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Purchasing CNC Business - Specific Industry Questions

I think you would need to be incredibly specialized in one facet ........change is so rapid now ,that you need the latest tech ,replaced continuously..........id probably be looking at printing,sintering,etc ......which I know nothing about ......but basically you would need up to the minute capability in the field..

Dude, I made lots of nice parts and a good living with CNC's from the late 70's and early 80's until finally upgrading to much newer stuff around 5 years ago.

Latest tech is not that important unless your business requires it. I would say reliability and support is paramount. Minimizing your risk. new tech is risky.

If I can pull my shit together this year, by next year, the most profitable machine I own will be a huge Bliss press made in 1925. Almost 100 year old tech.

You can think up new ways to solve old problems, conversely, you can also apply really old, forgotten about methods to solving new problems.
 
Have to (and hope to) agree with @Garwood. As I said, still in the process of "opening shop" but am opening with a '98 VF0E and '00 SL20.
 
what's your business model going to require capital equipment wise? having a good grasp on this is going to drastically narrow down your search. you wouldn't believe how many shops are closing up because a guy comes strolling in and offers the owner stupid money for their building and the next thing you know the rest of the shop is up on the auction block. my point is there is a lot of opportunity out there that you can't just simply search for online.

like i mentioned in one of my earlier posts there aren't too many loonies like us that want to get into this business. i'd be trying to talk to material suppliers, tooling suppliers, other guys that are out there making the rounds or have large networks and see if you can find any guys early in the selling process.

I'm catching your drift, unfortunately those opportunities are likely to miss me just because I have so few contacts in the field. In my area it doesn't seem like there is just a saturation of large shops, so I end up dealing with more, smaller shops that are turning around to other smaller shops as vendors for things that I would have thought to be no brainers to have in-house, but for whatever reason a lot of shops just haven't made the jump.

But overall I would definitely have to understand the capabilities of any businesses that I find as far as how they're organized and their strengths for any long term plans. Even if I'm open to different options, those could be narrowed down pretty quickly just by capabilities and equipment if I got into anything.
 
First ticket would be meeting the aforementioned #2 guy and get to know him well, and real well and make sure you get along well. You might become the new owner, but it's still his shop. For starting off secure, it might be best to find a shop that has long term relationships with local businesses- the one I apprenticed in for example has been the primary vendor for a food sorting equipment mfg. for just about 40 years. Never once had to lay off from a lack of work.

That's no safe bet, but it's not the quick adjustments and fires that doing low volume job shop work is.

Then, be prepared to get your hands dirty. There are so many pitfalls, and the hole you can throw money down to try to find solutions will always be deeper than your pockets. Shop I learned in before starting my own had a bit of that issue: the founder passed away and left it to his grandson, who although he was on the shop floor for while, tried to go straight to an office-only owner. His #2 is fantastic but that still leaves problems missed quite often.

The best solution seems to be the #2 guy eventually decides to buy out his boss which leaves the shop well managed and no shock so the defense is strong, and he can finally apply the offense ideas he's had over the last several years. Coming in fresh will require leaning into that role.
 
Ive seen a lot of old established places with a list of suppliers /and or repairers chiselled in stone.....if you get anything outside this list....its shock horror ..what have you done?.........sometimes the suppliers are gone out of business .....doesnt matter ...you must not deviate from the list.
 
I had considered that keeping key personnel such as a shop manager and anyone in an important sales or account role would be worth a sweetheart deal including a salary bump considerably above competitive and possibly a shares deal.

I figure that if a business is making a decent profit with the former owner that I would be perfectly happy to take a smaller slice to keep it business as usual. My number one priority would be to keep the ovens running at least at the same capacity for a decent period of time before even considering any changes.
 
Check their product and the product of their customer. I once looked at a company that had GREAT books. Upon researching the product they had been making had reached the end of life as the aircraft was no longer being manufactured. I bet those buggy whip factories had great numbers back in the day.

And if it a job shop. It is only worth the machinery and the building / property.

I will make you a good deal on mine.... I have great numbers.
 
I think you might be on the other side of the country from me, so if it can be run semi-absentee/semi-remote I may be interested! But I imagine that would be a hard transition for a business to survive.

That's a good point on the types of products and customers. The more I look into this the more I think the right opportunity may be more of a unicorn than I would have previously imagined.

