Starting Your Own Machine Shop

I receive numerous e-mails from individuals interested in starting their own machine shops. A frequent question is, "How do I begin?" For the benefit of anyone interested in starting such a business, I offer some ideas to consider.

Columns From: 4/1/2001 Modern Machine Shop,

I receive numerous e-mails from individuals interested in starting their own machine shops. A frequent question is, "How do I begin?" For the benefit of anyone interested in starting such a business, I offer some ideas to consider.

First and foremost, be aware of the risks associated with starting any new business. We have all heard the statistics that a high percentage of new businesses fail within the first year of operation. In addition, manufacturing is an especially tough business, with competition from both domestic and international sources. Many once successful manufacturing companies have folded in recent years, often because of situations beyond their control.

Despite the inherent risks associated with starting a machine shop, many people have been successful in fulfilling their dreams. In almost every case, successful start-ups are born from a good plan. In fact, my first recommendation is to develop some type of business plan, which will force you to focus on the details of the business. Taking time to write a business plan requires discipline, and discipline is essential to a successful business. Your business plan need not be too detailed, but it must contain enough information to serve as a road map for the actions you plan to take.

Your business plan should contain a section on sales and marketing that describes how you will sell your products or services. This requires an understanding of the type of customers you can attract and what their specific requirements are. You must then evaluate how you will match your capabilities to these requirements. For instance, if fast turnaround of orders is of paramount concern to potential customers, you will have to plan your resources to provide such a turnaround. If customers require their suppliers to have quality certifications, such as ISO 9000, you must plan to undertake this effort as soon as possible. When thinking about the type of customers you will be dealing with, do not overlook the distribution factor. How will you get your product to your customers? If you plan to pick up and drop off parts yourself, this could be a major drain on your resources, especially if you have to stop production to provide this service.

The business plan should also focus on the competition already established. What services can you offer that would make a customer buy from you instead of one of these established companies? If there is a wealth of work and the existing resources cannot keep up, it is much easier for a new business to succeed than if there is a finite amount of work available.

Pricing is also a key factor in any business plan. You will need to understand the prevailing rate structure in your area to determine what you can charge for your products or services. The prevailing rate structure must allow you to recover your operating expenses. If not, you will have to re-evaluate these expenses and perhaps delay some acquisitions.

Your business plan should also include a section on how you will finance the company. Will you use your savings, or are you planning to secure financing? Either way, you will need to develop an income projection based on a sales forecast. Granted, this sales forecast will just be an educated guess, but it will help you determine when you can expect to see a positive cash flow from the business.

Finally, there should be some thought given to the structure of the organization. If numerous people are to be involved, you must determine who will be responsible for what. Someone will need to be responsible for sales, another for the financial record keeping, and another for the manufacturing and engineering, if necessary. Will you try to do everything yourself, or will you employ outside resources with special areas of expertise? Will you hire employees or rely on contract employees who will work on an as-needed basis? Structural decisions need to be made early.

I also advise those interested in starting a manufacturing business to begin it as small as possible, then use its success to grow the business. If you can complete all your jobs with a manual milling machine, then you need to obtain only a manual milling machine. Many companies started as "garage operations" and remained this way until the business reached a level where earnings could finance growth.

Many people dream of starting a machining business. Once you understand the risks and take steps to minimize them through careful planning, your odds of success are far greater, and the chance for personal satisfaction is much more achievable.

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