I've been in the business for 35+ years as an employee, consultant, and owner. Everything mentioned is a valid point, but by far cash flow is king. In the job shop business, you will buy the machines, pay rent or mortgage on a space, utilities, insurance, payroll, material, outsourced operations, and then if you are lucky you get paid 30net after the parts are done, usually longer, and you rarely get to decide what terms work best for you. If you are going to play with the big aerospace, automotive, or defense contractors, they will dictate the terms, and if you don't like it, they will go somewhere else. Then of course you will have purchasing agents want an across the board price reduction in all their work, while your material and overhead costs are going up. And again, if you don't like it, they will find someone else who will do it. You assume all the risk for defective parts, and also the risk of an outsourced operation going wrong. If an anodizer scraps 50K worth of your parts, they won't charge you for the $500 in anodize, but you'll still eat the parts, or end up in court. All in all it's a VERY tough business, with absolutely no loyalty, you are only as good to your customers as the last job you did cheaper than anybody else.
Many shops oversell themselves. Thinking they should take on only big companies or do government work. Many big companies pay like shit. They want net 60 or net 90. As a small shop trying to grow you can't afford to give a customer net 60. Right off the bat it can be 70-80days before you see any $$ for that PO. Doing government work , they bog you down with paperwork. You need extra people just to handle that. Plus your bidding on jobs you'll never get. Follow the K.I.S.S. rule. Keep it simple stupid ! Bid on work you know you can do and turn & burn on. Then dip your toe into bigger jobs and medium customers ( net 30 the longest you wait for $$ )
One of the biggest problems with the industry is illustrated by the fact that this guy did not in anyway shape or form mention how you treat your employees, not even a consideration. That’s why no one wants to be a machinist anymore
Very true, interviewed with a machine shop this week. They let 3 of their 4 machinists go because of covid and now they can’t find machinists any more. Who wants to work for a company that fires you at the first sign of financial troubles.
I've only seen this once personally but it was horrible. We hired this small shop close to the factory to do a job, figuring they'd get it sorted. Gave them some extra time since they were installing machines (some of which were needed for the job). 3 months later, i see the 5 Teslas parked outside the small shop but have yet to see any new machines. Only silver lining is that the factory needed a tool making department and the guys in that shop were more than happy to jump ship during the lawsuit.
Growing too quickly can destroy a business. if everything is leveraged and cash flow stops your screwed. Always best to go a little slower, own all the business assets and stay level headed with a clear thinking mind with minimal stress😄
I agree on slow growth and enjoy being debt-free, but. If you compartmentalize the risk of financing specific equipment for specific work, it can work out. Even if you have to spin off a separate business entity to insulate your cash cow, I would not say, "never," if the right opportunity comes along. And if it doesn't pan out? Amputate and keep on keeping on.
@@benthurber5363 I also agree with this stance, I’ve recently had a customer purchase a brand new lathe which he purposely bought for a contract, that contract has already already paid for half of the machine. In circumstances like that, then I’d say it’s a no brainer to finance🙂
I was almost in this situation. Over leveraged, without any LTA. Luckily, my Dad handed over the reigns and II met a couple of people and redeveloped relationships with other customers to get more work. Just need to survive 5 more years of working hard and doing good work to pay off my equipment. Having AS9100 helped, too...
Massive outlay of funds to generate funds...in respect to most other trades.... I.e 1 cnc machine outweighs the cost of 20 electricians, plumbers etc outlay.... To have promised work, good relations with customers, to break down, by something as simple as the 'contact' got pissed off and left his role at the purchasing company... Things like recession, skills gap, material shortages.... All these things should be mitigated, but, anyone who thinks its 'easy' to be the owner of a shop, who risks personally securing debt to purchase machine tools and all the stuff that goes with the whole operation, is a complete idiot. As with anything, educating everyone on what goes on and what is needed by the team is the key to success. Also, the 'race to the bottom' is also a real factor. People de-valuing the product in search of being busy, or desperate even, helps no-one. Work your price out...and that's the price. Dont let purchasing departments come back to you and say 'oh, I can get that 1 dollar (or whatever value) cheaper', if you've calculated your costs properly. There is probably a good reason they have come back to you! Example, one of my customers came back to me on a RFQ, claiming to be quoted £2.80 sterling cheaper per part on a 40 off batch. I stood my ground as the customer wanted it turned around in 48hours and still won the P.O No one was ever going to get rich off a 40 off simple job, but the best lead time they had off our competitors was 18 days. They needed the parts and I was willing to make space in my production schedule, but the interfearanc needed to be accounted for. I had to break a setup down in order to accommodate and promised the parts on time, and as such they had to pay for this service. Doesn't mean I was expensive, just that I was making sure I had covered the downtime costs. They got there parts and met their delivery schedule and we got paid what we should of done for providing that service. Dont let purchasing teams play you off against one and another. ..