It seems that a lot of the shops for sale don't have great customer diversity. Most of the listings I've seen will actually brag about it in their description to the effect of "most of the business is 4-5 customers and 80% of our work is two large customers that are giving us more work than we can handle!" and none of them seem to realize that's probably a huge red flag as far as business valuation goes unless whatever they're making has IP protection or there's some reason that they have a huge advantage on the rest of the market.

In lieu of finding anything actually available worth considering I'm starting to go down the route of trying to market some products to my current customers that I can contract local vendors to make. Maybe I'll stumble on a vendor I love working with where the owner would rather be sitting a mai tai on a beach somewhere.
 
Unless you are planning to make some high offers I don't understand why someone with a business that is profitably self-running (as in a new owner can be absent) would even want to sell. Why sell, when you can hang out on the beach and rake in the revenue now, even if you aren't interested in growing it further?

But yeah, if you have a product idea kick it out there and see what happens.
 
Absentee owner........my next door neighbour (actually he s built a shopping centre there now) anyhoo,I know him well .........his period of hands off ownership came to a sudden end when it was (accidentally) discovered that the business administrator had stolen $7 million from the business.(by mortgaging freehold properties .)............When he was smalltime ,he was always borrowings stuff off me and bringing it back damaged.......and not a word.
 
It seems that a lot of the shops for sale don't have great customer diversity. Most of the listings I've seen will actually brag about it in their description to the effect of "most of the business is 4-5 customers and 80% of our work is two large customers that are giving us more work than we can handle!" and none of them seem to realize that's probably a huge red flag as far as business valuation goes unless whatever they're making has IP protection or there's some reason that they have a huge advantage on the rest of the market.
These brokers are no different than used car ads or real estate every business being sold looks like it just prints money! Just the process of actually buying a business is a lengthy task in itself. We've been involved in a couple and it can easily be a six month ordeal getting everything straightened out between all the parties involved.

Here is another example another colleague of mine bought a shop they are about 2 years into it couple mil looked like on paper it was a great investment I even went in to see the place because he's in a similar role as you doesn't know the ins and outs of everything. The other big problem you will run into is most of the time the owner of the business is not openly marketing the sale of the business aka none of the employees know nor can you ask....hey man if I buy this place are you willing to stay on board with me....

The guy I knew was in this situation he bought the business came in talked to the team pretty much gave the speech nothing is changing everyone has a job blah blah. 2 guys right off the bat quit/retired and we are talking larger machines and some are manual aka not easy to replace guys.

Then came the reality of what the owner "sold" us on vs what the team started filling in the story on. Not much had been done in the last decade the owner had gone on lets say cruise control, very little new customers had been brought in the customer list had indeed been shrinking over the years. Capital equipment needs to be replaced and it is big dollar stuff. Its a big uphill battle that is not going to be solved in a couple year period.

We had talked over the short falls of some of this before the purchase took place. The business was purchased for dam near the price tag of the building so the machinery and business was almost a wash which was the only real reason it was being looked into.

So just like you mentioned above its going to be real hard to find a place to pay a couple mil for that will continue to run like clock work with just changing the guard. Its the difference between the above situation buying it for a couple mil vs a well running shop of an identical size that is in actually much better shape wanting 5-7 mil....you may think there is only 10 flavors of shops out there trying to pick one out when indeed there are 1000s.
 
Danny,

Reading through this thread again, the biggest takeaway I have is that it's not entirely clear WHY you want to buy a functioning job shop of indeterminate variety. I don't mean this harshly and I may be missing something.

To recap what it sounds like the situation is: You currently have a manufacturing business in the construction field, which has staffing issues, and is not hands-off. You have some product ideas in this field that you're not currently manufacturing, but you're not sure that the market is there to start a production machine shop. You would like to buy an established job shop (you're not sure what type of shop) and run it hands-off with existing customers and some new customers that your shop manager will bring in. At some point in the future, you would like your job shop to build products for your first business to sell.

It isn't clear that you want to BE in the job-shop business, but rather that it's a means to several of ends: having a more hands-off business, and being able to do your own products.

The largest risk I see to your plan to buy a hands-off business is that, right now, you have a functioning hands-on business and some cash. If the hands-off business isn't, and pulls you away from your current business, you could have two businesses tanking.

Not knowing the details, one course of action might be to start by making your existing business more hands-off, allowing you to focus more on new-product development. The machining can be farmed out initially, you can buy equipment as you need it, or look at buying a very small machine shop (1-2 people). There are a lot more of those for sale, and they won't be hands-off, but it would get you a basic complement of equipment (lathe, mill, surface grinder, tooling) pretty inexpensively. The owners of these are usually retiring and the shops go for approximately equipment value, and the owner may be willing to work part time in retirement to get you started up.
 
