The question is, if you weren't in the business already, would you choose to have a shop now? Pondering buying a shop .......
The shop is currently engaged in both prototyping and production work for some defense contractors. They are making components of subassemblies for military training devices. They specialize in machining titanium for some very high tech devices. Two 5-axis Hurcos, couple of CNC mills, couple of CNC lathes, some sheet metal capability. Not sure of the entire inventory yet, but it's an impressive 6000 sq/ft shop. Four full time machinists and what seems like a significant backlog of work for the next year. Not much automotive or hot rod stuff being made there.... Yet. I'm going up to talk to the owner this morning.
i used to work for a group that did nothing but sub-contract work for defense contractors. we made our own materials and then did secondary machining on them and plating/polishing. you should be made aware that most all defense contractors want to see a full audit at least once with every new "owner" of a particular contract. they have to do this in order to verify the sub makes his qc standards, lives to set agreements, etc. these can be very trying because basically everything has to have tracability and pedigree. this means from where you bought materials and how they made them, all the way to program control of your own cnc programs, and proprietery process, document control etc. they have also been known to make surprise pop-in audits from time to time too. also if youre the type who cant stand to be waiting on delayed payments, you may want to reconsider. no one drags their feet on paying out money worse than the govt or big businesses. the bright side is though the contracts can be quite lucrative when they finally do pay out and you get to work on stuff not many folks get to.
I have many machine shops as clients. The small shops with low overhead are doing o.k. Larger shops with many employees that do a lot of mass scale production work are hurting due to offshoring of machine work to China and their 80 cents per hour labor. Many of these large shops are just getting by and many have closed down. The small shops are surviving on repair work and "one off" work that needs to be done asap. I've had some shops with 10-15 employees go down to 2-5 employees and the owners said they actually made more money (as in owners income) Lot's of employees are expensive (healthcare cost is through the roof/workers comp etc) and you have to do lots of work to keep them busy. One shop's owner is a close friend. He went from 12 employees down to 3 and he said he doubled his personal income....and his stress level dropped by 500%. I would also request at minimum the last 5-6 years business records. 2-3 years is not enough.
Just got back. On the surface it looks good. Lots of work, most of the machines are busy. The current owner wants to stay, but for health reasons would prefer taking a role as an employee. First look at a balance sheets indicates a profitable business. He needs to buy another Hurco to keep up with demand. Accounts receivable are an issue with slow payments from some companies, but the lag is about 45 days, so it's not too bad. He is easily keeping up with payroll and other payables. He's not doing any business directly with the gov't. I know there's a ton of work in the pipeline coming to him that he's not yet aware of. That means the shop will certainly stay busy for then next 18-24 months. I guess the next step is to take a deeper look at the books and get a more complete inventory of equipment. He says it all goes except for his own personal toolbox. BTW, this guy is a friend of mine that has done business with me and my company for many years, so I know him well. He's fabbed several small parts for me over the years. This is not exactly an unknown quantity that I'm dealing with. More like taking over a buddy's shop than acquiring something totally new.
I own a heavy engineering business, if things in the US are anything like they are in OZ i'd forget it. 1. We can't compete with Asia. 2. The Asian economies are expanding faster than ours. 3. Within 10-15 years we will all take an 50-80% loss on investment. 4. Free Trade has been distasterous for manufacturing, for 2 decades we have been told " a knowledge based economy is the future". Well they are right. What they didn't forsee is the education of Asia. Now our knowledge intensive economies are being challenged, I.T. jobs are rapidly being outsourced. This suits big business but not small. Personally I could think of better things to do (and make money with) my considerable investment in my business. Yesterday I was contacted by a competitor (a younger man than me) asking if I would buy his business, that brings the total to 4 for sale in this city. I was a little surprised he was asking so little, but then I know where his work has gone, not sure what his tradesmen are going to do.
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