What does a $10 Million job shop look like? What departments, people? - Page 4
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  1. #61
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    10Mil gross/ year?
    He'd be better off buying 200 Hot Dog carts.....

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    Quote Originally Posted by Mcgyver View Post
    Profit = Revenue - Expenses. Equity = Assets - Liabilities
    Ok I screwed that up... lol... which leads me to my next point applicable to growing a company...

    I was going through college and I decided walking out of exam week I had enough. Just picked off the lowly A.A. and A.S. degrees... I told the folks I usually studied with that I had enough of this dumb shit and if I needed any higher degree I'd just buy it if I need it sometime in life. The four other folks in my group were mistified how I can just buy my 4 year degree. I told them I'll just hire one of you. Fast forward... well.. thats how it goes.

    Don't confuse that with assuming I think I'm better than other people. I'm not. Others are better at other things while I'm better at other things. Exploit your strengths no matter who you are.

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  5. #63
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    What does a $10 Million job shop look like?

    Maybe like this after bankruptcy?

    bankruptcy.jpg

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    There is no real answer to your question as several people have pointed out, with out a lot more information.
    From your layout of personell it looks like you have around 11 people who don't touch or bring in work. I think this is way too much to cash flow from 10m maybe 50-100m might justify that level.
    Assuming 2 machines per operator you will have 16 machines running 24 hrs a day there is no way 1 maintenance guy and 1 repair guy is going to keep up.
    Who is building fixtures?
    Who is handling tooling inventory and replacement?
    Who is handling employment, saftey compliance, insurance etc.?

    I owned a pretty lean shop, with quite a bit more in sales than you are talking about but our usual parts ran 20-50k in machine work and 5-30k in material. There is no way we could have supported that kind of labor overhead with that few of machinist.

    QA and shipping will totally depend on if you are doing military work and dealing with material certs, inspections, scrap control, long term storage packaging etc. You might need double the people and a few more titles.

    If you are rebuilding mining parts you might not need but someone to check parts and run a forklift.

    Good luck

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    A $10 million gross is easily attainable in today's prices for material and outside process.

    What is most important is how much of that 10 you keep.

    I'm sure that some production shops can easily surpass this level, but it is unlikely that they can surpass the profits that tool companies generate with a fraction of their overhead.

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    Perhaps we should go back to banging Bobs wife, sell the DVD's and cut Bob in for a few bucks so he doesn't feel left out.
    I agree, we should keep the guy that cleans the toilets.

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    A good friend took a job as VP of engineering with a long established and successful manufacturing company that had 10 plants and around 2500 employees. About the same time he was hired, the company also brought in a new Pres who also brought along a sidekick to serve as exec VP.

    The new pres was one of those guys who thought it was smart to try to make the business all things to all customers. IOW, if ABC Co wants to buy 5000 of #123 with 5 different custom changes, and they don't want to pay any more than standard price for it, he'd tell them to make the sale.

    They went from profitable to losing money in his first 18 months at the helm. In executive meetings, my friend and all the other people would explain in unison that they were losing money because they'd become a multi-plant custom shop rather than a high volume producer of a standard line of products. His answer was always that if they didn't supply what the customer wanted at the price they wanted to pay, they'd lose the business. That they'd actually be better off without that business never seemed to sink in. His exec VP never seemed to have an independent thought, and backed the Pres on every money losing move he made.

    Over time, he even arranged the purchase of a smaller but profitable competitor who had a couple plants. In short order he turned them into losing operations as well.

    This went on for several years, and my friend decided to look for another job as it was inevitable that they would go bankrupt, and he figured executive of a bankrupt company wouldn't enhance his resume. He found another job with a bit less money and a lot more satisfaction pretty quick, and still works in that job.

    They entered Ch 11 several months later and the entire operation was purchased by another competitor. The buyer put some of their own people in place without making any real changes immediately. Shortly they fired the Pres and his sidekick but left almost all the rest of the management team in place. A team was assembled and tasked with pricing all the custom changes they were currently producing, and the customers buying those customized products were notified of the additional costs effective with all future shipments.

    My friend had kept up with former co-workers and thru them he was able to find out how the company was progressing under the new ownership. Curiously, most of the buyers of the customized products suddenly decided they didn't need the customization once they found out they'd be paying for it. They didn't lose any significant amount of business over this as no competitor would customize their products for free either.

    First year they operated at about the break even point. Following year they were profitable and some money was spent on some capital improvements that couldn't be done in the past due to the Pres blowing all the potential profits on "keeping customers happy". Third year, their pre-tax profit was $40+ million on essentially the same volume as in the past when they'd been losing $10 to $15 million per year.

    As he told me this story, it seemed to me that the previous Pres had pushed the company into becoming a job shop rather than a true manufacturer at a cost of $50 to $60 million per year. My friend agreed as a product that would've previously been produced in quantities of 500K/yr had typically morphed into 20 or more variations of the product across the 500K, with a like number of variants across the entire line of a few hundred different products.

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    Quote Originally Posted by metlmunchr View Post
    A good friend took a job as VP of engineering with a long established and successful manufacturing company that had 10 plants and around 2500 employees. About the same time he was hired, the company also brought in a new Pres who also brought along a sidekick to serve as exec VP.