Look for examples of business sales, similar to what you are describing, that have worked for 5 years, and the top level employees are still there.
I'm going to go out on a limb and suggest that you won't find any.
The ones that seem to work are sale to the key employees (people stay and so do most of the customers), or as a bolt-on to a larger existing business (the key people leave shortly thereafter but often the customers stay)
I'm biased as I was a 'key employee' (>25 years) that bought my way in. My partner is semi-retired but still comes in to the office +/- 40% of the time, but he's not involved in day to day operations or with our customers. I've done 100% of the sales for the last 5 years.
If you want to be an absentee owner and/or are not an expert in the field, in my opinion, you'd better make sure that the people who have the keys, also have skin in the game. If you do well, they do really well. Figuring out how to structure a format (profit sharing / ownership / defined bonus structures) that incentivizes exeptional performance from the key employees would be my #1 focus, and that's going to need to start with understanding their goals... not yours.
Small manufacturing businesses are not like a long-standing franchise, where a business model in a competitive market segment has been perfected after years of experimentation and adaption. The pain you're experiencing in your existing business is the same pain that will be felt in a new business that you buy. Your influence will trickle down. Turnover, employee satisfaction, and retention all start with you (me in my case). If I were in your shoes, I'd look long and hard at what isn't working in your existing business and fix it, before buying another set of headaches. Put key people in place, and get your existing business to the point where you are an absentee owner in that business... only then are you in a good position to take on the challenge of running another business.
 
Unless you are planning to make some high offers I don't understand why someone with a business that is profitably self-running (as in a new owner can be absent) would even want to sell. Why sell, when you can hang out on the beach and rake in the revenue now, even if you aren't interested in growing it further?

But yeah, if you have a product idea kick it out there and see what happens.

You're right that if something is entirely hands off, it seldomly makes sense to sell. But rarely is anything entirely hands off and most small businesses owners know that. A key personnel quits and it's scramble time to find someone to fill the role and someone to pick up slack until then.

The other issue is risk. Say you're making $1m a year, and someone comes along willing to give you $5m today for it. You never have stress or lose sleep over it again, you never have to worry about machines breaking or fighting to stay competitive. You also have a chunk of cash right now that would take you five years (ish) to get, and you could invest that cash so in 5 years you could have $5m if you take on that risk, or in 5 years you could have $8m if you take on standard risk of the stock market.

I realize these scenarios leave out a lot of details, but I just say it all to say that it's typically when someone is at the point that all they want to do is lay on a beach is when they start considering selling their business. At least for ones that are likely worth buying.
 
Danny,

Reading through this thread again, the biggest takeaway I have is that it's not entirely clear WHY you want to buy a functioning job shop of indeterminate variety. I don't mean this harshly and I may be missing something.

To recap what it sounds like the situation is: You currently have a manufacturing business in the construction field, which has staffing issues, and is not hands-off. You have some product ideas in this field that you're not currently manufacturing, but you're not sure that the market is there to start a production machine shop. You would like to buy an established job shop (you're not sure what type of shop) and run it hands-off with existing customers and some new customers that your shop manager will bring in. At some point in the future, you would like your job shop to build products for your first business to sell.

It isn't clear that you want to BE in the job-shop business, but rather that it's a means to several of ends: having a more hands-off business, and being able to do your own products.

The largest risk I see to your plan to buy a hands-off business is that, right now, you have a functioning hands-on business and some cash. If the hands-off business isn't, and pulls you away from your current business, you could have two businesses tanking.

Not knowing the details, one course of action might be to start by making your existing business more hands-off, allowing you to focus more on new-product development. The machining can be farmed out initially, you can buy equipment as you need it, or look at buying a very small machine shop (1-2 people). There are a lot more of those for sale, and they won't be hands-off, but it would get you a basic complement of equipment (lathe, mill, surface grinder, tooling) pretty inexpensively. The owners of these are usually retiring and the shops go for approximately equipment value, and the owner may be willing to work part time in retirement to get you started up.

This is overall correct, except for a few small details that may or may not change what you'd think.

I wouldn't expect a new business to be hands off, just hopefully not full time and overtime. I would expect to devote a fairly large chunk of my time to it, but would still need a solid support staff so that it's fairly sufficient. I am also currently working on taking hands off the current business. You're correct that it would be a major risk as is, and before I could really get to the point of stepping into another business I would have to have the current business fairly self sufficient as well. I'm looking at probably a yearish before I'm there, assuming all goes well (so assume at least 24 months probably).

