach this market by way of some pretty basic online marketing.

    6 - I do have help and support from family

    7 - The biggest item holding me back, is my financial responsibility to my family. I currently work 30 hours a week, have pretty much total control over my schedule and make good money with benefits. The problem is I'm at the point that I hate the job and don't want to pick up the phone. I think just going to another employer in a similar industry is going to land me in the same place, so one of the few options as this point is to go out and do my own thing.


    I value any and all input. If you have questions please ask. If you have feedback please give it. Thank you all again in advance!

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    Gross sales 100k, how many employees (if that answer is more than 1 id walk away)
    1. 25%, doubt it unless some niche market
    2. too small to even talk about material and equipment
    3. LOL
    4.you don't think the buis can support rent payments??? (walk away) and yet you want to bring in automated equipment, where did that money come from?
    5. So a banker, do you know anything about fab other than what you saw on american chopper?
    6. Thats a big plus, but don't sell them on a sinking ship
    7. Tough call and with others relying on you, youll have to make that choice

    Hate to be "hard" on you but you're in that smelling roses and skipping along beat, time for a reality check. Now if after a good reality check you still see it as a good opportunity then look everything over again and talk to wife about what happens if you cant bring home any money for 6 months or a year, what if you have to sell the whole thing off in a year at a loss. You're young enough and sounds like maybe ambitious enough to maybe make it work, but many many many young people have tried running their own shop only to fail, some do well.

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    Plan a 2 week vacation to reorganize your thoughts regarding your current career. Take a step back from it all and come at it with a fresh mindset when you return.

    You currently make good money, have benefits, and a family to support. $40k net profit is not conducive to any of that.

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    As a 1 man shop, if you want to bill in the 6 digits in labor, a 30hr week only happens when you get the flu and shouldn't even be working.

    Take a close look at the expenses, how much of what he bills is just material and other stuff he makes nearly no $ on?
    90-95% of my gross sales is labour, its where the $ is. If you bill $100k and $60k of it is material, no good.

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    Quote Originally Posted by F1wannabee View Post
    3 - Would like to convert over to solar power to get rid of long term electric bills.
    What kind of machinery comes with the shop - a dremel?

    And we all hate our jobs - especially if we make real money.

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    General rule of thumb for a fab shop is you need to gross 100k per employee. Otherwise you just wont make it.

    I am suspicious of under the table cash- what happens when the state audits you? but thats a risk decision only you can make.

    As far as machinery- if its not spanking new and shiny, then you should be valuing it at auction prices- which are less than one by one ebay prices. Its amazing how much can go wrong with quality, but well used, fab shop equipment, and how much it costs to fix. We had to rebuild 3 machines last year, and parts arent cheap, and lots of labor to fix seemingly simple stuff- rewelding broken cast iron, tracking down and replacing bearings, ordering parts from germany or Italy- it costs a lot to keep a shop running.

    3 phase machines on solar power is simply not feasible- it would cost you tens of thousands to set up, much more than paying the light bill.
    I have 400 amps of 3 phase in my shop- my guess is that current prices for solar would be gigantic for that, especially when figuring in battery sizing for a 10hp motor startup.

    I think it sounds like too much work for too little gross, myself, especially with no in house products with known profit margins.
    Job shop work is really variable- the economy flutters, and suddenly it slows way down- been there, seen that, a few times.
    I would want a quarter million gross for a 2 man shop that sold, without real estate, for a hundred grand, myself. And I would want a small down payment- 10k maybe- and owner financed 5 year contract.

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    Keep your regular job and start a side gig if you are truly interested.

    Once the owner leaves and you have to pay someone else to do all the fab work, how do you pay yourself? That 40k net profit is gone along with the majority of the cash side work. Thats all assuming that his customers will keep going to you after he's out of the picture, which they won't. They are repeat because he is doing their work. The minute you do something of less quality they will be running.

    Solar powered shop? That's just a pipe dream. If you have the money to go that route, you should just retire.

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    You can make a small fortune in motorsports if you start with a large one.....

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    If you have finance knowledge and skills then use them.

    Right know you're thinking with your dick.



    If you buy / finance anything then the cash off the book sales don't exist or count towards financing.


    If you have to move buildings, then there is NO goodwill/walk in trade carryover.
    There is nothing stopping him from continuing to work for cash after the year of transition - and he's got all your money to buy new equipment.



    If you have good income and only 30 hour work week now, take that time and money and do what you want.

    Work part time for him and learn the skills you are missing.

    Build the shop you want, buy the equipment you want and make what you want. If you get sales from that fine. If not you're having fun and not out on the street collecting beer cans for food money.

    Buy some used equipment from him if he sells any at fair market auction rates.
    Last edited by Steven-Canada; 03-01-2018 at 06:35 PM.

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    I understand the lure of your own shop/ business but I'm sure you are looking through rose colored glasses at the moment.

    Rather than guess I would want an independent realistic appraisal of the equipment you are purchasing. (That could conceivably be all you'll have in a year or two.

