Buying a machine shop?



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.
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    --Unless you've got a loooooong list of loyal customers I suspect you'd make more money selling Kodak film to the tourists... ;-)
--
"Steamboat Ed" Haas : What if the whole world
Hacking the Trailing Edge! : farted at the same time?
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steamer wrote:

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

Sell both. Film for the Luddites, 'trons for those with brains. ;)
--------------------------------------------------- I drive way too fast to worry about my cholesterol. --------------------------------------------------- http://www.diversify.com Refreshing Graphic Design
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Cross posted to the shop owners on alt.machines.cnc
On Thu, 22 Jul 2004 21:30:06 GMT, Ron Thompson

"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.'
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wrote:

<<<<snipped>>>>

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.
--

SVL

--To reply via email, remove BRA
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I can't tell for sure from your post; but it sounds like you might be buying the whole business, and not just the equipment. The price is certainly too high for just the assets you've mentioned, so I'm guessing that the work-in-progress, contracts, contacts, etc., are part of the deal.
If that's the case, then you've got a LOT of homework to do. When you buy the business, you could also be buying debts, judgements, tax liens, a job that was screwed up last month that the customer now expects redone for free, and more. If there are employees, you might have issues there, as well.
You need to look in every drawer and corner, and make an inventory list, so you can actually evaluate the assets, and know how much of the $50K price is NOT justified by hard metal, and is instead for other stuff. Then you need to know exactly what that other stuff is. You need to see the books - years worth of them - and the tax returns, and more.
Perhaps most important in your post was the statement that "I know zilch about finding work and pricing it." That's sorta like saying you've been offered a good deal on a nice car; but don't know how to drive. Finding work and pricing it is exactly half of the business - unless you can't find any work, or don't price it properly. In that case, it won't matter what machines you have; and the finding and pricing will become ALL of what makes or breaks you.
I don't mean to sound totally negative. Good things happen every day, even from humble beginnings. But be careful. Be thorough. And DON'T spend $50K of your money on wishful thinking. If it's gonna work, then you ought to be able to see HOW it's gonna work, and where the work will come from, and how you'll get it done, and how much money you'll spend/make/lose on everything you can see or envision during the first year, at least.
If the owner is serious, and honest, then he'll answer every question you ask without hesitation. If there's ANYTHING that's out of bounds when you talk with him, it'll probably be best to quit talking and take a walk.
Good luck!
KG
Gunner wrote:

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smelling bs
'made' 65k part time on manual [horrible] machines?
You can't bill over 40 bucks an hour on manual equipment and compete with me, so I doubt he could bill that much part time in the first place.
Net would be near impossible
If he actually did either, it would probably be worth more than 50k
A machine shop without CNC is a hobby, not a business.
Any machinist I know would buy 40 year old bridgeports before enco
RUN

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Typically you don't buy the corporation, you set up your own corp and purchase the customer list & name in a bulk sale transaction. You are buying the assets, not the liabilties of the former corporation. The state usually has a few week waiting period and they issue an ok on the tax clearance for the bulk sale. They are the only ones that can put a lien on the assets after the fact, so you need a certification from them.
Tony
wrote:

Center, USA

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||Typically you don't buy the corporation, you set up your own corp and ||purchase the customer list & name in a bulk sale transaction. You are buying ||the assets, not the liabilties of the former corporation. The state usually ||has a few week waiting period and they issue an ok on the tax clearance for ||the bulk sale. They are the only ones that can put a lien on the assets ||after the fact, so you need a certification from them. || ||Tony
This is a good point. Make sure you comply with the provisions of your state with regard to "Bulk Sale" of assets of a business. You do NOT want to buy the "business" per se. That way you can say you just bought the equipment and leased the building. Be sure to change the name of the business. That way any old debts he may have incurred cannot be collected from you.
|| wrote: ||> > ||> > ||> >>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 ||> >> ||> >>http://www.plansandprojects.com ||> >> ||> >>The ultimate result of shielding men from the effects of folly is ||> >>to fill the world with fools. ||> >>--Herbert Spencer, English Philosopher (1820-1903) ||> > ||> > ||> > ||> > "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.' ||> || ||
Texas Parts Guy
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Gunner wrote:

<<Snip>>
I think I would consult a CPA and pay him/her to look at the business from top to bottom and tell you exactly what you're getting for your life's savings. The machines don't add up, the lease sure as hell isn't worth it, so there better be some iron-clad contracts keeping the work with that business name. Otherwise you really risk being set up for a ride.
--
Later,

Charlie
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Ditto to the above.
Get a CPA and go through the books AND the contracts. You're not buying the equipment, you're buying the business goodwill and his expertise at finding/retaining work. If you can learn from him in a "only" month ( I seriously doubt it) how to get and KEEP customers, then it is worth the money. You would be better off working for him part time free for a month or six months, and then make your decision. If he is actually making money, and is legit, then he will see your sincerity and would be willing to take your offer. Making simple parts is the easy part, getting work and keeping it is the hard part. If he won't agree to that, then why would you want to give him 50K for the same deal.
Why is he selling?
for the money, you could buy a "really" clean used VMC and CNC lathe, stuff them in your in-laws garage (the alzheimers might be a funny problem- every day she walks in and demands to know who you are, and where did you put their cars....) Or plunk down the left over money for a lease of a building for a year.
ca
Charlie Gary wrote:

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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.
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Indeed. $50k will get at least 3 decent CNC machines plus goodies if you intelligently shop around.
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
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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
--
"Have no one say it, and say it to your shame, that all was well here, until
YOU came."
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Backlash wrote:

<<Snip>>
I'm trying to imagine the floor of a trailer attached to a milling machine hogging steel. Kinda' gives universal balance to those 14-foot deep holes those guys over at Boeing fill with concrete before installing a machine. <g>
--
Later,

Charlie
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Center, USA

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.
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wrote:
||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.
I used to value a business as Hard assets - inventory & fixtures - at used market value Plus one year's net income. That was a max, before negotiating the price down.
In this case, think of it as buying a job, which is essentially what you are doing. The hard assets - machnery etc just guarantees the value, much like collateral. Most important is to verify that the existing client base will continue to trade with you. That owner-run business may be built around the owner rather than the capabilities f the business. So if "Bob" leaves, do the customers revert to their known 2nd source elsewhere, or will thay give you a grace period and keep bring business in?
Good luck, sounds like fun. Texas Parts Guy
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Thanks, everyone. Lots of food for thought there!
Ron Thompson On the Beautiful Florida Space Coast, right beside the Kennedy Space Center, USA
http://www.plansandprojects.com
The ultimate result of shielding men from the effects of folly is to fill the world with fools. --Herbert Spencer, English Philosopher (1820-1903)
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