Old Shop - New Owners - Where to Invest?

EnglishJules · Jul 20, 2015

Hi Fellas,

Long time lurker/reader here, decided to step into the foray as I am looking in earnest for some advice.

Quick background first...

Joined my company 8 years ago, knew nothing, worked up with a few people retiring along the way to head miller, then ONLY miller. Then boss wanted to retire after coming through the recession and so what has happened at the beginning of this year is myself (miller) & my father in law (turner) have bought the existing business.

Basic question is - what to invest in with hard earned cash?

Currently staff wise we have:

Myself : CNC miller, manual milling, a little cnc turning, shop manager, quotations, customer relations etc etc etc (...never ending list.)

Father in Law : Turner, cnc turning (siemens, a little fanuc), Auto lathes (yes really! the pin board type), grinding (we do barely any) general maintenance, and a little of everything else.

Trainee : Mills mostly, just learning but coming along fast.

Secretary : Books, monies, customers, emails, admin, you name it she can do it.

Old boss : part time 1.5 days a week. quotes, deliveries etc when in.

Now on to the questions..

I foresee access to approximately £20,000 or so capital for investment this calendar year thanks to some decent trading months since purchasing the company. I could possibly inject £8000 or so of my own money as a loan.

So the question is..what to invest the money in, our company needs A LOT of bringing up to scratch as the previous owner let the place wind down to decrepitude. (although we are trading healthily for our size at the moment)

currently we have:
Milling: 1x old matchmaker cnc mill - tool changer broken.
1x semco retrofitted knee mill with anilam CNC control (no tool changer)
1x Turret mill
2x small horizontal mills
Turning: 4x 1" capacity autolathes
1x 2" cap autolathe
3x 1" cap emco CNC lathes
1x 1 5/8" cap CNC lathe (screw cutting cycle not working)
1x 2" cap centre lathe, long bed (BADLY worn)
1x 1 5/8 cap centre lathe (BADLY worn)
1x capstan lathe (used for gutting, tapping large taps)
plus many other items! grinders, auto drills, banks of manual drill presses, a fly press etc etc etc etc, the list is quite endless with such an old (40 odd years) established business.

The main problems I see are on the milling side (I might be biased), without a tool changer I am baby sitting every job, and I can do very little in cycle (finding time to quote is near on impossible) plus the best mill (the matchmaker) being 1982 DOB means features are few and far between. the speed controller is dead (necessitating manually retrofitted handle to change). the semco retrofit s to be frank, rubbish. its as rigid as cheese, and the control is vague and fails often to accomplish what it claims to be able to do. Rapids are also pathetic.

On the turning side it is the small capacities on the cnc side, and the centre lathes are TERRIBLE. the small one is the best, but try turning anything straight over more than 10mm and you have had it. My father in laws work load I could say is approx. 1/3 centre lathe turning at present on small quantity 1offs etc. and on this 1/3 I regularly see jobs that should be under 2 hours take 4-5 hours as he struggles to work around the problems. the large lathe is almost as badly worn on the bed, but also has issues with the feed dropping out mid finishing cut. also neither are easy to screw cut metric with (half nut engaged etc)

Really sorry for the essay but it seems so hard to portray what we are thinking about without it.

So, where would you spend the money?

Jules.

Milland · Jul 20, 2015

[I removed this comment as I decided it wasn't helping anything. Best of luck]

Ziggy2 · Jul 20, 2015

You didn't mention, exactly, what type of working is generating your profits.

From describing your equipment, I would agree about needing a tool changer on a mill. However, I see many more turning machines listed than milling machines which leads me to believe that a majority of your income is coming from turning.

You need to ask yourself, "What purchase will generate the most amount of cash the quickest?" 28,000 is not a lot to spend considering with how much you need to update. With all of your needs and just starting out, you are in a rather tenuous situation and spending your cash unwisely can be fatal.

You also need to ask yourself, "What will we do with the extra time saved with this purchase?" Being free to quote more work is good but will the new investment in equipment enable you to get the added work? Sometimes, in your situation, spending some extra hours at work doing the quoting will pay much bigger dividends then spending money on a machine that is saving you some time but not increasing the net profit.

In the end only you and your father in-law can know what is best for you.

IeliteENGINEER · Jul 20, 2015

Go and see a machinery dealer get a mill and lathe both cnc out on hire purchase over 5 years or you can lease them. We don't know how much you paid for this business I'm sure you done your homework. Id start with a lathe with a 10 inch chuck 1000mm between centers and a mill 1000mm x and 500 y doosan and mazak would be a good start. Also I'm not being funny a 2 man shoo with a full time book keeper we have 8 people and our books are done one day every 4-5 weeks by a free lance book keeper that must be draining cash.