    All the business and customers look great until the business changes hands and they get cold feet until you prove yourself. Worse yet you are gonna need to change locations and build or rent a shop. This as well could have a negative impact on your customer base. It certainly will affect your bottom line in added expense.

    I realise he agreed to stay on for a year, I'm sure it's not free. He could be making the salary you need to live on. What happens if you don't have the where with all to move the business, is there a deadline to be off his land? To me that would be the deal breaker, not being able to stay in the same location and shop. To much risk and liability.

    I've only touched on a few points, way to many to list off the top of my head. It may be the deal of a lifetime..... or not. Be sure to do your homework first before diving in. Good luck

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    Quote Originally Posted by JP Machining View Post
    Gross sales 100k, how many employees (if that answer is more than 1 id walk away)
    1. 25%, doubt it unless some niche market
    2. too small to even talk about material and equipment
    3. LOL
    4.you don't think the buis can support rent payments??? (walk away) and yet you want to bring in automated equipment, where did that money come from?
    5. So a banker, do you know anything about fab other than what you saw on american chopper?
    6. Thats a big plus, but don't sell them on a sinking ship
    7. Tough call and with others relying on you, youll have to make that choice

    Hate to be "hard" on you but you're in that smelling roses and skipping along beat, time for a reality check. Now if after a good reality check you still see it as a good opportunity then look everything over again and talk to wife about what happens if you cant bring home any money for 6 months or a year, what if you have to sell the whole thing off in a year at a loss. You're young enough and sounds like maybe ambitious enough to maybe make it work, but many many many young people have tried running their own shop only to fail, some do well.

    I was thinking about the same thing as above as I was reading it. ESPECIALLY the first line!
    Pretty much werd fer werd! (100K - 1 man shop!)

    I kan't find not one thing in your whole schpeal that makes this sound like a good thing to anyone other than the seller.

    Don't buy a (small) business making something that you can't make yourself. There's not enough $ to pay someone to make it, and you to watch him both!

    Get a hobby and make your 30hr job acceptable! You'll not make that much here in 80 hours!

    Also - don't expect to just hire someone to make fab parts off the street. YOU need to know how - and to show someone else what to doo! YOU (as the owner) are the only constant in this equazsion. If Joe walks out the door, what's Billy to doo?


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

    Think Snow Eh!
    Ox
    Last edited by Ox; 03-01-2018 at 05:16 PM. Reason: First line - not #1

  17. #12
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    So the 'side jobs' that go into owner's pocket -- will that continue to happen when he's working for you?
    More importantly, will they stay with him after he stops working for you? That would be bad. He needs to be out of business, contractually, when you begin. Sorry, but I'm betting that won't happen. And lately, non-compete clauses are being nullified because you can't really prevent someone from making a living.

    Another troubling aspect is that after you move, he's going to have a big empty shop on his property, just itchin' to start some shenanigans. What will keep those customers from coming back his way to work in his new/old shop, freshly populated with new gear that you effectively bought him? Plus, now he has shed most overhead/dinosaurs and can start with the clean slate you wanted to start with. Can you wait him out until he retires or fails, then step into the marketplace, snap up his best guy or two, and move forward?

    The comment above about "him making the salary you need to live on" is key.

    Or, it could work out great!

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    5 - I'm 36 and have a lifelong background around motorsports and general fabrication. I have been in financial sales up until this point and find myself beyond unfulfilled. I hate not having total control over my current business and the work environment (motorsports - current owner builds race car chassis, but has not expanded outside of 1 class. We have strong opportunity in the market to branch out to other forms of motorsports. In addition to that, I was thinking of remote welding/repair, free pickup and delivery of parts within a 25 mile radius

    6 - I do have help and support from family

    7 - The biggest item holding me back, is my financial responsibility to my family. I currently work 30 hours a week, have pretty much total control over my schedule and make good money with benefits. The problem is I'm at the point that I hate the job and don't want to pick up the phone. I think just going to another employer in a similar industry is going to land me in the same place, so one of the few options as this point is to go out and do my own thing.


    I value any and all input. If you have questions please ask. If you have feedback please give it. Thank you all again in advance![/QUOTE]

    If you think you will have "total control" of your business you are a bit naive, when you have a small business you don't have a boss anymore. You have 10 or 20 bosses, each customer is the boss! I have been in top level motorsports for 30 years, it's TOUGH to make it. What are you going to do in the off season when the phone stops ringing? Free pick up and delivery! Did someone give you a truck with a free gas card, free insurance and a driver that does not want to be paid? You make good money with benefits, Plan on 60-80 hour weeks and no benefits. Or do you think your little company can support 900.00 / month for a shitty insurance policy? I could go on but I won't

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    We always come off as naysayers when this subject comes up, but you're getting the correct advise.


    You are looking at a home based business that is barely ticking over and is only sustainable because it has extremely low overhead. That business basically has no value, beyond auction prices for the equipment, to anyone but the current owner. That's true for tons of small businesses, including mine.


