As of 2021, machine shop services made up a 32.5 billion dollar industry. The industry is expecting to grow roughly 2% in the coming years.
To start a machine shop business, you need to create a concrete business plan and obtain a business license in your city. After that, you will need to get financing to start your business and either purchase or lease the equipment for your shop. Once your shop is set up, you need to begin marketing efforts that will bring in clients.
If you want to learn more about starting a machine shop, keep reading and check out the most frequently asked questions towards the end of the article.
1.Create a Business Plan
The first step of starting a machine shop is to create a business plan. Most importantly, the business plan should contain the mission and scope of the business. The scope should include what services you want to offer and a definition of your target market.
You also need to research the market outlook and perform a competitor analysis to communicate how your machine shop will perform compared to other shops offering the same services.
Identify Business Objectives
After defining the business objectives, you will need to identify the entity structure (LLC, sole proprietorship, etc.) and the majority and minority owners of the business. You should also identify who will be involved in the machine shop’s daily operations.
Be sure to include any third-party partnerships (both existing and projected ones). The next part of the business plan should describe how you will finance the machine shop. Will you use your funds, obtain an SBA loan, or a traditional loan? You should also include an income projection created with the help of an accountant.
Identify Cost of Services
Explicitly state how much you will charge for services and how much you expect to incur in expense. You will also need to list what type of equipment and tools you will need to either purchase or lease before starting the machine shop.
Lastly, include a marketing strategy in the business plan. Describe the channels you will use to market your machine shop business (i.e., social media, flyers, radio commercials, etc.) and the expected cost. Set milestones that will help you later on, such as an estimated cost per conversion.
Define Your Target Market
Before writing your business plan, you need to define your target market. If you are just starting, you should narrow your operations to a specific industry, such as automotive, manufacturing, or aviation, for example.
In addition to determining the industry that you want to service; you should decide if you want to offer business-to-business (B2B) or business-to-consumer (B2C) services. If you plan to offer B2C services, you could create parts for cars. Alternatively, in the B2B space, you could create or repair parts for commercial vehicles, large-scale machinery, and airplanes.
If you are an experienced machinist, you are already at an advantage. We recommend focusing on an industry that you have experience in, provided there is demand for it in your local area.
For example, if you live in a city with a lack of public transportation, there is likely higher demand for the automotive machine shop. To maintain a competitive advantage, you should google the competition in your area to see the services they offer and the prices.
2.Apply for a Business License
Business license requirements vary depending on where you are. At a minimum, you will need to get a local business permit from your city.
Then, determine how you will structure your business – as a limited liability company (LLC), sole proprietorship, joint partnership, or a corporation. Limited liability companies are advantageous because they separate you as an individual from your company. If you have an LLC, for example, a creditor cannot go after your assets.
After getting a business license and settling on an entity structure, your machine shop needs an employer identification number (EIN).
The EIN is what the IRS uses to determine your business’s tax liability. If you operate the business as an LLC or sole proprietorship without employees, you do not need an EIN. The IRS has an online application that makes it simple to obtain an EIN for your business.
Starting a machine shop is a capital-intensive investment. Depending on the industry you serve, startup costs can range from a couple of thousand dollars to one million and upwards. If the initial startup costs are under five million dollars, we recommend a Small Business Administration (SBA) backed loan.
SBA-guaranteed loans have several advantages over conventional loans: lower down payment requirements, lax terms, and friendlier repayment periods. The SBA maintains a schedule of the maximum interest rates for variable and fixed-rate loans.
Every machine shop owner needs to obtain an insurance policy. There are a lot of potential liabilities that could arise – injured employees, equipment malfunctions, and theft.
The most comprehensive insurance policy is general liability. This type of coverage protects against third-party injuries and legal fees. For example, if a vendor gets a serious injury at your shop, this will cover any associated costs.
Since machine shops have a lot of valuable equipment, we also recommend commercial property coverage. Commercial property insurance protects your real estate and equipment from natural disasters, fires, and theft. Lastly, if you have employees, you need workers’ compensation insurance.
If your employee gets injured on the job, workers’ compensation coverage will pay for the medical expenses and the employee’s lost wages. Like general liability insurance, workers’ compensation coverage also covers legal fees that could arise from a lawsuit.
5.Rent a Commercial Space
Running a machine shop out of your home garage is not a practical nor a wise decision. For a small machine shop, you need at least 1,500 sq. ft. of workspace. For a larger operation, you need at least 3,000 sq. ft. of space.
Due to regulations in most cities, you must rent a shop in an industrial zone. The cost of rent can range from $800 to $5,000 and upwards, depending on where you live.
Because running a machine shop is heavily dependent on electricity usage, you should make sure space can meet your electricity needs.
6.Buy the Equipment Needed
We put together a list of the most common types of equipment and tools needed for a machine shop:
- Drill press
- Milling Machine
- Wrench set
- Belt sander
- Deburring wheel
- Dust collector
- Chuck jaws
- Carbide Disintegrator
This is just an example of the most common items. The exact equipment and tools will vary depending on the industries that you service.