And you're correct that I wasn't thinking job shop for the sake of job shop. Just mostly more familiar with this model (and I would assume it would go for a little less than somewhere with an established product line, even if they're cash flowing the same). Now rethinking this I may not be thinking that type of shop at all really.

I've actually started recently picking up a few used machines to play with here and there, nothing major. The biggest problem that I saw with trying to essentially bootstrap it for a new product line is that it's essentially as un-hands-off as could be. If a sell the products to be made, I essentially would need to ensure I can handle making them myself. Even with 1-2 employees (ignoring the finding good employees that aren't already at a good business part), if one of them is sick I'm essentially full time to replace them, in addition to everything else. So the general gist of a larger business would be that there's more redundancy built in, which would put less stress on any one single plate spinning.

Thinking over it more though, I think I would have to open my mind to several different types of shops and evaluate whether they could potentially meet my future plans, or if how difficult it would be to adapt, and just evaluate everything on a very case by case basis.

Edit: I guess I never got around to clearly stating the why... Mainly like I mentioned so that I don't have the time and energy to build from scratch. That's just not feasible. Also, because I'm not interested in offering this complimenting product without control over production. There are local vendors that can do it, but even adding that one layer is annoying. I can't control costs, so quoting will add additional steps, I can't control production, so I can't ensure I meet customer needs, and I can't control expansion so that if these products were do to well with a certain vendor, that doesn't necessarily mean I could expand the line without adding another vendor, which is another layer of hassle. I could buy the machines, but then I need to feed them to make that make sense. Essentially I guess I'm coming from the other end to try to find a well fed machine that still had a little bit of appetite. Worst case scenario if these products don't do well, nothing is going hungry.
 
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Look for examples of business sales, similar to what you are describing, that have worked for 5 years, and the top level employees are still there.
I'm going to go out on a limb and suggest that you won't find any.
The ones that seem to work are sale to the key employees (people stay and so do most of the customers), or as a bolt-on to a larger existing business (the key people leave shortly thereafter but often the customers stay)
I'm biased as I was a 'key employee' (>25 years) that bought my way in. My partner is semi-retired but still comes in to the office +/- 40% of the time, but he's not involved in day to day operations or with our customers. I've done 100% of the sales for the last 5 years.
If you want to be an absentee owner and/or are not an expert in the field, in my opinion, you'd better make sure that the people who have the keys, also have skin in the game. If you do well, they do really well. Figuring out how to structure a format (profit sharing / ownership / defined bonus structures) that incentivizes exeptional performance from the key employees would be my #1 focus, and that's going to need to start with understanding their goals... not yours.
Small manufacturing businesses are not like a long-standing franchise, where a business model in a competitive market segment has been perfected after years of experimentation and adaption. The pain you're experiencing in your existing business is the same pain that will be felt in a new business that you buy. Your influence will trickle down. Turnover, employee satisfaction, and retention all start with you (me in my case). If I were in your shoes, I'd look long and hard at what isn't working in your existing business and fix it, before buying another set of headaches. Put key people in place, and get your existing business to the point where you are an absentee owner in that business... only then are you in a good position to take on the challenge of running another business.

Definitely working on that. It's a little ways out, but on a fairly short horizon at this point.

Do you have experience with bonus or incentive structures that have worked for you or others? That's something that businesses such as my current regularly do, and the plan is to implement similar plans here in the coming years as well. But those may not quite work the same way as with a machine shop just depending on the details.
 
Don´t believe the naysayers.
Lots of direct experience in the past.
Lately, lots of company buying experience, laterally (not a principal).

Don´t try to evaluate it yourself - when Your are near a final deal.
Find someone who used to buy and sell and run a machine shop.
An ex-machine-tool dealer owner, someone similar.
Pay him 10k, 2k to evaluate each final candidate shop and 8k on the success of a deal 120 days after the close.

ALL the key employees will WANT to stay if you have money and a salary bump, and ongoing prospects.
A salary bump is 500$ - 1000$ / month.
A 20-90$ extra/mo is insulting.
There is nothing wrong with expecting similar increases in productivity.
Almost all employees worldwide will very happily provide extra productivity for 500$+ in extra salary.
Lots of personal experience.

Talk to employees honestly.
Give them a 500$ check as an earnest/goodwill payment in that meeting / at the first meeting.
A good idea is to either give it first or last during the talk.
In either case it proves Your bona fides and Your willingness to support Your employees.