Canela · Jul 20, 2015

Non profitable jobs and quotes that don't become orders will help you to see wich are the production weakest points,you have to follow up the quotes and know the reason why you have lost the job.

All Ziggy2 advices are really good, I'll only add a couple more.

First. If you want to succed, change your mentality. You are not an employee anymore,you don't make loans to your company, you can't make a loan to yourselve, you put money when is needed and take it when it's possible.

Second. Do not base investments in the money you have in your hands only, what is important is to know wich profit you make monthly, and wich part of the profit you can invest, you can't count on all the jobs you have today, because tomorrow they might leave.
You will have to get a lease for most of the investments, so you have to calculate what it's ok as monthly payment.

Good luck.

tomwalz · Jul 20, 2015

Nothing wrong with having cash.

The last (or current) recession was supposed to be short and shallow. I had a customer who got a great deal on some equipment. Then his customers started shutting plants and he lost about 75% of his business and I lost a customer who still owes me several thousand dollars.

When business goes away and customers quite paying you, cash disappears with frightening speed. I knew I was in deep trouble the month I lost $45,000. I used my line of credit, my savings, my retirement fund and a second mortgage on my home to keep the business going, Fortunately all the equipment was paid off.

View attachment 144095

I would spend some money on postcards. Get big ones, 5.5” 8.5”. Do full color, glossy on one side. Use some relevant pictures that are somewhat unusual to attract attention. Advertise what you do. Especially if you do repairs. Anytime, day or night, repairs can be a sweet deal. People are a lot less price sensitive when they are shut down.

Take a bookkeeping class and a marketing class. Bookkeepers sometimes hide bad news.

You are a business owner now and not a machinist.

I remember my first, major new piece of equipment; a brand new Fadal mill. Darn but I was proud. We made some money for a year then Boeing slowed way down and we had no work, just payments.

Well, that is probably more than you wanted but you asked.

Good Luck,
Tom

EnglishJules · Jul 20, 2015

Thanks Guys,

Ill try to answer a few of the questions,

the full time book keeper/secretary, does much much more than just keep the books. She processes all the orders, does the paper work, writes out our "job card" orders materials, does the costings once jobs are complete, invoices, and acts as general front of house, answers the phones etc. She has been with the company for many years and truly I think we would be lost without her!

Where does our income come from?
It used to be very heavy on the turning side, with 3/4 full time turners of some descriptiion, a dedicated centre lathe turner, 1 or 2 autolathe staff, and a dedicated cnc turner. all have since retired or left and workload has reduced, some from loss of customers, and some from slack quoting by the previous owner. we used to also have 2 dedicated millers and a "floater". again, just me and the trainee now.

Currently I would say workload is fairly evenly split milling=turning, maybe still slightly more turning recently.

Since taking over we have kept on top of quotes turning them round quickly. This has generated A LOT more work, and all 3 of us are working flat out, we are also already putting in extra hours, enough that we feel if this carries on for a few more months we will be looking for more staff.

To give everyone an idea of where I am at myself, I feel we need, not want, need, a new or nearly new centre lathe, 2" up the bore, good DRO and metric screw cutting, AND something like a second hand bridgeport 600 VMC, that sort of size would do most of what I do on a regular basis, keeping my old cnc for larger awkward stuff.

Also some unexpected good news...This morning I decided to take a look at the broken toolchanger that has not functioned in all the time I have been with the company - and I have repaired it! took about 2 hours work, and although it is a bit wallace and gromit nuts, and I am not sure of reliability yet, I can see it being of use on some jobs.

michiganbuck · Jul 20, 2015

Think a surface grinder is in order for any shop (6-18 or 8-24or so, good used machine OK). I know you said you do little grinding. Evaluate machines to rid dead space. Spend time and money to visit existing (good) customers to get more work. Buy specify for good jobs and expand machines and tooling to that direction.

The work needs... Is the question.

Weasel · Jul 20, 2015

I would hang onto the cash for the rainy day that will come sooner or later. If you have the work for it,buy a CNC mill and CNC Lathe, either good used or new, and get a 5 or 6 year capitalized lease ( that is what is called here ) You own it at the end of the term.Once the CNCs are up and running, your trainee can feed them while the skilled guys are doing the tougher manual work.

scadvice · Jul 20, 2015

A lot of these comments are really good.

