Buying a machine shop?

Hi everyone, I am in Florida and have come across a small machine shop for sale. I have an associates degree in Machine Tool Technology and would like to try my hand at my own commercial shop. This shop is advertised as having a "following." I got to look at it and talk to the owner for about 10 minutes, but he had somewhere to be, so I didn't get in depth with him, yet. It is clean and spacious (I only saw today's chips laying around), with room to move my few machines in to supplement what is already there. The building is concrete block with a concrete floor and a shingled roof. Rent is $530 a month. Three phase electric is said to be about $60 a month. There is an air conditioned office, but the shop has fans. There is a toilet and sink, but no shower. He said code wouldn't allow a shower. There are two large overhead doors on opposite ends of the building and a pedestrian door. There are 3 Enco vertical mills that look like Bridgeport clones, 2 have DROs. There are 2 medium sized Grizzly lathes, a couple of small drill presses, a medium sized MSC horizontal band saw, a tool tower (looks like black Craftsman tool boxes) said to be full of tools including measuring tools. None of the machines look very old, but neither are they top of the line American iron. There is some other stuff I don't recall. There was some mention of welders, but I don't know what kind. He showed me some parts he makes for two different customers. Real simple stuff I know I can handle. Mostly aluminum. He claimed in 7 years here, his worst year was part time and he made $65,000. Everything is subject to verification. What kinds of questions do I need to be asking? I'd like to verify ongoing work and see if it's under contract. I also intend to make an equipment list and get some real world prices to judge the value of what I am buying. I know zilch about finding work and pricing it. On the plus side, he will stay for a month's transition. I am living in my wife's parents house (her mother has Alzheimer's and we moved it to keep her out of a home) so my living expenses are slight. His asking price is $50,000. Help! Thanks in advance for all comments.

Ron Thompson On the Beautiful Florida Space Coast, right beside the Kennedy Space Center, USA

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The ultimate result of shielding men from the effects of folly is to fill the world with fools.

--Herbert Spencer, English Philosopher (1820-1903)

Reply to
Ron Thompson
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Some random thoughts rather than hard advice. Keep in mind that I've started my own electonics business (not a machine shop), but I do use machine shops and sheetmetal shops as suppliers.

First of all, you have to separate out how much you are paying for his customer base and how much for the physical assets. Having a decent shop all set up is a good thing. Paying for 3 vertical mills when only one is going to be making you money is not. 50k sounds high for the machines.

Make sure you have a written understanding with the landlord before you sign the deal.

Check with the county to see if there's any liens on the business.

Making chips is about 1/3 of your job if you're a one-man shop. You're also going to have to be your own salesman, facilities engineer, QC, and accounting. Make real sure that you want to do it before you make the commitment.

Better have enough money saved or a working wife so that you can go a year before breaking even.

The other issue is cnc. If you have no cnc training and no plans for machines, you're pretty much limited to protos and one-offs and very short runs and I'm not sure how long that's going to last. Others on the list can speak to startup cnc costs.

Reminds me of the old joke...

(Q)"Know how to make a small fortune in the ???? business?"....

(A)"Start with a large fortune."

Reply to
Jim Stewart

This is the main concern you'll need to do something about, or get ready to join the ranks of businesses which fail within the first 5 years (ie, your tenure, not the age of the business you're buying into if the person driving it is leaving after a month). Or, be sure you can keep a day job until you have it sorted out on a moonlight basis. And be prepared to work your butt off.

You can make the best parts in the world, but you can starve if you can't find buyers or you can't price the parts fairly (low enough to get the job, high enough to pay all your expenses, even the ones you have not thought of yet). That may well mean that there is work you won't be the low bidder on if you can't afford to do it - and you should be comfortable with that, until such time as you figure out a way to make it affordable for you to do.

If it's more than a one-man operation, or you intend it to become more than a one-man operation, there may be additional headaches - employees can be a blessing, or a curse.