GM of last place I worked for said if you don't fail to get AT LEAST a third of the jobs you bid on because your price is said to be too high, then you're pricing your work too low.
Excellent video. I will add something to think about. Most restaurants fail, not because the food is bad, but because they are owned and run by a chef, not someone who knows the first thing about business. Know when your deficient in a discipline (like ar/ap) figure it out or hire someone, their salary might be cheaper than closing the doors
Yeah, I worked for a company that made refridgeration valves. Suddenly they went at least 90% to one company and , yes, they were now the boss. And eventually, they decided to make them theirselves and we went out of business.
In my experience as an employee of an older shop that had been family owned for 40 years. The husband and wife decided on retirement and turned the business over to their three children and all three decided that all would be the bosses. If you have more bosses then workers and the wife’s and husband decided we are the bosses too with two worker. Six bosses and two worker is not a good business plan. They ended up getting bought out by a corporation and moving all the machines to a new town. Move for the job or stay and find a new job. All the children ended getting hired by the corporation i think one person still works there. Thanks for sharing!
When the high school jock inherits his daddy's shop. No idea how to weld or run a machine. Don't think that your employees won't expose something that could hurt you.
Good Video Ian. Cash flow is and always will be king. I totally agree that having a combo of someone that runs the shop and someone else that runs the office is key.
Absolutely. At my current shop the GM has this crazy knack for getting the right people. There isn't a bad attitude in my shop. We have 65+ employees and I can't point to one that I'd say has a bad attitude.
Also management/employee relationships. Penis head managers ruin good shops too. I've worked at a good shop that everything was going great for years until the GM left. New guy ruined things pretty quick.
@@helmsplitter0233 ~ Hard, but not undoable. Guys think they need the best, top of the line, brand new machines to start out. Not so. Tons of good, affordable used machines out there these days that don't break the bank.
i worked for a machine shop a very long time ago. min wage was 4.50 then i think. anyway, they hired me knowing that i knew nothing and i was gratefull for the shot. the company gave me a handbook that described a lot of things about to happen, and some in the future like when you can do your own set ups and tear downs you get this much money per hour. so i did grunt work for about 8 months, a little longer than required but i found i really liked grinding lol. eventually i made it to the point where i can do the things required for the raise plus i had maybe 3 parts per thousand that were off. better than most people there. instead of the raise to 7.25, he gave me a .25 raise stating the company couldn't afford the real wage. not the first time i've been lied to but dayum......8 months wasted. do i waste more time or go back to doing what i do best (journey level painter)...damn straight! i went back to painting and never gave it a 2nd thought. i did like the work and the people.....but if you can't pay the bills, you gotta go do something else.
Just having the little bit of knowledge you had from your short time there you could have found someone more than willing to pay you what you were worth unless you were in a podunk town with no other options.
@@moncorp1 pretty much the latter. a few machine shops around but mostly ag equipment items. big stuff a blind man could (and does) do. big ag area so what would i expect. its not like i was asking for the moon, only what they told me in the rules that i was due. anyway, i loved it. but now its mostly cnc machines and all they need is loaders now. a few jobs in 2nd ops for a turret lathe operator or maybe a few mills that need running, but again, all those jobs are filled by relatives. good talk!
Under bidding, low skill sets, lack of efficiency, too much overhead, lack of organization. You have all of this, no problem succeeding. I started a shop once for a single customer.... with the goal of only being around while that customer had me as a vendor. I didn't fail because I closed down that shop, I succeeded for my business plan and moved on to my next business as planned. Other then that, it's pretty easy.