I tend to preach having 3 months operating capital in the checking and working with funds that you produced three months back. Why? Because then you can see where your business is headed three months forward. Treat it just like any capital investment into a business. After you have that within the operating structure of your business, then think about equipment replacement or maybe even distributions into your retirement plans. Think of this cash like you think of a milling machine or a lathe, it is part of the needed tools of your trade. Without operating cash you cannot run a business.

Let's play a little business game here... in this below example:

Your business needs 12500 bucks per month to pay all your monthly cost. Everything, wages, all taxes, loan payments, rent, insurance and anything else I for got to add. Three months ago your income was 13500, two months ago it was 14000, and last month was 12000. This month is looking a little dismal there were not many quotes done and the work load is reflecting that and looking forward to the coming month things do not look any better. Your current cash will support you business for about two more months without ANY income at all. Which is an unlikely scenario that that will happen.

A more common scenario is this month will be slow and next month also or at least part of it, then things will change and get better. With a cash reserve you can plan. Ask people to work less hours, go home early, any maybe take some vacation time.

So, for those two months things were slow and your monthly income was say 6000 and 8000 bucks and you will have a shortfall of the needed income.

Now things have picked up... big time... you got everyone working overtime this month so your monthly cost have sky-rocked to 24000, up 11500 from your norm and looking at the month going forward things will be back to normal based on your quotes out, the feedback from you customers and the other shops out there.

But wait, you didn't put this money in reserve? How had you planned on paying everyone until you money comes in 30, 60, or even 90 days down the road when it finally shows up?

The cash reserve capital allows you to work and plan within the ebb and flow of a business. Some businesses also used a credit line and all of this takes discipline, forecasting and planning. Running a business isn't just about being good at producing work and running machines.

EnglishJules · Jul 20, 2015

All sage advice.

We have also a small surface grinder, cylindrical also, and a small dalepena hone.

Have never considered a lease or higher purchase. I think I may go to a dealer this coming weekend and see what is on offer.

Don't know if this will work, but hopefully amusing video of 1980s tool changing below.

https://youtu.be/462FuBvN2e8

Weasel · Jul 20, 2015

EnglishJules said:
Don't know if this will work, but hopefully amusing video of 1980s tool changing below.

https://youtu.be/462FuBvN2e8

Still beats changing it by hand, somebody was excited to have that back then

The real Leigh · Jul 20, 2015

As with any business your first challenge is to define your sphere of activity.

Decide what type of work you want to do, what size, and to what level of accuracy.
You need not achieve that level of accuracy from the outset, but you need to understand the goals.

That will define the tools you need to have / buy / steal / build / beg / borrow / or steal.

There's nothing wrong with buying used gear, provided it's in good shape and works to spec.
This is pretty common practice. You can buy new or better later, as definitions mature and cash permits.

- Leigh

metlmunchr · Jul 20, 2015

EnglishJules said:
Don't know if this will work, but hopefully amusing video of 1980s tool changing below.

That repair gained you the equivalent of 1/2 of a full time employee who works for free. Good move.

trevj · Jul 20, 2015

EnglishJules said:
amusing video of 1980s tool changing below.

https://youtu.be/462FuBvN2e8

Still faster than stopping what you are doing, to walk across the shop to do that. Or worse, paying someone to stand there and wait...

I worked in a shop where we paid out well over $2K to change a $15 battery, and I ended up showing the tech where the battery was. My boss was convinced that repairing and or maintaining the tools in the shop was not our responsibility. Christ, they called a guy in to quote on changing oils in all our machines. Foolishness.

Cheers
Trev

specfab · Jul 21, 2015

EnglishJules said:
All sage advice.

We have also a small surface grinder, cylindrical also, and a small dalepena hone.

Have never considered a lease or higher purchase. I think I may go to a dealer this coming weekend and see what is on offer.

Don't know if this will work, but hopefully amusing video of 1980s tool changing below.

https://youtu.be/462FuBvN2e8

When I read your first post, the toolchanger was the primary thing I saw that first needed attention, and functionality. Pending that outcome, I also suggest (like many others) looking into leasing or otherwise financing a new machine, CNC lathe or mill, depending on where you see the work opportunities. SAVE your CASH for operational needs and bridging revenue gaps, as Scadvice notes.

I have started a one-person business this year, and it is nowhere near being a self-supporting operation yet. It is important to realize that just "making good parts" isn't enough to get the business up to a sustainable level, and it is important to know how the money in your business gets handled and where it goes. The change in business ownership gives you full license to question everything.