    The new pres was one of those guys who thought it was smart to try to make the business all things to all customers. IOW, if ABC Co wants to buy 5000 of #123 with 5 different custom changes, and they don't want to pay any more than standard price for it, he'd tell them to make the sale.
    I witnessed first hand something almost identical. A company manufacturing own products was bought by a larger company that made similar products. The owner of the smaller company signed an agreement that he wouldn't start a new company (5 years ban) that would compete against the larger company.

    The sales people then more or less took over the new company and were only interested in selling as much as possible especially with non standard product items. They were on commission from sales price and not profit. This lost money for the company more often than it gave profit.

    After 5 years the guy that had owned the small company started up again only making standard items. He's now bigger than the big company and has a very healthy business.

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    Quote Originally Posted by metlmunchr View Post
    His exec VP never seemed to have an independent thought, and backed the Pres on every money losing move he made.
    There's a saying that one man can't make a company, but he can break it.
    This needs to be altered to two men can't make a company but they can break it...

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    This talk of Presidents and CEO's and VP's...

    I think they all (or a good lot of them) take the same "management" classes / training / college courses...


    1) Do the exact opposite of last guy/girl in charge so you can make a name for yourself

    2) If last person was doing well, double down on #1 (see #1)

    3) Flaunt your entitlement / obnoxious personality to everyone you meet at new job because you "deserve" that 1miliion$ a year plus 10million$ stock options for running company into the ground

    4) Rinse and repeat steps 1-3

    (bitter much, not me)

  17. #71
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    Hmmmm...$10 million Shop

    Not sure I would go about staffing that way. I'd rather take a financial stab at it...

    I'd start with the EBITDA and "Contribution Margin" (I don't like Gross Margin in Operations decisions) numbers that are average for your line of Shop build off that growing as you go.

    An assumption can be made a given employee in almost any business model at scale (larger than the 1-10 man shop) is $150-300K in sales per person employed Direct or Indirect. A Banker should be able to give you this number if they have loans out on like companies where they are required to give the Bank their Financials monthly, quarterly...whatever.

    So based on that using the average of $225K per person that is a 44-45 man shop. One the low side you have 17 Indirect people, on the high side 27. That is a big swing and I would keep it on the smaller side for sure.

    Direct Labor you have 18 low and 30 on the high side (using 3 8-hour Shifts 5 days a week, Set-ups included as direct Labor as they should be for Labor Tracking and Job Costing).

    So if you take Revenues of $10m and you set your target on Contribution Margin you can work backwards from there.

    Revenues $10,000,000 (Sales)
    Variable Costs 4,000,000 (Direct Labor & Materials)

    Contribution Margin 6,000,000 (Monies left to pay Fixed Costs)
    Mfg Overhead 1,000,000 (Indirect Labor (Maint, Spervisors ect) short of SG&A)

    Gross Margin 5,000,000 (Monies left to pay SG&A
    SG&A 1,000,000 (Commission, Advertising, Officers Comp, items outside manufacturing operations.)

    EBITDA 4,000,000 (Earnings before interest, taxes, depreciation, and amortization)

    EBIDTA x Current Multiplier = Sale Price/# of Shares = Shareholder Value.

    Assuming Wages and Materials are average amongst your competitors, the thing that will set you apart from them EBIDTA wise is your Manufacturing Overhead (MO) (which you seem a little high) and your SG&A.

    There is give and take in any MO situation. Do you really need a full time Maintenance guy? At 102 people we do not. We have a Part Time guy who is Direct Labor when not pulling Maint. And everything runs well but we do have all newer equipment moving the cost to SG&A as financing, lesser of 2 evils.

    Do you need that many people in Quality? We found by moving the accountability of Inspection to where it belongs with the Set-ups and Operators we have kept our Quality AUDIT Department small. They Audit and do very little inspection. By the time it hits them it is too late anyways.

    SG&A...we have 3 1/2 Internal Sales/Estimators/Account Managers on staff and 12 Reps in the field. The Reps are paid only if they move product creating Revenue (Sales) but we only deduct from the EBIDTA line if they sell. If they were Fulltime I would have to include that cost which would adversely effect EBIDTA.

    Now with all that said...I am not a CEO or a CFO so some of the wording could be wrong here. We pay others who excel in these areas of no interest to me in the day to day and they do a great job. I am 50% owner and basically an Engineer/Designer/Programmer/Project Manager/Account Manager/Estimator but I have to understand enough of the financials to make the right business decisions as an owner for long term growth to increase the "Shareholder Value" which is every ones job if you are employed here.

    The ultimate goal of any company establishing a Legacy is to ask yourself is the "Firm" worth more today than it was yesterday? If the answer is yes than you are doing it right. If the answer is no you have some work to do or the economy is driving the Shareholder Value down (economic downturn, recession, customer base erosion or your market has gone obsolete). We always look to our Financials to steer us on where to look in the event the Shareholder Value is decreasing. We always look at the "Firm" first no matter what the markets are saying. Are we doing everything possible to increase the Shareholder Value or at least hold it that we possibly can??? If not then we have too.

    The success of the "Firm" is critical to the security and well being of all our employees. Without them we have nothing.

    Keep us posted on the progress!!!


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