My employer hired *four consultants in a row* to figure out what was wrong with business. All four told them the same thing, but they didn't like what they heard and they didn't do it; and now all the good machinists have quit and gone elsewhere.
Ian you have no idea how much your videos help me - started my own shop 3 years ago and slowly building up a foundation of Customers. i have a part timer and myself right now so its not easy but we have quite alot work. i do alot of work from my previously work place and i think they benefit from me helping them with smaller parts and parts with quick lead times. but i dont like how much of my income they are right now. but i do try and getting a few more custemers like them to spread out my work on more.
Find big production shops that only like to do runs of hundreds or thousands of parts. I worked for a production shop and the GM told me that they just threw away, or ignored email requests for small jobs. Go to those places and tell them you can help them with their customer service by taking on the jobs they don't want. Got to prove to them you'll do good if they recommend you instead and make sure they know that it also helps them by not ignoring potential customers. If they just ignore a small customer, that customer will bad mouth them telling others that "So and so shop didn't even respond to my request." Once they figure that angle out, they'll be more inclined to send them to you. And you can tell them that if you get a request for a job that might be too big for your shop you'll send those customers to them.
I want to go back to school to learn how to be a machinist so I can open my own shop that specializes in JDM engines such as RBs, SR20s, 1JZs, 2JZs, etc since there are none anywhere in Wisconsin that specializes in these types of engines so I want to make it easier for other JDM owners and mechanic shops to have someone who can help. I am not looking to grow big I just want to be there to help fellow car enthusiasts. I have been looking for the past 4 days on Google maps, multiple Skyline owners, car enthusiast FB groups even looking outside to neighboring States such as Illinois, Michigan, and Minnesota and nothing yet. It's really frustrating so that's why I want to pursue this. Unfortunately I have no experience in machine work so I am looking into trade schools where I can learn hands on training.
Automotive machining is a specialty. It's no where even close to what most shops do. I think you'd be better off finding an automotive machine shop in your area and getting into working there. Most trade schools are going to very generalized in how they teach machine tool technology. Some of the VERY basics will transfer to an automotive machine shop. I did a google search for automotive machining school and got a few hits. That would be a better starting place than a general purpose machining program. When it comes to automotive machining the main difference is that you are usually working on a premade part that needs modification/rework. That is a VERY different animal when compared to making a part from a solid chunk of material. When we get requests from customers to modify a premade part it's usually just easier and faster to remake the entire part with the requested modifications. That of course is not usually an option when dealing with things like engine blocks and cylinder heads.
@@brandons9138 ~ Yep. Forget schools. I learned by knocking on shops doors. Took me 2 tries. The shop taught me how to be a machinist. Most will do this.
@@moncorp1 Agreed. If you're knocking on doors they know without a doubt that you're motivated. A motivated employee is a golden opportunity for an employer.
Partly agree but in 99% of cases all the major customers will not suddenly dissapear just because they got a cheaper price. They will appeal for negotiation of the current price and if you could not manage to strike a balance with the customer then being a job shop owner (aka businessman) is not your thing so you'd better go and get some job in Mcdonalds cause that's where you belong
@@ICON.Engineering_ lets say i bid $500 and would make $10 profit, that's the "2% profit bid" part For this same job, they bid $50, which would be 10% of my bid.
I've been in the business for 35+ years as an employee, consultant, and owner. Everything mentioned is a valid point, but by far cash flow is king. In the job shop business, you will buy the machines, pay rent or mortgage on a space, utilities, insurance, payroll, material, outsourced operations, and then if you are lucky you get paid 30net after the parts are done, usually longer, and you rarely get to decide what terms work best for you. If you are going to play with the big aerospace, automotive, or defense contractors, they will dictate the terms, and if you don't like it, they will go somewhere else. Then of course you will have purchasing agents want an across the board price reduction in all their work, while your material and overhead costs are going up. And again, if you don't like it, they will find someone else who will do it. You assume all the risk for defective parts, and also the risk of an outsourced operation going wrong. If an anodizer scraps 50K worth of your parts, they won't charge you for the $500 in anodize, but you'll still eat the parts, or end up in court. All in all it's a VERY tough business, with absolutely no loyalty, you are only as good to your customers as the last job you did cheaper than anybody else.
