Turning a hobby shop into a real business. How?

[outset]

I have a well equipped hobby machine shop and would like to start making some $. How can I do this?

For equipment I have 2 cnc mills(biggest is 15x40"travel), 1 cnc lathe(haas tl1), 1 manual mill(5hp 20x40"), 2 manual lathes(biggest 14x60"), 1 surface grinder, 1 endmill grinder and wielding equipment.

I really enjoy machining, my father is a machinist(retired now) and for the last 10 years I have been learning and building this shop. I am fast with Gibbs cam, cnc and manual operations, I lack some real production shop experience.

What sort of jobs should I look for? Is it possible to make it in a one man shop? I would need to make about 3000$ a month to pay loans/cost to live.

Any other advise?

Any more equipment I should look for to open up for other jobs?

Or should I just keep doing my regular day job(automotive mechanic)and keep machining as a hobby?

Thanks,

[Bob La Londe]

Start making some misc parts and offering them for sale. Keep it part time, and wait until it forces you out of your day job.

[Geof]

Here is my answer to one of your questions:

Yes it is possible to make it as a one man shop; I started that way thirty one years ago and now have a more-than-one-man shop. Actually I don't really have it any more, I am retired and my daughter and her husband run it along with several other people.

And here is my answer to"Any other advise?

The most important thing is "keep your day job". When I started my business I worked either evening shift as a toolmaker in a foundry or as a part time college instructor, sometimes both, for over four years. Eventually my cash flow built up to the point where my shop was able to support me and make a profit that I put back into more machines.

Another important thing is to know what you want, now and in the future. A young man with plenty of stamina can run a very successful one man shop and make lots of money just by working crazy hours. But eventually you get to the point where you cannot, or do not want to, work those crazy hours. So unless you built up something with employees and a management structure that can run itself with minimal supervision, or have invested all your money in real estate or something that means you can back off and take life easy you are stuck working for less and less because you can only do less and less.

Also don't think that by building up your own business you are going to be "independent" and free to work the hours you want to work. You are going to have to eat, sleep, live and breathe your business for many years. You are going to be dependent on your suppliers and customers and do things at their convenience not yours.

Having a good job you are well placed to establish a business but be careful. Some employers do not like their employees showing signs of independence so if your boss finds out you are starting a business on the side you might find you no longer have a good job. (My situation was unusual. I got the toolmaker position because I was not looking for long term employment and the foundry had a project that was estimated to take about a year to complete.) On the other hand your employer may see an advantage to having you available to do machine work for him in the future. You just have to figure out how things lie.

Also because you have a job that should bring in enough income to fully support you, you will be able to run your business as a 'separate' financial entity. Unless you incorporate a company the 'separate' will be a bit artificial because all the money that comes in will be your personal income for tax purposes. But you must set up proper financial records so you know how much money in coming in from the business and how much is going out from the business. Initially of course, some of your personal income from your job will have to be spent on business things but make sure you keep track of how much and pretend it is a loan to the business. (Incidentally on the topic of loans, real loans that it is. Don't borrow any more money in the early stages and pay off any loans you already have as soon as possible. You already have a fully equipped shop so you shouldn't need any major purchases for some time.)

The reason for keeping your finances separate, both on paper and in actual fact as I will cover below, is so that you can clearly see how the business is doing and you can learn a financial discipline that will be invaluable in the future.

Regarding the 'separate' financial records for the business make them complete even if some of the categories seem artificial at this stage. Every business has expenses such as rent, electricity, telephone, heat, tooling, salaries, etc and a correctly run business puts money aside for machine repair or replacement. All these expenses have to come off the gross income of the business leaving behind the pre-tax profit. In the beginning stages of course you will be covering some expenses out of your personal income and some of the expenses are not real, rent for instance or machine replacement which can be postponed.

However, the expenses that are 'not real' in the early stages will become very real when the business has grown to the point larger premises, more machines and possibly employees, are needed, but if the income is not enough to cover these now real expenses you are hooped.

To avoid this situation and to build up the financial reserves that you will need for growth as the business income grows start 'paying' these expenses by putting money aside. Find out what it would cost to rent premises for a business twice as big as you are now and when the business income has increased so that there is something left over after paying for the immediate things like electricity, telephone, tooling, etc, start putting aside some money into a term deposit. Do not spend this apparently surplus money. It may appear surplus now and you may think you are making a profit but until your business income is enough to cover all these expenses, whether they are real or not at the present time, you are not making a true profit and will not make a profit if you have to move to rented premises and the expenses become real.

Keep on with this (very tight) financial discipline and as the business income grows continue putting aside money equivalent to imaginary rent, imaginary salary, machine repair/replacement. When you get to the point that you are putting aside each month an amount equal to all these expenses you know that your business is self supporting. Now you can quit your day job, now you can move to nice spacious premises, now you can buy those extra machines you want. AND you have built up the financial reserves so you can do this without going into debt.

This is more or less the way I did it. I started with a little bench lathe and a small knee type mill. During the late 1980s and through the 1990s I bought five or six turret lathes and several mills (I forget exactly how many) and paid cash for everything. Then starting late 1999 I converted my business to CNC. Over the past eleven years it has bought 26 (or 27 I forget) Haas machines and has paid cash for every one. Once you build up that initial nest egg and do not have to borrow money and pay interest you are set.

A point regarding taxes!!!! I say keep business financial records separate from your personal finances. If you do incorporate then the business records are indeed separate for tax purposes. If you operate as a sole proprietor then all the income is your personal income and you pay personal taxes on it. In this case keeping business income from personal income does not mean anything for tax purposes.

[frankee]

Geof provides EXCELLENT advice!

[outset]

Originally Posted by frankee Geof provides EXCELLENT advice!

I think so too, I never even considered some of the accounting aspects. Really nice to hear from someone who has actually done it and been successful. Thanks Geof

[broncosis]

you could always start by making parts for other people on
here that have been looking to get a hobby machine running for some time