Gary E · Jul 22, 2015

EnglishJules said:
Hi Fellas,

Long time lurker/reader here, decided to step into the foray as I am looking in earnest for some advice.

Quick background first...

Joined my company 8 years ago, knew nothing, worked up with a few people retiring along the way to head miller, then ONLY miller. Then boss wanted to retire after coming through the recession and so what has happened at the beginning of this year is myself (miller) & my father in law (turner) have bought the existing business.

Basic question is - what to invest in with hard earned cash?

Currently staff wise we have:

Myself : CNC miller, manual milling, a little cnc turning, shop manager, quotations, customer relations etc etc etc (...never ending list.)

Father in Law : Turner, cnc turning (siemens, a little fanuc), Auto lathes (yes really! the pin board type), grinding (we do barely any) general maintenance, and a little of everything else.

Trainee : Mills mostly, just learning but coming along fast.

Secretary : Books, monies, customers, emails, admin, you name it she can do it.

Old boss : part time 1.5 days a week. quotes, deliveries etc when in.

Now on to the questions..

I foresee access to approximately £20,000 or so capital for investment this calendar year thanks to some decent trading months since purchasing the company. I could possibly inject £8000 or so of my own money as a loan.

So the question is..what to invest the money in, our company needs A LOT of bringing up to scratch as the previous owner let the place wind down to decrepitude. (although we are trading healthily for our size at the moment)

currently we have:
Milling: 1x old matchmaker cnc mill - tool changer broken.
1x semco retrofitted knee mill with anilam CNC control (no tool changer)
1x Turret mill
2x small horizontal mills
Turning: 4x 1" capacity autolathes
1x 2" cap autolathe
3x 1" cap emco CNC lathes
1x 1 5/8" cap CNC lathe (screw cutting cycle not working)
1x 2" cap centre lathe, long bed (BADLY worn)
1x 1 5/8 cap centre lathe (BADLY worn)
1x capstan lathe (used for gutting, tapping large taps)
plus many other items! grinders, auto drills, banks of manual drill presses, a fly press etc etc etc etc, the list is quite endless with such an old (40 odd years) established business.

The main problems I see are on the milling side (I might be biased), without a tool changer I am baby sitting every job, and I can do very little in cycle (finding time to quote is near on impossible) plus the best mill (the matchmaker) being 1982 DOB means features are few and far between. the speed controller is dead (necessitating manually retrofitted handle to change). the semco retrofit s to be frank, rubbish. its as rigid as cheese, and the control is vague and fails often to accomplish what it claims to be able to do. Rapids are also pathetic.

On the turning side it is the small capacities on the cnc side, and the centre lathes are TERRIBLE. the small one is the best, but try turning anything straight over more than 10mm and you have had it. My father in laws work load I could say is approx. 1/3 centre lathe turning at present on small quantity 1offs etc. and on this 1/3 I regularly see jobs that should be under 2 hours take 4-5 hours as he struggles to work around the problems. the large lathe is almost as badly worn on the bed, but also has issues with the feed dropping out mid finishing cut. also neither are easy to screw cut metric with (half nut engaged etc)

Really sorry for the essay but it seems so hard to portray what we are thinking about without it.

So, where would you spend the money?

Jules.

I am going to take a different tack... others have pretty much advised as to machinery etc, I'm going to assume the WE means you are part owner of this company?? Are YOU ???and you have PERSONEL MONEY To Invest...

IF you are an OWNER / PARTNER / or any other form of ownership...

1....... DO NOT INVEST ANY MORE MONEY unless you are getting a return on the investment you have all ready made..And then IF you are getting a return on that investment, BE CAREFULL..BANKS LOAN MONEY... YOU ARE NOT A BANK. MORE people than you can count,are employed by small companies and have become Employee/OWNER OWNED, where else to invest your money but in your job?..sounds good right?...WRONG.... STNKs to high heaven... more and more of them go under, and WHEN THEY DO.. and THEY WILL it's only a matter of WHEN YOU not only loose your job, you loose all that investment/savings money the "co" was suposed to be making for you... DONT FALL FOR IT,,, Make your own investment decisions or use a Mutual Fund available from a world of places...

Best of luck to you...

EnglishJules · Aug 15, 2015

Hi guys,

Thank you soo much for the advice. Just a little update on the direction we went!
We have purchased both a lathe, and a new, small vmc with siemens control and a small 4th axis. Delivery will be this coming Tuesday and we're excited to be moving forwards. We have both put up a little personal money but the bulk is a 3 year finance deal. Leaving us with healthy reserves.

Jules .

Old Shop - New Owners - Where to Invest?

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