too much debt and or ownership that checks out and looks at the business as an ATM machine for their personal life
Many shops oversell themselves. Thinking they should take on only big companies or do government work. Many big companies pay like shit. They want net 60 or net 90. As a small shop trying to grow you can't afford to give a customer net 60. Right off the bat it can be 70-80days before you see any $$ for that PO. Doing government work , they bog you down with paperwork. You need extra people just to handle that. Plus your bidding on jobs you'll never get. Follow the K.I.S.S. rule. Keep it simple stupid ! Bid on work you know you can do and turn & burn on. Then dip your toe into bigger jobs and medium customers ( net 30 the longest you wait for $$ )
One of the biggest problems with the industry is illustrated by the fact that this guy did not in anyway shape or form mention how you treat your employees, not even a consideration. That’s why no one wants to be a machinist anymore
Very true, interviewed with a machine shop this week. They let 3 of their 4 machinists go because of covid and now they can’t find machinists any more. Who wants to work for a company that fires you at the first sign of financial troubles.
People are abandoning manufacturing at a rapid clip. m.th-cam.com/video/XVftt-2M88g/w-d-xo.html
Hell, thats not just machine shops.
When the owner and his wife decide that a foreign holiday every few months are more important than any form of investment in the business
I've only seen this once personally but it was horrible.
We hired this small shop close to the factory to do a job, figuring they'd get it sorted. Gave them some extra time since they were installing machines (some of which were needed for the job).
3 months later, i see the 5 Teslas parked outside the small shop but have yet to see any new machines. Only silver lining is that the factory needed a tool making department and the guys in that shop were more than happy to jump ship during the lawsuit.
Good points. Lots of owners are skilled in machining but not running a business.
Growing too quickly can destroy a business. if everything is leveraged and cash flow stops your screwed. Always best to go a little slower, own all the business assets and stay level headed with a clear thinking mind with minimal stress😄
I agree on slow growth and enjoy being debt-free, but. If you compartmentalize the risk of financing specific equipment for specific work, it can work out. Even if you have to spin off a separate business entity to insulate your cash cow, I would not say, "never," if the right opportunity comes along. And if it doesn't pan out? Amputate and keep on keeping on.
@@benthurber5363 I also agree with this stance, I’ve recently had a customer purchase a brand new lathe which he purposely bought for a contract, that contract has already already paid for half of the machine. In circumstances like that, then I’d say it’s a no brainer to finance🙂
I was almost in this situation. Over leveraged, without any LTA. Luckily, my Dad handed over the reigns and II met a couple of people and redeveloped relationships with other customers to get more work.
Just need to survive 5 more years of working hard and doing good work to pay off my equipment.
Having AS9100 helped, too...
Massive outlay of funds to generate funds...in respect to most other trades....
I.e 1 cnc machine outweighs the cost of 20 electricians, plumbers etc outlay....
To have promised work, good relations with customers, to break down, by something as simple as the 'contact' got pissed off and left his role at the purchasing company...
Things like recession, skills gap, material shortages....
All these things should be mitigated, but, anyone who thinks its 'easy' to be the owner of a shop, who risks personally securing debt to purchase machine tools and all the stuff that goes with the whole operation, is a complete idiot.
As with anything, educating everyone on what goes on and what is needed by the team is the key to success.
Also, the 'race to the bottom' is also a real factor. People de-valuing the product in search of being busy, or desperate even, helps no-one. Work your price out...and that's the price.
Dont let purchasing departments come back to you and say 'oh, I can get that 1 dollar (or whatever value) cheaper', if you've calculated your costs properly.
There is probably a good reason they have come back to you!
Example, one of my customers came back to me on a RFQ, claiming to be quoted £2.80 sterling cheaper per part on a 40 off batch. I stood my ground as the customer wanted it turned around in 48hours and still won the P.O
No one was ever going to get rich off a 40 off simple job, but the best lead time they had off our competitors was 18 days.
They needed the parts and I was willing to make space in my production schedule, but the interfearanc needed to be accounted for. I had to break a setup down in order to accommodate and promised the parts on time, and as such they had to pay for this service. Doesn't mean I was expensive, just that I was making sure I had covered the downtime costs. They got there parts and met their delivery schedule and we got paid what we should of done for providing that service.
Dont let purchasing teams play you off against one and another. ..
