[misgis]

What is the ball park annual cost of starting up a machine shop business in Canada, say Ontario.



[Capital Costs]

The machine shop will have the bare basic minimum of machine tools. This means a good design computer, CAD & CAM Software, CNC Mill, CNC Lathe, and Horizontal bandsaw. Preferably all new. Perferrably good brands for the mill and lathe.

Haas will be looking at ~60k for both a low tier mill and lathe cash. Tooling allowance will be $10k. Add shipping and tax and thats easily an extra 10k on top of this.

Computer will be $3k. CAD and CAM will be $20k.

Maybe get a vehicle also to do shipping and buy/pickup raw materials. Thats easily $30k.

~$140k subtotal



[Operating Costs]

Then I have to include basic operating cost like the lease of industrial zone real estate, utitlities, and insurance. I am thinking maybe 2000 Sq.Ft is enough?

Most industrial leases are pretty expensive. Most industrial real estate looking at around $100k annually for lease.

Materials cost vary, but say I keep a stock supply of general extrusions of varying sizes. Allowance may be $10k worth of materials.

It will be a one man operation for now as paying for someone else may add too much to annual costs. This will be incorporated (1k or so to setup). I want to have a moderate income for myself say 40k annually to begin with.

How much does total insurance cost (including general liability) do you recon (ballpark here cause its case by case)? $5k per year?

~$160k subtotal



[Conclusions]

My top of the head calculation says I need well into ~$300k+ category to operate in the first year if everything is purchased in cash. Is that a good ballpark number?

Where can one find this level of financing?

Also Im going to be a university graduate with basically no assets to my name, so this will be hard or impossible to get loans?

Will financing all the capital equipment significantly reduce annual operating costs? I'd still imagine it be in the $150k category with capital financing, since the real estate lease and other stuff isnt going to change.

Then there is always the unknown or unaccounted for costs here, such as advertising and so on. We can put a worst case figure of $50k allowance here on top of whatever was estimated in the above. Starting a manufacturing type business is so much harder financially than an internet business or a website which essentially requires so little capital to startup. Thats why most successful out of school startup companies are often not in the manufacturing or engineering industries.

Can somebody with experience in the matter give some advice on starting up companies here in Canada? What other costs should one consider (e.g. ISO 9001 certifications etc)?

[txcncman]

No finance company or bank I know of will lend you a dime based only on education. You will also need to show several years of prior business ownership or experience in machining. Even then, they are going to want you to have about 20% cash on hand. Hopefully you have rich relatives that are willing to take the risk on you.

[misgis]

Yeah I know. Thats the bad part about it, but understandably so they need to be conservative.

Unfortunately I dont have enough assets as collateral for any loans. I guess theres always angel investors and venture capital but they are hard to come by in Canada and especially not when they tend to invest in specific industries. Plus they take a huge chunk of ownership generally and I'd like to be my own man in my business.

I understand the system but I cant help but think it is flawed to a degree also and that it stiffles innovation. This forces kids like me out of college to get a job first and keep the idea parked for years to come (or perhaps never explored ever) while working for a job for 10 years to save enough money. By then this kid is an old man, less creative, less energy, less driven, other issues like family that may make their once good idea not worth anything or not being able to execute that same idea properly had they been the younger 20+ yrold 10 years ago.

But in all honestly, I find starting businesses in north america in general is quite expensive, hence the lack of international competitiveness. The cost structure is simply too high here to compete well with the international commodities market.

And heres the connundrum about prior business experience. How does one get it when they first start out. And if every first loan preferrably wants this, then no business can ever start? I suppose thats why they say you always want a seasoned executive on the team to secure loans, but this is a waste of money from my perspective because thats an extra fat paycheck that adds to cost. Although they may certainly run it better, I'd rather keep the 80k he expects annually into developing the business or hell, my own paycheck.

[underthetire]

I'm going to go out on a limb, and say the haas mill and lathe will set you back more like 75k, last thing you want is no toolchangers if it's a one man shop. Might want to look in to leasing your first machines, or buy used IMO. I know guys that have done it, and done it well, but most started out either in there garage, or had wealthy parents.

[misgis]

Yeah those are rough numbers for bare bones and their dirt bottom models that probably fits better as a rich man's garage hobby tool than production level work for a company. Otherwise it will be $200k for a mill and lathe from Haas for moderately good models instead of $75k. Yeah I'd definately want a tool changer, although if we are counting pennies now I can do without for a while to test it out. Perhaps the mill can be a cheaper but acceptable brand of machines. Even Tormach seems ok. Quality CNC lathes are harder to come by and may very well need to be a reputable brand like Haas. Are there any ~$10k CNC lathes good for production level work?

How many years does the business usually take to break even in this sector? Im quite aggressive in my initial goal. I'd want my business to break even after the first year but thats quite impossible pretty much.

