Crash course in acquiring/running a manufacturing business

[DAnconiaLead]

I currently run several (very) small businesses, with include a nightclub security opperation, a landscaping business, a handyman service, a plowing business, and a model railroad retail operation, in addition to a “regular job”.

 

In the interest of complete honesty, my security business started when a security company I worked for when bankrupt and I picked up many of its former clients and re-hired many of my former co-workers as independent contractors.  As such, I can’t take credit for building this business (though I have expanded it), and have set it up to keep my legal and tax liability at an absolute minimum.  Similarly, the handyman service, plowing business, and landscaping business are all run out of the same truck and exist as divisions of the LLC I created to run the security operation.  Finally, the model railroad retail operation involves the selling of model railroad equipment I’ve been given on consignment and is sold off tables at model railroad shows.

 

So, while I have business experience, it should be clear that it is fairly limited.

 

Recently, one of the model train producers reported that the centrifuge caster he uses to produce his model trains broke down and, since he’s in his 80’s, he has no plans to replace it and resume operations.  Since I’m one of his steadier customers, who he knows has experience with spin casting (I worked with one of his competitors before they moved overseas), and has experience in model railroad retail, the owner of this company offered to sell me his tooling so that I might continue selling what was once his products.

 

Are there any books, classes or programs to help someone like myself better understand the complexities (such as taxes, regulations, logistics) of running a manufacturing business?

[JASKN]

Since this is going to be another very small operation consisting basically of your own labor, how do you expect this to differ from your other one-man operations?

[DAnconiaLead]

Since this is going to be another very small operation consisting basically of your own labor, how do you expect this to differ from your other one-man operations?

 

1.) The initial purchase of the tooling and a new centrifuge caster will cost thousands, which I need to make sure I can re-coup. My current endeavors were almost free to start up involving little more then the purchase of 'Security' shirts, a used plow, a used lawnmower, etc.

 

2.) The individual selling the business is attempting to charge me for his "customer base" in addition to his tooling, since he is the only person manufacturing models of the narrow gauge trains of certain railroads in this scale.  How do I determine an appropriate value for his "customer base"?

 

3.) I currently keep all my tools in my shed, however, the centrifuge caster will require a permanent mounting position (bolted into a concrete floor).  Since I'm renting my house, I can't set it up there.  Where could I rent such a small industrial space (I only need space barely larger then the machine itself)?

 

4.) Since most of my current businesses are cash operations, I can make inadvertent errors on my tax returns without encountering the wrath of the IRS.  I don't think I could do that with this business so need a better grasp of the tax situation.

 

5.) I also might qualify for additional tax breaks and write-offs.

[JASKN]

"How much should I pay for his customer base?" $50.

Seriously, this sounds like a huge pain in the ass. You can't scale it over time without also developing interest in a very niche hobby, which would require loads of time, savvy, and marketing money. The initial setup is going to cost you (if you can even afford it having to rent another space), and the learning is going to cost you a lot of time. It's not really a business beginning out of convenience unless this guy basically walks you through the startup process for free, step by step.

If it were me I'd pass. Otherwise, if it's taxes you're most worried about, you can search amazon for countless small business tax books that will, again, take tons of time to dig through and then follow correctly. Or you could go an easier but more expensive (up front, anyway) route by hiring a personal small business tax guy.

Why don't you instead focus on developing your most profitable business that is already up and running?

[softwareNerd]

How do I determine an appropriate value for his "customer base"?

The starting point would be: how much gross revenue does this customer base pump in every year (and is it rising or falling as the years go by)? I assume this owner has given you a ballpark number, which you will need to verify if you get serious about it.

Before figuring out new options like places to put the machines, what is the math of the current business? Firstly, how much comes in as revenue. Then, how much of that is passed away as tax and shipping? Then, what are the costs? How much does the owner pay for rent and utilities today? Does he hire people, at least now and then? Work out an example where his machine had not broken down. After all costs are considered, how much does the owner keep for himself? When business owners are that age and are attached to their business, they will often keep the business running even if the net flow to themselves is less than a minimum wage job. They figure they would not get a minimum wage job anyway, and they also like what they do (it keeps them occupied and purposeful), and then there is inertia.

So, with the scenario of the current business, and assuming his machine did not break down, is this a business you would want? If not, then it is hard to see how the added complications would make it worthwhile. if it looks good under the "on-going business, still-working machine" assumption, then the next question is: what if he were to buy a replacement machine (or otherwise spend to repair his machine). Would that take so much money that he would eat significantly into what he takes out of the business? The answer would depend on a time-horizon. At his age, he might see it as "I probably have a year or two left in me". What if eh has (say) five years. If the new machine will last 5 years, then does the cost make sense? If it does not, then again it does not seem a worthwhile business to take over -- unless you do not need to buy that machine too.

If it does seem like a good business on those terms, then what stops you from taking over the business as is: including location/lease and all? Is this something run out of a home garage?

Edited August 6, 2013 by softwareNerd