Buying a machine shop?

On Thu, 22 Jul 2004 21:30:06 GMT, Ron Thompson 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

Reply to
Rex B
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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.

Reply to
Charlie Gary

Thanks, everyone. Lots of food for thought there!

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

||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?

Have him sign a no-compete agreement. You will need t get an attorney to draw it up.

Texas Parts Guy

Reply to
Rex B

On Thu, 22 Jul 2004 21:13:03 -0500, "Mike" calmly ranted:

Good idea. It would be good to get the guy to sign a non-compete clause (so he could do no work within 50 miles of the shop) and written avowal of his turning over his clients to Ron.

--------------------------------------------------- I drive way too fast to worry about my cholesterol. ---------------------------------------------------

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Reply to
Larry Jaques

On Thu, 22 Jul 2004 19:43:07 -0700, Jim Stewart calmly ranted:

Sell both. Film for the Luddites, 'trons for those with brains. ;)

--------------------------------------------------- I drive way too fast to worry about my cholesterol. ---------------------------------------------------

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Reply to
Larry Jaques

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:

Reply to
Kirk Gordon

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.

Reply to
Charlie Gary

XXXXXXXXXXXXXXXXX

Yeah to the above, Ron. Why not give the utility company a call and ask for the past two years billings? They can only say no. Maybe he was busy, and is not now. What does it cost YOU for your home there? The shop should be way significantly higher if he's doing any work. And if he's snowing you on something you can easily check out...what's he doing about the un-seen?

Take care. Good luck either way.

Brian Lawson, Bothwell, Ontario.

Reply to
Brian Lawson

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

Reply to
yourname

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:

Reply to
clay

Non-competes are worthless in most states that have a right to work law.

Reply to
Rick Chamberlain

If your buying a customer list, it's worthless without a restrictive covenant. Restrictive covenants, properly written, are enforcable. They can prohibit the seller from soliciting the business of his former customers. Of course if the seller breaks the agreement you can sue him for an injunction, and for damages. However , the costs of litigation may equal the purchase price of this shop.

Reply to
Tony

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

Reply to
Tony

Tony,

There are plenty of ways around this. A casual call to the client base telling them you'll be moving along, and "here's my cell phone if I can be of assistance" is all you need.

Every contract is "enforceable", but is it worth the effort and money to do it?

Reply to
Rick Chamberlain

Nonsense---Right to work means you do not have a closed shop were you must belong to a union ----No-compete means for a certan lenght of time or location you don"t do whatever it is you said you would not do---Ray Mueller

Reply to
SMuel10363

Sorry Ray, you are wrong. Non competes are mostly unenforceable because of the right to work law. At least that is the way it happened to me here in Wisconsin.

Reply to
Rick Chamberlain

Wisconsin is a Right To Work state?? When did this happen?

Reply to
Jim Kovar

Non-compete clauses are frowned upon by the courts but they are by no means without teeth.

Courts will "blue-pencil" a non-compete clause. Something that is very seldom done in any other area of contract law.

If Wal-Mart required that their cashiers sign a non-compete clause, that would most probably be unenforceable. On the other hand, if Wal-Mart required a senior executive to sign one, that might be a different story.

To be effective, a non-compete clause must protect a present economic interest of the company. The company cannot prevent a worker from working for their competition but they can prevent him from working in the same capacity, same market and same geographic region.

Even then, the company would need to demonstrate that the worker had some specific skills that could cause economic harm to the company. For instance: a machine shop cannot prevent a skilled machinist from working in the shop next door. Skilled machinists are readily available on the employment market and therefore not unique enough to present an economic threat to the company.

However, if that machinist had been a part owner, then that would be a different story. Taking that hypothetical situation a little bit further, if the machinist had been a part owner and he went to get a job on the other side of town then the non-compete clause would probably be ineffective.

But then again, if the shop was big and the town small, well ... who knows.

If I were buying a business and the seller of the business signed a non-compete clause. I would not worry too much about him competing with me. If he did compete, then I would sue him not on the contract but on the fraud. I bought the business based upon his representation that he would not compete.

Of course, the worst part of the whole thing is the fact that you have to pay some damned lawyer $60K to drag this through the court to find out that you were right.

Reply to
George

On Sat, 24 Jul 2004 03:39:24 GMT, "Tony" wrote:

||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.

||"Kirk Gordon" wrote in message ||news: snipped-for-privacy@gordon-eng2.com... ||> 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: ||> > Cross posted to the shop owners on alt.machines.cnc ||> >

||> >

||> > On Thu, 22 Jul 2004 21:30:06 GMT, Ron Thompson ||> > 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 ||> >>

||> >>

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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) ||> >

||> >

||> >

||> > "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

Reply to
Rex B

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