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    Default Starting a Shop

    Hope this is the right place for this thread. I'll try not drag it out.

    I work for a manufacturing facility that decided to outsource all their machine shop work so I just got laid off after 12 years.

    The twist is that because the machines are old and run down and because the company is moving to AZ in a couple years, they have no plans to get rid of them. They will just be sitting there.

    So...after we were laid off, my coworkers and I were presented with the option to possibly lease the space and buy the equipment on a payment plan. We would bid jobs like every other vendor, but I think we could get the work because they are always running behind and we would be in the same building.

    I can run parts start to finish...Manual work, cnc lathe, mill, programming and I've taken a couple crash courses on how to start a business, but I'm terrified at the idea of taking this on and am not really sure if its a good idea. I'm assuming it's a huge leg up though because the equipment is there ready to go.

    Downside is the Haas VF6 needs an $8K gearbox and the turret on the HL-4 is rusty inside and needs to be rebuilt and we would be responsible for all that. They run at the moment, but who knows for how much longer.

    Any advice on how to get this off the ground would be appreciated.

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    You tube look up edge precision. He does the very thing u are asking in Houston he loves it. His videos are supreme
    Don


    Sent from my iPhone using Tapatalk Pro

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    My co-workers and I...

    Not in my wildest dreams would I even consider that.

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    I think what camscan is saying. No way in hell should you have business partners. At the very least....each of you buy your own machine and split the costs and share work. Split the shop into sections and isolate eachother. Better yet ...non-business partners!!

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    This sounds kinda like a bonehead bean-counter move. Depending on the exact type of bonehead we're dealing with, it could be a good opportunity to keep going in a familiar setting, or a good opportunity to completely screw yourself over. Think hard about that.

    The good news is that you are already familiar with the ins and outs of your used equipment. Not everyone who strikes out on their own has that advantage. How many people in the shop, and how many considering staying on? That's going to be a huge factor.

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    Quote Originally Posted by camscan View Post
    My co-workers and I...

    Not in my wildest dreams would I even consider that.
    Yeah I think alone is better


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    Step 1, hire a business lawyer and have a very clear understanding of who owns what and who does what. Most importantly, how will you divide it up WHEN things go sour

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    When is correct, things will go sour that much is certain.

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    Quote Originally Posted by rokstarr999 View Post
    Hope this is the right place for this thread. I'll try not drag it out.

    I work for a manufacturing facility that decided to outsource all their machine shop work so I just got laid off after 12 years.

    The twist is that because the machines are old and run down and because the company is moving to AZ in a couple years, they have no plans to get rid of them. They will just be sitting there.

    So...after we were laid off, my coworkers and I were presented with the option to possibly lease the space and buy the equipment on a payment plan. We would bid jobs like every other vendor, but I think we could get the work because they are always running behind and we would be in the same building.

    I can run parts start to finish...Manual work, cnc lathe, mill, programming and I've taken a couple crash courses on how to start a business, but I'm terrified at the idea of taking this on and am not really sure if its a good idea. I'm assuming it's a huge leg up though because the equipment is there ready to go.

    Downside is the Haas VF6 needs an $8K gearbox and the turret on the HL-4 is rusty inside and needs to be rebuilt and we would be responsible for all that. They run at the moment, but who knows for how much longer.

    Any advice on how to get this off the ground would be appreciated.
    I wouldn't do it. This sounds like a classic "big business" that is run by a bunch of degree holding idiots. If they are very big, what are their payment terms, net60-net90??! So you get to pay them monthly for lease and machine payments all the while you don't get paid for 2 months..

    Who decides to lay off their machinist(s), outsource the work, and then offer for you to buy the machines and bid jobs for them?? Don't understand how that could make sense financially, unless by outsourcing they mean China...

    What would happen if you landed work from another place (paying better or faster or whatever) and their (where you are working form) stuff got behind? How would that lease and payment plan work then? Whole thing just screams RUN AWAY.

    edit: I am ass-uming that those machines are old enough for them to have completely depreciated them. They mention any pricing?

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    It would be impossible to determine the viability of any business venture without first conducting some due diligence. You'll need to determine FMV of the equipment and the building, and more importantly, how much work you can realistically bring in quickly.

