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Thread: Starting a Shop

  1. #21
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    I just read through the replies, and I agree with everyone who says "red flag!". Except I'm seeing a glowing, near-molten flag.

    As mentioned - old, worn equipment that you have to buy, their space (access at their whim?), your risks and liabilities, "partner" buy-in, no guaranties of work (but do they demand their stuff first if you bring in outside projects?), etc.

    I expect you're in a high-adrenaline situation at the moment (just lost a job), and this looks attractive (get back together with the girl that just dumped you).

    Think! First! Before! Acting!

    You could set yourself up for a royal screwing. At the least, you need a lawyer to advise you on pitfalls and contracts, as others have mentioned. But you also really have to know yourself and your partners personalities to see if you could work together in this new framework.

    If the original company couldn't make this work, why do you think you can? That's something to analyze...

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  3. #22
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    This is the most unanimous thread I've seen in a while. In the words of Gandalf, "Flee, you fools..."

    Seriously, the devil is in the details here. This could be a great setup, with machines already in place and hooked up to power, and some work lined up. But from the outside it does sound like a train wreck waiting to happen.

    Did you (the OP) have any interest is starting your own shop before this? I love having a start up shop, but it's a high stress nightmare about 30 days a month. Including February's...

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  5. #23
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    Quote Originally Posted by rokstarr999 View Post
    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.
    Umm, your wages and the burdened costs that go with it plus shop costs *are* the overhead they're shedding.

    How much more efficiently can you work without the rest of the company? How big a pay cut are you prepared to take to bid on their jobs so as to reduce their costs?

    Plus as many have said, a partnership arrangement? Get a lawyer. A good one specialising in partnership agreements. Put in the clauses around dissolution, divorce, illness, other ways one or more partners aren't carrying the load. Etc.

    This is an offer I'd have little difficulty in walking away from.

    PDW

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  7. #24
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    Perhaps I've not understood something here but what type of shop was this? Sounds like it might be a job shop but some thoughts on this situation can still be valid even if a product was made.

    1) Whatever type of service or product was made are you still going to pursue a similar product/service? If so then you'll be competing against the company that already has an established name and the customers that pay. They already have the established name, customers, and contacts. All you'll have is the same broken machinery and location that nobody cares about.

    2) As others have well stated, you would be paying the company for what would have been their costs. This alone should greatly increase the bargaining position in your favor. You would be doing a favor to the company that made you unemployed in the first place. Negotiate wisely or they'll screw you a second time.

    3) What if you move forward with all this and you manage to turn the operation around and begin making profits. What would prevent the company from moving back in and taking over the entire operation once you demonstrate how a shop should run efficiently? You could be doing all the work only to have the company or a "partner" scoop it all out from under you. The company already demonstrated the only solution they know is outsourcing.

    4) Everybody has the best of intentions until there's money involved. You could be taking on all the risk and left with ALL the expense, NONE of the profits, or both.

    5) Apparently there is still money to be made in whatever product/service the shop was supplying. How many other companies, domestic/overseas, are now considering picking up that part of the market? Outsourcing can work until those doing the work realize they can create the product/service in-house and keep all the profits for themselves. Isn't that how a lot of the Chinese/Korean manufacturers got started?

    Be very wary, good luck.

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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.
    And using old, outdated machinery.

    Think maybe you could doo it all with just yourself and new machinery ?

    Or just pick some of the specialized work, and let the rest go to the "race to the bottom" local vendors.

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  10. #26
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    Partners rarely work out, and you would be taking on two of them on top of never running any type of business before. Just read up about partnerships on here. Maybe Bob W will chime in. Rarely will two people have the same vision and dedication which will lead to conflict, and you need 3 people on the same page. You also have said the machines are old and tired. If I were you I would run away as fast as you can.

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    Typically, there is an evolution that runs something like this. Company has a machine shop, but it's not the main business profit center. Machinery gets old and production becomes more difficult and/or unreliable. At this point management is faced with the decision to re-invest in newer more productive/reliable machinery (the long dollar), or to farm out some of the jobs to companies that already have said machinery (the short dollar). Once on the path of the short dollar, it becomes increasingly unlikely that additional investment is going to be made in the machine shop, and in fact usually as the machines become more clapped out, more of the work goes elsewhere.

    So since the machines are about as productive as they're ever going to be, if they're what you've got and you intend to make money with them you either have to find a way to lower overhead, or innovate processes. Either of which may or may not be possible based on your specific situation. But in general, it doesn't look good.

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    They have thoroughly done the calculations on how to fuck you.

    One guy, with all the decision making power, more than one customer, freedom to dump half or more the employees and cash to invest in new machines or maintenance may be able to do it, but it will be nothing like it is now and impossible to keep everyone as partners.

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    Quote Originally Posted by Dualkit View Post
    Partners rarely work out, and you would be taking on two of them on top of never running any type of business before. Just read up about partnerships on here. Maybe Bob W will chime in. Rarely will two people have the same vision and dedication which will lead to conflict, and you need 3 people on the same page. You also have said the machines are old and tired. If I were you I would run away as fast as you can.
    I would run a lot faster than that.

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    Quote Originally Posted by camscan View Post
    I would run a lot faster than that.
    Try roller skates....:
    YouTube

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    id be asking what sale price is on the machines etc first......maybe the stuff will be scrap price,and you could make a killing ......partnerships can work,after 10 years you should know the other guy......in my experience the biggest risk to a partnership where the other guy is OK will be wives demanding more of the cut......wives also bring in a big risk of destabilization thru divorce.