Give them bonus checks for 1000$ and 2000$ in 2 and 5-9 months time subject to them remaining.
No conditions.
They either go away or don´t, but the bonus checks make it 10x more difficult for the competitors to hire them away in the short term.
If You pay bigger bonuses they will start to expect them, reducing profits.

IF most-all of the employees walk You lost Your investment.
Likewise with the customers.

It is NOT hard to do, we do several deals like that per year, professionally, in a totally different field.
Trying to do it on the cheap, for something like a machine shop, is pretty much a guaranteed failure.
Doing it well, can be pretty much a guaranteed success.
(Plenty of experience).
But one needs sufficient funds and resources to execute ...
 
Exactly !
You have a top end product of high value and short lead time, and need an efficient fast crew to execute production.

This is very easy to buy, and will likely cost 2-3-4 M$ with about 1-3 m$ in reserves.
For 2-4 people.


Thinking over it more though, I think I would have to open my mind to several different types of shops and evaluate whether they could potentially meet my future plans, or if how difficult it would be to adapt, and just evaluate everything on a very case by case basis.

Edit: I guess I never got around to clearly stating the why... Mainly like I mentioned so that I don't have the time and energy to build from scratch.

That's just not feasible. Also, because I'm not interested in offering this complimenting product without control over production. There are local vendors that can do it, but even adding that one layer is annoying.

I can't control costs, so quoting will add additional steps, I can't control production, so I can't ensure I meet customer needs, and I can't control expansion so that if these products were do to well with a certain vendor, that doesn't necessarily mean I could expand the line without adding another vendor, which is another layer of hassle. I could buy the machines, but then I need to feed them to make that make sense. Essentially I guess I'm coming from the other end to try to find a well fed machine that still had a little bit of appetite. Worst case scenario if these products don't do well, nothing is going hungry.
 
Reading your posts you are trying to talk yourself into it and the hard reality of life is NO ONE every sells a business that is profitable and easy and to tell yourself any different is ignorant. The only way to buy a business is to base your offer on the value of the building and machinery and pretty much ignore turn over and numbers as they are based on Customers an Employees neither of which ( in most cases ) can be purchased or transferred with the purchase without SIGNIFICANT Risk.

Also don't forget to take into account the significant capital you will need for operating expenses, I would want 3 - 6 mths full operating expenses ( labor, rent, insurance etc ) in my pocket on top of purchase price of you are going to find it very very hard.
Make sure you look into insurance and liability as to if you are buying the trading entity or the actual business. If buying the business make sure you are aware of you exposure for warranty and existing liability that will transfer with the business but not the trading entity.

Lastly keep in mind that running a successful business often has very little to do with actually working in it and its all the things that you don't see directly relayed to your output that will put you under.
 
Reading your posts you are trying to talk yourself into it and the hard reality of life is NO ONE every sells a business that is profitable and easy and to tell yourself any different is ignorant. The only way to buy a business is to base your offer on the value of the building and machinery and pretty much ignore turn over and numbers as they are based on Customers an Employees neither of which ( in most cases ) can be purchased or transferred with the purchase without SIGNIFICANT Risk.

Also don't forget to take into account the significant capital you will need for operating expenses, I would want 3 - 6 mths full operating expenses ( labor, rent, insurance etc ) in my pocket on top of purchase price of you are going to find it very very hard.
Make sure you look into insurance and liability as to if you are buying the trading entity or the actual business. If buying the business make sure you are aware of you exposure for warranty and existing liability that will transfer with the business but not the trading entity.

Lastly keep in mind that running a successful business often has very little to do with actually working in it and its all the things that you don't see directly relayed to your output that will put you under.

I'm not really trying to talk myself into anything. The opportunity and numbers, if I were to find it, would do that. I'm mainly asking if there are major unforeseen pitfalls or it's entirely unrealistic.

Reading other threads on this forum there are a lot of posts pretty much like this. It really makes it sound like there's no such thing as a successful machine shop that isn't just the owner doing everything themselves.

Businesses are bought and sold all over the world in all kinds of industries every day. I guess it really depends on your definition of "easy," but a small business owner can only get so "hands off." What's not realistic is that someone can run a small business and never do anything other than get checks from their mailbox. And even if that were the case, there's still absolutely no way to completely remove the risk associated with running a business.

There are people and entire companies who make a living in M&A and they're not all just buying the real estate of failing businesses.
 








 
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