[txcncman]

If you can't pay your own paycheck (most months) within one year, you probably never will. If you cannot pay off your machines within 5 years, you probably never will. "Kids" out of college need to be forced to get a job. Sorry if you take offense at that, but that is my reality. College teaches theory, not reality (no matter what the colleges might tell you - I know because I have taught in college). Without reality, a person has no realistic idea if they will be successful or not. It is a shot in the dark. I did not start my business until I had been out in the work force for 17 years. Took another 9 years for it to be self-sufficient. In the mean time, I continued to occasionally work full time for other employers. 13 years later, I still do not feel old or stiffled. Complaining about "the system" is ok, as long as when you are out of breath, you turn around and get back to work.

If you want a more realistic idea of when a new business can consider itself profitable, write out a complete business plan (which you will need when talking to investors anyway). Make sure to include every jot and tittle. Do a market survey. Find out what the market will bear as far as pricing. Then do the math based on "IF" you can get 40 hours of work to do each and every week. Sample business plans are available online. Do your homework.

[jeffrey001]

Hi, I think this not a good idea to invest in a machining business.

Since a couple of years, so many shop have closed and the remaining ones takes jobs for less money than 10 years ago,

Just stay basic, buy a manual milling, after that, buy a manual lathe and so on.

A tormach machine is a good one but for production and to compete with bigger machine, it's almost impossible.

A CNC lathe for under 10k, not for production.

It will do small jobs but will take 30 minutes to machine a part when the competitor will take 1 minute to do the same job.

To do production job, you will need a CNC lathe that cost at least 200k, same for a milling, that's what I think.


Jeff

[DareBee]

the remaining ones takes jobs for less money than 10 years ago,
Jeff

Thats for sure. I dont try to compete on machining anymore. Shops are working for less than the cost of tooling and coffee. They will be out of business when their machines break because of no profit to replace them.
My machines sit off 80% of the time and the machining I do is repair work, parts for complete automation projects or some tricky that we helped develop and have all the R&D paid for already.

The money is in industrial services. My machine shop is a value added resource.
It's all payed for and it can sit off. I will NOT run the machines for no profit.

And we have so much work we don't hardly know how to get it done

[RICHARD ZASTROW]

You might have to add some more $$$$$$$ for Quality Assurance demands by customers. Many, if not most, require ISO certification and all the bells and whistles that go with that.

I once had to estimate the US dollars required to have a gear shop generating a profit at the end of 3 years. I estimated 2 million dollars. Unfortunately it went belly up. Start up was late 2007 then the bottom fell out of the economy in 2008.

Dick Z

[misgis]

Yeah I agree. My 300k estimate is for a budget of budget operation. Ideally I'd want a 200k mill and 200k lathe at least. But that significantly adds costs. How much does getting ISO 9001 certification run for? What is the upkeep cost for the certification?

[cdmmachining]

You definetly have ambition misgis, but unfortunatly ambition alone doesn't create a successful business. Be careful, like some of the comments below have said, do your homework before you spend a dime. I am young as well, early 20's. the approach i am taking is obviously slower than yours, but i feel it is safer. i bought a manual mill and lathe, got awesome deals on them. both for under 2k. I am taking on side jobs while working full time. I am putting the side job money aside, and hope to upgrade to cnc in the future payed in cash. Time will tell if i will be successful, but at least i am not borrowing half a mil to give it a try.

[magnum500sw]

What country are you from ?

[MBG]

Thats for sure. I dont try to compete on machining anymore. Shops are working for less than the cost of tooling and coffee. They will be out of business when their machines break because of no profit to replace them.
My machines sit off 80% of the time and the machining I do is repair work, parts for complete automation projects or some tricky that we helped develop and have all the R&D paid for already.

The money is in industrial services. My machine shop is a value added resource.
It's all payed for and it can sit off. I will NOT run the machines for no profit.

And we have so much work we don't hardly know how to get it done

I checked out your website. What does your company do? I seen a lot of CAD drawings in your portfolio but nothing actually made.

What do you consider "industrial services"?

[DareBee]

Yes, the Design and Build portfolio is ALL Models of products we have built/installed.
The Product, On Site, and Align Boring portfolios dont even have one CAD model.
They are all products we have made or installations we have done.

Industry is typically a factory. Anything they need made, designed or repaired is the service we provide. Hence "Industrial Services".


This quote is under the "What we do" on the home page of my site

A machine and fabrication shop located in Stratford, Ontario, specializing in serving all industrial and metal working needs. We can design and build from concept to fully-automated production or any stage in between; whatever you desire. If you have a break-down? Give us a call. Worn out pit equipment? We will rebuild it. Process or gas line piping? We will send you an on-site welding team. Our personnel are experienced, skilled and caring.

HTH