GM of last place I worked for said if you don't fail to get AT LEAST a third of the jobs you bid on because your price is said to be too high, then you're pricing your work too low.
Excellent video. I will add something to think about. Most restaurants fail, not because the food is bad, but because they are owned and run by a chef, not someone who knows the first thing about business. Know when your deficient in a discipline (like ar/ap) figure it out or hire someone, their salary might be cheaper than closing the doors
Definitely enjoying the business content.
Yeah, I worked for a company that made refridgeration valves. Suddenly they went at least 90% to one company and , yes, they were now the boss. And eventually, they decided to make them theirselves and we went out of business.
When you start a 2nd shift, you might consider training people to do more than just load a part and press the button and change the insert.
Lmao this 💯
Nice information.
In my experience as an employee of an older shop that had been family owned for 40 years. The husband and wife decided on retirement and turned the business over to their three children and all three decided that all would be the bosses. If you have more bosses then workers and the wife’s and husband decided we are the bosses too with two worker. Six bosses and two worker is not a good business plan. They ended up getting bought out by a corporation and moving all the machines to a new town. Move for the job or stay and find a new job. All the children ended getting hired by the corporation i think one person still works there. Thanks for sharing!
I was just in a situation like that
Egotistical and narcissistic people in charge will make it fail.also monkey see monkey do experience in management can be bad for shop moral.
When the high school jock inherits his daddy's shop. No idea how to weld or run a machine. Don't think that your employees won't expose something that could hurt you.
#1 remedy to failure is success
Nice video
I want to know that how you planning for your work ?
How you control inventory ?
Good Video Ian. Cash flow is and always will be king. I totally agree that having a combo of someone that runs the shop and someone else that runs the office is key.
It's no so easy to find skilled machinists for a second shift or other capacity expansion
Easy? No, but doable.
Employee chemistry
That’s actually a huge factor, many people don’t realize it!
Absolutely. At my current shop the GM has this crazy knack for getting the right people. There isn't a bad attitude in my shop. We have 65+ employees and I can't point to one that I'd say has a bad attitude.
Also management/employee relationships. Penis head managers ruin good shops too. I've worked at a good shop that everything was going great for years until the GM left. New guy ruined things pretty quick.
how about no debt? Worst case scenario you have to go pickup a W2 income for a period.
thats hard to do, i mean if you can get in the business debt free you're probably golden, but to make money you gotta spend money in most cases,
@@helmsplitter0233 ~ Hard, but not undoable. Guys think they need the best, top of the line, brand new machines to start out. Not so. Tons of good, affordable used machines out there these days that don't break the bank.
i worked for a machine shop a very long time ago. min wage was 4.50 then i think. anyway, they hired me knowing that i knew nothing and i was gratefull for the shot. the company gave me a handbook that described a lot of things about to happen, and some in the future like when you can do your own set ups and tear downs you get this much money per hour. so i did grunt work for about 8 months, a little longer than required but i found i really liked grinding lol. eventually i made it to the point where i can do the things required for the raise plus i had maybe 3 parts per thousand that were off. better than most people there. instead of the raise to 7.25, he gave me a .25 raise stating the company couldn't afford the real wage. not the first time i've been lied to but dayum......8 months wasted. do i waste more time or go back to doing what i do best (journey level painter)...damn straight! i went back to painting and never gave it a 2nd thought. i did like the work and the people.....but if you can't pay the bills, you gotta go do something else.
Just having the little bit of knowledge you had from your short time there you could have found someone more than willing to pay you what you were worth unless you were in a podunk town with no other options.
@@moncorp1 pretty much the latter. a few machine shops around but mostly ag equipment items. big stuff a blind man could (and does) do. big ag area so what would i expect. its not like i was asking for the moon, only what they told me in the rules that i was due. anyway, i loved it. but now its mostly cnc machines and all they need is loaders now. a few jobs in 2nd ops for a turret lathe operator or maybe a few mills that need running, but again, all those jobs are filled by relatives. good talk!
Under bidding, low skill sets, lack of efficiency, too much overhead, lack of organization. You have all of this, no problem succeeding. I started a shop once for a single customer.... with the goal of only being around while that customer had me as a vendor. I didn't fail because I closed down that shop, I succeeded for my business plan and moved on to my next business as planned. Other then that, it's pretty easy.
