Starting a machine shop

[fordman46095]

Hi, everyone. I am new to posting on this site so if this is in the wrong forum please don't hang me over it. My brother and I want to start our own machine shop we have have the experience and the knowledge to do complicated parts. We want the business to be a 50/50 partner ship and we understand that we have to start out as small as we can afford, we don't want to run ourselves into debt up to our eye balls buying machines and tooling. Does anyone have any good ideas on how we can start our business and be successful at it? As of now we have nothing but a small lathe that we have only turned on once it is a manual lathe. Another thing I am asking is what have you seen that has made a company successful and what has made a company sink. I have ideas of what floats the boat and what sinks it but I'm not sure. Thanks to anyone that reply's.

[harryn]

a) Make of list of what "jobs" need to be done in order to make the company run.

b) Make a list of what kind of work you are both good at, both inside the company and for hire.

c) Make a list of what you are not good at, or don't like doing, but still needs to be done

d) Assign each task to a person, either yourselves, or an outside person

e) Set yourselves up as a C corp with stock ownership, not a partnership.

f) Assign a pay for each type of job that needs to be done. Give higer value work a higher pay rate than lower value work.

g) Be willing to pay yourselves in a mix of cash and stock. Don't imagine for a minute that the ownership will remain exactly 50/50 forever.

h) Try to focus on keeping the higher value work, and subcontracting out the lower value work, or work you don't like.

i) Try to imagine that you are competing against virtually free labor and what it means to how you value your own work and service offerings.

Given the economy, I think it makes more sense to try to buy out an existing shop than to start one from scratch.

[CJCNC]

I would like to add:

1) harryn is absolutely correct about the corporation.. Do it, even if it is your brother.. However, don't do a C corp, I did an S corp for my business.. If you have less than a certain number of employees (i think 100 in Florida anyways) you can do an S type.. There are a few other criterion that you have to meet, but they are easy.. The advantage of the S corp, is that you pay taxes only once, instead of twice with the C type.
Incorporating is important also because it is its own separate entity from you and your brother.. Sure you own the stock in it, but if somebody sues you, the corporation takes the hit, and they technically cannot come after your own personal assets. If you just do a partnership or a sole proprietorship, they can come after you.

I believe from reading your post that you are motivated and will accomplish allot with that kind of attitude..

Looking forward to reading about the successes of your company in the coming years..

[DUKESTER863]

I TO ARE LOOKING TO START A SHOP. I HAVE MY FIRST PRINT TO QUOTE. ANY HELP WOULD BE WELCOMED. AS A MACHINIST I NOW HOW LONG IT WILL TAKE TO MAKE THE PART BUT HOW DO YOU PRESENT IT TO CUSTOMER.

[harryn]

Hi, I would like to just make a comment on the C vs S corp for machine shops. BTW, I am not a tax consultant, but I did spend some time studying this area.

The advantages of course of an S corp
- There is only 1 tax return - yours
- You can take the income / loss right to your personal taxes

Limitations of an S corp (from a tax perspective)
- There are deductions that are only possible if your S corp is profitable, that are easy to do with a C corp, regardless.
- Most tax preparers are good at "either" business or personal taxes, not both. That is what finally drove me to a C corp, my tax guy ( a good one) just could not keep up with the mixture of codes.
- Health insurance, a big issue with small companies, is much easier to deduct in a C vs an S corp

My personal tax returns were getting pretty complicated before we formed the C corp, and I could barely understand them anymore. Now that we have the C corp, those taxes are reasonably easy for my tax guy to do, and I can easily do my own taxes without help.

[harryn]

Originally Posted by DUKESTER863 I TO ARE LOOKING TO START A SHOP. I HAVE MY FIRST PRINT TO QUOTE. ANY HELP WOULD BE WELCOMED. AS A MACHINIST I NOW HOW LONG IT WILL TAKE TO MAKE THE PART BUT HOW DO YOU PRESENT IT TO CUSTOMER.

Dukester - it is called a quotation, and is fundamental to getting your business going. There are a lot of ways to do it, but I have created my own standard form using excel.

It took me several days to come up with a standard format that can be used for a quote, purchase order, and invoice with only a few word changes.

If you like I can help you with it. Just send an email to sales at my web site. (wirlnet dot com)

Harry

[xyzeugene]

In totality C corp is the way to go, just structure things correctly. Best for protection of assets.

Have a separate holding company for machines though - If your operating company gets sued at least they can't get your machines from your holding company, but make sure you lease the equipment to your operating company at fair market value or it will be identified as a paper company. Pay yourself a nominal salary so if you get sued they wont go after your personal property.

My qualifacitions:
Former Enron Tax Analyst
PricewaterHouseCoopers Auditor <-The top audit firm in world

[xyzeugene]

1) Never go into partnership with family(or any other partnership for that matter) - your just asking for trouble on the scale of losing your house
2) Hire a lawyer for yourself, your brother, and your company if possible
3) In the incorporation papers be very specific with rights and duties and make sure you have exit clauses for all parties
4) Don't go into business with your family

More quals:
Grew up in a successful family business(but I still don't recommend to go into business with friends or family)

[CNCRim]

Very good advice, xyzeugene.