7.Create a Website
No matter the size of your machine shop, you need a website. Ideally, your domain should be “your business name.com.” While you do not need a complex website, you should describe your services and prices.
You also need to make sure your machine shop’s contact information is visible. Be sure to include a contact form or online scheduling tool so you can get customers outside of regular business hours.
8.Market Your Services
Marketing will vary depending on whether you focus on B2B or B2C services. For B2C services, such as making and repairing car parts, you should market on social media and Google. If you plan to offer B2C services and want to attract enterprise customers, you should hire a marketing professional.
Advertising on Facebook
The advantage to advertising your machine shop on Facebook is that you are completely in control of how much you spend. Facebook lets you set an ad budget and set the maximum amount you are willing to pay per view or click. Also, you are in control of who sees your ad – the age, location, and personal interests.
Once you have created a website, Google Ads is one of the best ways to start getting traffic. Like with Facebook, you set the budget and set a maximum cap on spending. Google lets you create a message, such as a tagline, and then display it in search results. You get to determine what type of individuals see your ads.
Machine Shop Trade Shows
Each year there are various machine shops trade shows such as FANUC events, the AWS Fair, ATX West, and the Precision Machining Technology Show. These are great places for professional networking, especially if you are seeking out corporate customers who would provide long-term revenue for your shop.
Hire a Marketing Professional
One of the best ways to get corporate contracts is to hire a marketing professional. As a machine shop owner, you will not have the time to develop extensive marketing campaigns. You can either hire an employee or use a marketing firm to help you bring in heavy spenders.
9.Hire Skilled Labor
To offer the best services and avoid work-related accidents, you need to hire skilled machinists. While not all shops require formal education, we recommend hiring applicants who have taken classes at technical colleges or who have completed an apprenticeship program.
Moreover, the best candidates should have a couple of years of experience. If you are a skilled machinist and want lower labor costs, you could also hire entry-level employees and teach them the trade through on-the-job training.
Some of the best websites to post online jobs include Indeed, Monster, and your state’s Work Force Development website. If you have trouble finding skilled candidates, you should use a local staffing agency that specializes in skilled labor roles.
Machine Shop Startup Costs
|City business license
|$50 to $100
|Legal entity formation
|$500 to $2,000
|$1,500 per month
|$2,000 per month
|$150 per month
|$500 per month
Note: These costs are estimates and will vary depending on your location.
Frequently Asked Questions
Since starting a machine shop is complex and requires many steps, we came up with a list of the most frequently asked questions:
Can I Start a Machine Shop in My Home Garage?
Unless you have a small shop, we do not recommend running a machine shop out of your home garage. To begin, running a machine shop in your home garage could go against the rules of your city’s zoning and/or your homeowners’ association. Furthermore, a home machine shop could deteriorate the inside of your home (spilled oils, etc.) if you are not careful.
How Much Do I Need to Pay My Employees?
To hire and retain skilled machinists, you should pay at least the average salary in your area. The average annual salary in the United States is roughly $39,000.
What is the Best Accounting Software for a Machine Shop?
There is no accounting software specifically designed for machine shops. Entrepreneurs who start a machine shop should get versatile accounting software such as QuickBooks, Zoho Books, or Sage. The accounting software should let you create invoices, maintain equipment depreciation schedules, record income, and expenses, and manage receivables and payables.
Can I Lease Equipment for My Machine Shop?
Yes, you can lease equipment for a machine shop. Many machine shop owners lease their equipment to lower startup costs. You can lease almost anything, ranging from milling machines to lathes. An advantage to leasing is that you do not always have to pay for the repair costs.
How Long Does It Take to Start a Machine Shop?
From filing for a business license to purchasing the necessary equipment, starting a machine shop takes anywhere from a few months to one year.
Pros and Cons of Starting a Machine Shop
Starting a machine shop is rewarding and typically pays off in the long run, but it is not always fun and games. Here is a list of the pros and cons of starting a machine shop:
- Scalable and high earning potential
- Opportunity for repeat clients and long-term contracts
- Various specialties and areas of expertise
- Unlimited earning potential
- The flexibility that comes with being a business owner
- Capital intensive and high startup costs
- Higher insurance costs compared to other businesses
- Frequent repairs and maintenance
Is Starting a Machine Shop Worth it?
The average machinist in the United States makes a salary of $39,000, which is quite low compared to the potential earnings of a machine shop owner. We believe that starting a machine shop is worth it if you can obtain the necessary capital and are a skilled machinist.
As a machine shop owner, you can continuously expand your services and increase your shop’s income. And while owning a machine shop requires a lot of hard work and planning, it can pay off for ambitious entrepreneurs.
Ruben has been doing online marketing for the last 4 years. Prior to that, he spent 15 years managing different brick-and-mortar businesses, in the home improvement and logistics industries. Overall, he has 20 years of business experience under his belt. Recently, he added SEO, affiliate marketing, and link building to his business skills.