Reply to
Ecnerwal

Other things you have to worry about are insurance and competition. There is some reason he's bailing out. Insurance is going through the roof everywhere, you'd better find out all about his, and talk to his agent to see if you take over if they'd raise your premium. Also, did a competitor just move in? It isn't unreasonable to talk to his big customers. Ask them how you can improve their satisfaction.

That also seems high to me. What's stopping you from moving into his neighborhood, buying a mill or two, and planning to take over his business? Anyone could do this to you if you buy it.

Lots of thinking.

Grant Erwin

Reply to
Grant Erwin

Federal income and local tangible property tax returns. How much income did he report? How much did he say his assets were worth?

Why would you spend $50K to buy a job?

The goodwill expires with him. No value there.

Tools and fixtures would fetch less than $10K at auction.

Any profits were due to his brains and his hard work, and you're not getting those.

Reply to
Richard J Kinch

Need to have the customer base to support it. Florida has a right to work law. Any chance the previous owner may start up another shop or go in with another shop and thus take your newly acquire customers with him? Be nice to have at least one steady paying customer that can pay the rent. $60 Bucks for power in Florida > no way.!Can't even run the AC on that. Check and see some old power bills.Welding is a must for a small shop, check out the equipment as fabricating is going to be high on the list for making it go.Hey Good Luck Anyway. Nobody would get anything done if you listened to all the bad stuff. Go for it!

Reply to
Mike

I worked for a guy who bought a machine shop with alledged customers. Almost immediately after he signed the papers his biggest customer went out of business. The former owner stayed a year and his first 2 or 3 years were very tough and he was an engineer with 15 years exp back then. Now after 20 years or so he wants to sell the business but can't find anyone stupid enough to pay the $150,000 he wants. All he is really selling is some machines and 4 walls but he can't see that. If you don't know where or how to get the work wait till you have the experience first. In Kansas City where I've worked for 25 years machine shops are closing right and left.

Reply to
ken

--Unless you've got a loooooong list of loyal customers I suspect you'd make more money selling Kodak film to the tourists... ;-)

Reply to
steamer

You misspelt memory cards ........^ (:

Reply to
Jim Stewart

Reply to
Robert Swinney

I agree, $50k is a chunk for a few manual machines, *rented* space, and a couple customers that may not be sending you work in 5 weeks.

What equipment do you already have? If you have a hand mill, that makes

4 of them. If you have a cutoff saw of your own, I suppose you could have a steel blade in one and an alum blade in the other...

I'm thinking if you have $50k to spend, and assuming you have the minimal support equipment, you could buy a used cnc and rent space, and still have 75% of that money to get what else you need. And get groceries.

I had never done sales until I started my business. In 1985 I went out 1 day knocking on doors. One buyer gave me a couple prints and said to give him a price. He did not expect my price to be competitive, as the type of work was/is generally low dollar (microwave). My bid was a dollar cheaper for the 2 parts combined. They were tickled with the quality, too. Way less time tuning each unit at assembly. I've never gone out knocking on doors after that. Work has come to me by referral, for the most part. Also the business name has caught the interest of some when they've been looking for "cnc" work. It can be done. I did it, you can. I doubt I would want to start over now, I had a lot more energy

19 years ago.

michael

Reply to
michael

Cross posted to the shop owners on alt.machines.cnc

"This device is provided without warranty of any kind as to reliability, accuracy, existence or otherwise or fitness for any particular purpose and Bioalchemic Products specifically does not warrant, guarantee, imply or make any representations as to its merchantability for any particular purpose and furthermore shall have no liability for or responsibility to you or any other person, entity or deity with respect to any loss or damage whatsoever caused by this device or object or by any attempts to destroy it by hammering it against a wall or dropping it into a deep well or any other means whatsoever and moreover asserts that you indicate your acceptance of this agreement or any other agreement that may he substituted at any time by coming within five miles of the product or observing it through large telescopes or by any other means because you are such an easily cowed moron who will happily accept arrogant and unilateral conditions on a piece of highly priced garbage that you would not dream of accepting on a bag of dog biscuits and is used solely at your own risk.'