    The business currently provides $40,000 of income for the owner. How can you buy it, pay him that same $40,000, pay moving expenses, pay rent on a new building, pay all the other crap, and have anything to show for it? You can't double or triple sales instantly. It could take years, or sales could even decline. You just don't know.


    I'd run from this "opportunity". If you have the passion, start small, like this guy did when he started his business.

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    Thanks for the reply. I responded below in red.


    Quote Originally Posted by JP Machining View Post
    Gross sales 100k, how many employees (if that answer is more than 1 id walk away)
    1. 25%, doubt it unless some niche market - You don't see a legitimate increase with marketing in place? Again, ZERO right now. If you didn't know this guy, you wouldn't find him. It's a shame.
    2. too small to even talk about material and equipment - fair enough
    3. LOL - I knew I was going to get hammered for that here and that's cool, but the tax benefits are pretty significant here and within 3 years, no more power bill
    4.you don't think the buis can support rent payments??? (walk away) and yet you want to bring in automated equipment, where did that money come from? - I have funds that would be set aside for this. Based on what he has told me the backlogs are, I could get by right now for about $10k
    5. So a banker, do you know anything about fab other than what you saw on american chopper? - I wouldn't say banking, but you're not far off either. I grew up with a father that owned a trucking company, fixed all his own shit and built race cars/raced on this side. I've been in a shop since I was 6 and have raced since I was 7. I have general knowledge and skills but more importantly,I know how to run a business, which is why I said I would hire a lead fabricator. This business will never grow as a 1 man shop trying to do it all.
    6. Thats a big plus, but don't sell them on a sinking ship
    7. Tough call and with others relying on you, youll have to make that choice

    Hate to be "hard" on you but you're in that smelling roses and skipping along beat, time for a reality check. Now if after a good reality check you still see it as a good opportunity then look everything over again and talk to wife about what happens if you cant bring home any money for 6 months or a year, what if you have to sell the whole thing off in a year at a loss. You're young enough and sounds like maybe ambitious enough to maybe make it work, but many many many young people have tried running their own shop only to fail, some do well.
    I don't think you are being hard at all, I'm happy to get this side of it and that's really what I wanted. Thank you.

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    I have general knowledge and skills but more importantly,I know how to run a business, which is why I said I would hire a lead fabricator. This business will never grow as a 1 man shop trying to do it all.
    I kannot stress it hard enough - if YOU cannot doo it yourself, and are banking on finding, and keeping someone that does know how - unless you have some product of your own - walk {I'd prefer "run"} away!

    From the concept that so far you thought that this was an opportunity to even consider - tells me that you doo NOT know how to run a business!


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

    Think Snow Eh!
    Ox

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    Solar panels might be able to make a house off grid and may make a small dent in the bill of a fab shop but I have yet to see any solar panel array system that will run a full fab shop, let alone 2 shifts or on cloudy days. Just get used to the fact that you are gonna have an electric bill, the plus side of that is that when the bill is really big, that usually means you were busy last month which should mean you have money to pay it.

    So you are going to hire a lead fabricator. So after several months of trying out some people and maybe finding the one guy you want to hire, after pay and benefits, workmans comp, social security, etc hes going to cost you close to 100k a year total (if you plan on paying low wage forget finding a good guy that knows what hes doing). So now you need the gross sales to be in the oh lets say $250K range if not higher, after materials, elec, buis ins, rent, repairs,maint, maybe the net is 125k, then the 100k to pay him, leaves you with enough to buy the wife a loaf a bread every week (if you see her at all as most every waking minute will be at the shop), not to mention somehow you magically basically tripled sales overnight to get there.

    I'm not saying dont do it, but there are enough red flags that those of that have been doing this for several years wouldn't just walk away from this, we would run away.

    The way I see it, you are working 30 hrs a week, save up buy a welder, bender, saw etc and do some stuff in your garage for another 30-40 hrs a week. If that goes well, then find a slightly larger shop and maybe quit day job and spend 80-100 hrs a week in new shop with established customers and reputation that you built up while in garage. Thinking all his customers will follow to you if you buy him out is a pipe dream, most customers will see that as an easy excuse to shop around and requote everything with businesses that management has not changed in 10 years, I've seen it happen

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    Have you tried to hire a "lead fabricator"? good luck finding someone worth a shit for less than 25.00/hr + your half of the tax bite + his benefits. You better learn how to be a fabricator in that first year. Are the wife and kids tired of you? once you are on your own don't expect to see them much, you will be working your ass off!

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    Learn how to fabricate Hot Dog Carts..... Could sell them to half the guys here...lol

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    I'd like to see the equipment list. Or give us a general idea of what he has.

    _____

    I'm real negative on custom automotive/ race car businesses.

    I see many of them ran or financed by retirees or rich guys who made their money elsewhere.

    Some are owned by people 'living the dream' and don't much care for business-like returns.

    Others have 'bought themselves a job'

    (Many others come and go).


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