    A great idea can be a crap idea if the numbers are wrong.

    When does the shop officially close? How soon can you start bidding on jobs?

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    Quote Originally Posted by Mike1974 View Post
    I wouldn't do it. This sounds like a classic "big business" that is run by a bunch of degree holding idiots. If they are very big, what are their payment terms, net60-net90??! So you get to pay them monthly for lease and machine payments all the while you don't get paid for 2 months..

    Who decides to lay off their machinist(s), outsource the work, and then offer for you to buy the machines and bid jobs for them?? Don't understand how that could make sense financially, unless by outsourcing they mean China...

    What would happen if you landed work from another place (paying better or faster or whatever) and their (where you are working form) stuff got behind? How would that lease and payment plan work then? Whole thing just screams RUN AWAY.

    edit: I am ass-uming that those machines are old enough for them to have completely depreciated them. They mention any pricing?

    I’m going to stop by in a bit and see if I can get some numbers from the owners. It kinda sounds like it could be a trap. Like they’re just dumping equipment on us that most definitely has been off the books for some time.

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    Quote Originally Posted by Orange Vise View Post
    It would be impossible to determine the viability of any business venture without first conducting some due diligence. You'll need to determine FMV of the equipment and the building, and more importantly, how much work you can realistically bring in quickly.

    A great idea can be a crap idea if the numbers are wrong.

    When does the shop officially close? How soon can you start bidding on jobs?
    Shop was closed as of yesterday. No due diligence has been done yet and I’m not sure I’m aware of all the due diligence that needs to be done. I’m assuming we could start bidding jobs as soon as we worked out some sort of business arrangement with the company.

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    Not really a big company, they’ve always stayed under 50 employees or whatever the threshold is for small company’s .

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    Quote Originally Posted by rokstarr999 View Post
    Not really a big company, they’ve always stayed under 50 employees or whatever the threshold is for small company’s .
    That's the total, but we still don't know how many other machinists there are involved here. How many as of the layoff, and how many are even remotely interested? I agree with most of the others here that there are tons of ways this can go to hell in a handbasket, but the situation does seem to come with a handful of advantages over starting from zero in a garage somewhere, so I wouldn't write it off without doing at least some thinking.

    Of course, it could definitely be a trap.

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    Assuming it wasn't made by pure finance theory bean counters with no understanding of hardware realities outsource to China decision could have been made because:-

    1) The firm has run into the "can't afford a new factory" trap. Basically being unable to get finance for replacement machines or repair of the old ones whilst remains a viable business.

    or

    2) Running manufacturing isn't what we do. Takes a lot of effort away from the design / sales / yadda yadda that gives the main bang per (overhead) buck. Let someone else do it.

    or

    3) Everyone else outsources to China so its clearly the right way to go.

    If its option 3) run away at flank speed because the management aren't interested in local sourcing. Even when what comes back from China is containers full of (mostly) out of spec components. You can get good stuff from China but that generally needs building relationship with good suppliers. Throwing out to uncontrolled tender and picking the sexiest isn't the way to do it. Management needs to have been working on this for months if its gonna work properly. In a company that size you'd have heard.

    1) and 2) could be made to work. Option 1) in particular effectively allows the "machine shop" to source finance not available to the parent company.

    Tread very carefully tho'. Realistically you need forward contract for at least 6 months work from the parent to have any chance. Ideally by then you will be able to undercut the true, including relevant overheads, cost of the components as seen by the parent. If the machines are fully written down of course lease payments should be peppercorn. Better to buy them at what the auctioneers would return after taking out rigging and moving costs. The Haas with dead gearbox has a negative value! Factory equivalent of furnished rental.

    As the company is moving soon, so you will be loosing your accommodation, how do you see the future. Onwards and upwards to your own shop in your own space or just a couple of years of the "running a machine shop experience" before moving on to another job with another firm. Big, big difference in the financial side. Going for the running a machine shop experience can be done on a relative shoestring and still leave you all with a useful bonus when the parent moves and it all dies. Onwards and upwards will cost, lots, but the potential rewards are great. If it works.

    Last possible option 4) is that the parent has agreed a buy out with another firm and are just creating the decks before everything disappears. Again run away at flank speed.