Reply to
Gunner

I was going to say jump on the deal because you get a building and a bunch of machines for a mere $50K. But then I realized it was RENTED space. $50K can buy a lot of machines. Rent your own space and get whatever machines you want.

Reply to
AL

Suggest run away fast as you can and don't ever look back........

The machinery aint worth ( perhaps ) but 1/4 of the asking price if you needed to liquidate in a hurry, and the accounts are more likely than not to promptly go elsewhere should you have even the slighest difficulty in servicing them.

Reply to
PrecisionMachinisT

Bingo......

Give that man a cigar !!!

Reply to
PrecisionMachinisT

Those manual mills may..may be worth $3k each. Thats $6k. Where is the other $44k?

Gunner

"In my humble opinion, the petty carping levied against Bush by the Democrats proves again, it is better to have your eye plucked out by an eagle than to be nibbled to death by ducks." - Norman Liebmann

Reply to
Gunner

Another possibility for a startup venture is that if your zoning allows, purchase a used semi refrigerated (insulated) van for around $1,500, install lighting, power, sink, a thru the wall heat pump in it, and make a small machine shop out of it. Outside Porta-potty if required. Machines lining one and one half walls, 20' metal rack on leftover wall, near rear doors, office in front end, with side and interior entrance doors. Metal rack loads at relatively same elevation as delivery truck, a piece at a time, hopefully no forklift needed. A walkboard between the two will work. If all goes well for you, then expand operations later. If not, then sell the "mobile" machine shop to the next guy who envisions that he wants to run a machine shop. Easy to set up at your monetary and time convenience for you to test your market. With carefull planning and proper DMV or DOT approvals, you could possibly even have it pulled to wherever you buy your machines to load them to the inside. Easy to physically get rid of, if it doesn't work out for you. Sell, watch rented semi hook up, wave bye bye, smile encouragingly at new owner.

RJ

Reply to
Backlash

I wondered about that too. Mine is $38/mo before I turn a machine on. My little bit of hobby work leaves me in that $50-60 range every month. Running 40hrs/wk I would expect it to be well over $100/wk. And according to surveys I live in a relatively cheap electrical area(or at least used too).

My rates, recently adjusted, are $0.08/kwh. Plus the base charge and taxes.

JW

Reply to
Jeridiah

I concur with the $10,000 auction estimate. Two or three of the same machine does not give you the capability to do a wider range of work, only more of the same kind. To start, you only need one mill, one lathe, one surface grinder, etc. I call it the "capability" machine. The machine, which, by adding it or subtracting it, you add or subtract capability (not in a volume sense). You could set up a shop with the same range of capabilities for about that same $10,000 with all new equipment from Grizzley or Enco and get it on easy payments. Rent sounds too cheap. Does he own the building? If he does, and you don't have a lease you could end up working for him in a few months. I've bought out half a dozen shops in the last few years, and attended auctions at a hundred more. Go to a few auctions (hands in pockets) and see what that stuff brings. Especially infrastructure stuff (shelves, hoists, workbenches, carts, tooling). You don't hear the dealers gloating on this RCM site. That is because you just don't want to know what we get this stuff for. If you hit the right auction (small, weekday, poorly advertised) you should be able to get everything you need to set up a machine shop for about $3,000. Paul

Reply to
6e70

If you are buying an ongoing business I would get the last 3 years of books and audit them. If he can't provide them, immediately walk and don't look back. Hire an accountant if necessary and review the major expenses, spot check the minor ones and and verify all the income. Contact each one of the regular customers and find out if they will continue to send you the work, if not all you are buying is a bunch of machines that are already set up. Find out if the seller is retiring or continuing in the business as he might take the customers with him.

Good luck. Steve.

Reply to
SteveF

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