My employer hired *four consultants in a row* to figure out what was wrong with business. All four told them the same thing, but they didn't like what they heard and they didn't do it; and now all the good machinists have quit and gone elsewhere.
Good sound advice. thank you
Ian you have no idea how much your videos help me - started my own shop 3 years ago and slowly building up a foundation of Customers. i have a part timer and myself right now so its not easy but we have quite alot work. i do alot of work from my previously work place and i think they benefit from me helping them with smaller parts and parts with quick lead times. but i dont like how much of my income they are right now. but i do try and getting a few more custemers like them to spread out my work on more.
Hey man. I'm about to get started out the same way I would be interested in discussing tactics with you.
Find big production shops that only like to do runs of hundreds or thousands of parts. I worked for a production shop and the GM told me that they just threw away, or ignored email requests for small jobs. Go to those places and tell them you can help them with their customer service by taking on the jobs they don't want. Got to prove to them you'll do good if they recommend you instead and make sure they know that it also helps them by not ignoring potential customers. If they just ignore a small customer, that customer will bad mouth them telling others that "So and so shop didn't even respond to my request." Once they figure that angle out, they'll be more inclined to send them to you. And you can tell them that if you get a request for a job that might be too big for your shop you'll send those customers to them.
Machine shops are no different than any other businesses.
70% of all businesses created fold withing the first 10 years.
Don't forget how you talk to and rest your people, everything else you stated us true so thank you this helps. Great points all
Lack of quality.
That’ll sink you faster than you could imagine!
Every thing you said is 100% true.
Economy and location
Love this video.
I want to go back to school to learn how to be a machinist so I can open my own shop that specializes in JDM engines such as RBs, SR20s, 1JZs, 2JZs, etc since there are none anywhere in Wisconsin that specializes in these types of engines so I want to make it easier for other JDM owners and mechanic shops to have someone who can help. I am not looking to grow big I just want to be there to help fellow car enthusiasts. I have been looking for the past 4 days on Google maps, multiple Skyline owners, car enthusiast FB groups even looking outside to neighboring States such as Illinois, Michigan, and Minnesota and nothing yet. It's really frustrating so that's why I want to pursue this. Unfortunately I have no experience in machine work so I am looking into trade schools where I can learn hands on training.
Automotive machining is a specialty. It's no where even close to what most shops do. I think you'd be better off finding an automotive machine shop in your area and getting into working there. Most trade schools are going to very generalized in how they teach machine tool technology. Some of the VERY basics will transfer to an automotive machine shop. I did a google search for automotive machining school and got a few hits. That would be a better starting place than a general purpose machining program.
When it comes to automotive machining the main difference is that you are usually working on a premade part that needs modification/rework. That is a VERY different animal when compared to making a part from a solid chunk of material. When we get requests from customers to modify a premade part it's usually just easier and faster to remake the entire part with the requested modifications. That of course is not usually an option when dealing with things like engine blocks and cylinder heads.
@@brandons9138 ~ Yep. Forget schools. I learned by knocking on shops doors. Took me 2 tries. The shop taught me how to be a machinist. Most will do this.
@@moncorp1 Agreed. If you're knocking on doors they know without a doubt that you're motivated. A motivated employee is a golden opportunity for an employer.
Partly agree but in 99% of cases all the major customers will not suddenly dissapear just because they got a cheaper price. They will appeal for negotiation of the current price and if you could not manage to strike a balance with the customer then being a job shop owner (aka businessman) is not your thing so you'd better go and get some job in Mcdonalds cause that's where you belong
6 other local shops were asking 10% of my 2% profit bid
Would you be able to handle that for an unknown amount of time? Mister amazing businessman?
@@angrydragonslayer sorry, i am not from USA and do not understand that phrase "asking 10% of my 2% profit bid"
@@ICON.Engineering_ lets say i bid $500 and would make $10 profit, that's the "2% profit bid" part
For this same job, they bid $50, which would be 10% of my bid.
Batedeira TERMY , FORJA TURNNING KLARCK
invest some money in normal mic if you want to talk to audience
Guess you can't afford some Simple Green for those machines.
One of those, "If you've got time to lean, you've got time to clean" guys I see.