    Clive

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    Quote Originally Posted by BoxcarPete View Post
    That's the total, but we still don't know how many other machinists there are involved here. How many as of the layoff, and how many are even remotely interested? I agree with most of the others here that there are tons of ways this can go to hell in a handbasket, but the situation does seem to come with a handful of advantages over starting from zero in a garage somewhere, so I wouldn't write it off without doing at least some thinking.

    Of course, it could definitely be a trap.
    There’s only 3 of us, 2 of which have been employed at the company for 10+ years. The 3rd has only been with us for a little over a year.

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    Quote Originally Posted by Clive603 View Post


    2) Running manufacturing isn't what we do. Takes a lot of effort away from the design / sales / yadda yadda that gives the main bang per (overhead) buck. Let someone else do it.

    or

    3) Everyone else outsources to China so its clearly the right way to go.

    As the company is moving soon, so you will be loosing your accommodation, how do you see the future. Onwards and upwards to your own shop in your own space or just a couple of years of the "running a machine shop experience" before moving on to another job with another firm. Big, big difference in the financial side. Going for the running a machine shop experience can be done on a relative shoestring and still leave you all with a useful bonus when the parent moves and it all dies. Onwards and upwards will cost, lots, but the potential rewards are great. If it works.


    Clive
    It's not an out source to china thing. They're saying the overhead is too high and that the machine shop was the part of the business they could survive without. They source local.

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    My $0.02 worth ...

    1) You've heard it several times above, but make sure you HEAR it: partnerships are extremely risky. Read through the horror stories on this forum. There might be 1 success story vs. 50 failure stories, and many of the latter are quite costly. If you were to make a spreadsheet of anticipated expenses and revenues, I would add a 10x multiplier to the costs as the risk factor of a partnership.

    2) Being beholden to someone is a lousy way to begin - beholden to the company for use of the building and machines, on THEIR terms; beholden to the company for work; beholden to your partners. (Yes, go back and read #1 AGAIN!) It may be with the best of intentions, but all of the cards are stacked in favor of the company in this scenario - they are shedding overhead and risk, and yet still get to dictate terms. Yes, they do still dictate the terms - as long as they own any part of the building or machines or workflow, they get to call the tune and you have to dance to the piper.

    3) A bird in the hand might seem better than two in the bush ... but that depends on the bird in the hand. If you had planned to start your own shop, are these the machines you would want to buy? How much would you have planned to spend on them? Is this the building that you would have wanted to rent?

    4) Give some serious consideration to the other side of the what-if's: What if you all walk away? The company is then stuck with machines they don't want to have to mess with in a building that costs them money. What would their negotiating position be then? Right now, they are negotiating from a position of control (again, maybe even with the best of intentions); if you all walk away, suddenly the control shifts. Now they need to unload machines and a building, both of which may have been depreciated long ago. On that basis, what would they take for the machines? Maybe you could make an offer to move them out for free in exchange for owning the machines?

    Obviously, all of us are guessing about the exact situation, and our guesses may be off. But I'd say the majority of responses you are getting are waving some red flags. At the very least, make sure you take a close look at them ...

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    Quote Originally Posted by rokstarr999 View Post
    There’s only 3 of us, 2 of which have been employed at the company for 10+ years. The 3rd has only been with us for a little over a year.
    The reason I was wondering about how many guys were involved was to bring up some alternate possibilities of ownership setups. With two equal-ish and one newer guy, it puts a wrench in the idea of one guy taking ownership and keeping the others on as employees of the "new" shop. Of course, I don't know much about the temperaments of the others, maybe something other than a straight partnership or splitting the resources into two sole proprietorships sharing a space (this one seems odd to me, but you know what, it's 2019, anything goes) is still viable.

    Put on your thinking cap and get creative. No idea is bad until it's been proven bad. In some cases, that proof is trivial, in others it takes some serious thinking. Best of luck to you no matter what you decide.

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    First thing you should do is get the legalities and order of business down in writing. This could be either a great opportunity or a litigation nightmare. As for the machines, you have a ticking time bomb. Off the top of my head you're looking at almost $25k in repairs before you can turn a dollar's profit. Be careful. It might just be better if you bought some nice stuff off of ebay and put it in your garage.


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