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    Quote Originally Posted by john.k View Post
    id be asking what sale price is on the machines etc first......maybe the stuff will be scrap price,and you could make a killing ......partnerships can work,after 10 years you should know the other guy......in my experience the biggest risk to a partnership where the other guy is OK will be wives demanding more of the cut......wives also bring in a big risk of destabilization thru divorce.
    Something tells me that bean counters who can't handle a bit of overhead aren't going to let a whole shop full of "fully functional" machinery go for scrap... Yes everything is "fully functional" because you met all the company's needs up until a week ago.

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    Never assume anything.....find out the prices...and remember without the buyout deal ,the miscellaneous bits and pieces so essential to running a workshop will be scrap......these are the things you will have to buy new if you dont have them......and also bear in mind there may be an aged owner behind the scenes who isnt averse to taking some readies for written down assets.Approach him without the managements knowlege,and the first they know will be the machines being moved.....been there ,done that.......The look on the managers face when you present him with the bill of sale....and he says " a 1000 bucks.....I could get 5000 with single phone call"...Too late,mate.

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    Quote Originally Posted by rokstarr999 View Post
    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.
    This is exactly what it is. The reason they are willing to walk away from the equipment, is because it has no value.
    A broken VF6, and a haas lathe old enough to be an HL? Scrap from a business valuation.

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    There are many times when a bean counter likes to get items like this off of their books so's to show less overhead liability, only to then have to purchase the service outside for likely more $ since the outside guy has to find a profit margin in there somewhere.

    I have seen this done specifically with in-house trucking fleet spun off and then the same trucks and drivers still hauling the same product, but now under the name of some other line.

    I don't understand the logic behind some of those decissions, but ...

    The same could be done with a Maint dept like this. They will lose the "machine down!" pronto service, but otherwise - if they think that their set-up or crew may not be the most efficient, it could be construed that they could farm the work out at a break even rate, and simply not have to deal with the rest of it.

    ???


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

    Think Snow Eh!
    Ox

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    Quote Originally Posted by Ox View Post
    There are many times when a bean counter likes to get items like this off of their books so's to show less overhead liability, only to then have to purchase the service outside for likely more $ since the outside guy has to find a profit margin in there somewhere.

    I have seen this done specifically with in-house trucking fleet spun off and then the same trucks and drivers still hauling the same product, but now under the name of some other line.

    I don't understand the logic behind some of those decissions, but ...

    The same could be done with a Maint dept like this. They will lose the "machine down!" pronto service, but otherwise - if they think that their set-up or crew may not be the most efficient, it could be construed that they could farm the work out at a break even rate, and simply not have to deal with the rest of it.

    ???


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

    Think Snow Eh!
    Ox
    Neither do I... I shared this, but worth repeating (at least to me LoL). I was in this type of scenario. New management comes in, doesn't bother to even evaluate our little in-house machine shop and declares "It never works out (machining product in-house)" then goes ahead with a project to open up a shop overseas, and then buys an established shop out of state. Of course selling the stuff we had bought for pennies on the dollar!

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    I had a learning experience in a similar situation.
    We had to pay "rent" for our shop space to the company.
    The shop was in the basement of an addition.
    The spancrete guys said the floor of the plant above was the thickest panels they had seen. Massively overbuilt.
    The accountant took the cost of the addition, and split it in two, and determined "rent" from that.Sky high "rent"

    I said wait a minute, I am not paying for the area used by productions mold storage, or the hundreds of square feet taken up by the resin silos.
    "Yes, you are" was corporations response.

  24. #38
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    The "partners almost never work out" theme is repeated maybe a dozen times above.

    FWIW, partners sometimes work out to great mutual advantage. Jobs would have been a failure without Wozniak. Hewlett and Packard were a great complement. Google needed a Page and Brin. Used to be families were a whole lot happier and stronger with spouses who got along.

    It doesn't sound like the O.P.s potential partners are in that category -- otherwise he would have noted how great they got along and had different skills. But partnerships can often be a great when there are complementary skills and mutual respect.

    And even those partnerships still need to think "what if" and plan for possible futures needing cash, one dying or retiring, dissolution, disagreement, etc.

    Another way to structure a business like this would be to break the shop into two or three process-oriented units, each owning its own equipment and leasing its own space. One would be the lead bid for any job that was a majority in its ballpark and the other a sub. I used to do this with a couple different engineering consulting companies whose owners I liked and respected, but all of us wanted to run our own thing. Surely many others here have done the same.

    This assumes the 2-3 new owners communicate and get along pretty well -- but still want a degree of independence for personal, financial, liability, etc. reasons.

    Another thing for Rockstarr* to think about -- the flow of work from his former boss is not only at risk in the short term but will disappear in a couple years. There needs to be strong local demand (and new places to affordably lease) for his part of the business to succeed.

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    look at your own statement... the big business can't stay afloat with the machinery they have and the building they own, yet they want to lease it to the former employees? and what part of run down obsolete machines, sounds like a great way to start and be profitable?

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    So I spoke to the owners last week and they would ultimately prefer that We have our own space due to liability issues although I asked them to look into the possibility of starting up in their building as I felt it would keep costs down.
    I didn’t get any numbers on the equipment, but they had a lot to say regarding the things they’d be willing to do to help. Deferring payments for a period of time, helping us move the equipment, etc. I’m supposed to go back in for another meeting.
    There is definitely a part of me that wants to think this is possible. I submitted my application for a job yesterday and already got a response. I was almost disappointed. Anyone ever start a shop while working for someone else?


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