How to secure money to startup a business?

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5/25/2018 5:56 AM

I have been working as a manufacturing engineer for almost 10 years now. Started out in a small fabrication shop that "did it all" and had the opportunity to learn aspects of sheet metal fab, welding, machining, paint (powder/wet), and light assembly. I have spent the last 6 years working for a premier Ag manufacturer. Spent several years as a lead for sheet metal fab business unit, managed multiple multi-million dollar projects, and really honed my craft. I recently switched roles and now serve as a lead engineer for combine header assembly where I have learned a ton about assembly processes, line balances, ergonomics, torque tooling, etc. The company I work for is World Class rated and I really feel like I have learned the correct ways to run a business.

Anyways - the midwest is currently facing supply base challenges. It is a daily struggle for our part suppliers to meet our demands, further challenged by increasing forecasts for these markets.

I feel that I have the knowledge and experience to start my own business. I would like to get back into fabrication and have really been thinking hard the last few years about starting a shop. I would like to buy a few lasers, press brakes, punch press, shears, etc to make sheet metal/plate component parts. I also think it would be wise to have a few welders to take on weldment jobs and of course a few machinists and machines would also be needed. Eventually expanding into a paint line and possible light assembly work of sub-assemblies.

I have been doing some rough calculation and I feel that I need +$500K to get a decent shop up and running. Most of this cost will immediately be sunk into machine tools and equipment. I would likely lease a building in the early years.

My question is where do I start? Is it even practical to put together a business plan and present to a bank? How often do these startups actually secure funding? Am I thinking too aggressively?

I am very confident on the manufacturing side of the business, but anytime I start thinking about the debt that would come with the way I want to start it out, it scares the shit out of me. I would need to secure work right off the bat in order to be able to pay that. Probably normal to most business ventures, but its stressful to think about.

For those of you that have started a business, do you have any guidance?

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5/25/2018 7:32 AM

When I opened my little hole in the wall I had been out looking for a building to lease. Nothing was really set up right and I was looking at $2500.00 per month lease plus a minimum of $30,000.00 to build out someone else's building that was landlocked and that I would outgrow in 2-3 years. Found a piece of land for $45,000.00 that I purchased outright. Secured financing for $75,000.00 to build a 50' x80' metal building, refinanced our paid off vehicle to buy a entry level paint booth that would still be usable in the future and had a small $15,000.00 line of credit at the local bank that I had been using to buy and sell wrecked vehicles. The $75,000.00 was a blend of $55,000.00 from the bank at a commercial prime plus rate and $20,000.00 came from the city's revolving loan account for small business. That money was 2% below prime and had a requirement of hiring one employee per $10,000.00 borrowed.

So before you go and rent a building, consider buying or building something that will allow for expansion as necessary. I ended up with roughly a $750.00 monthly note to own something versus pissing away a minimum of $60,000.00 in the first year to build out and rent.

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5/25/2018 8:53 AM

I'm dipping my toe into the sand also. I just got a commitment yesterday with a shop owner to carry a few pieces of indoor and outdoor furniture I've built. We are starting off with about 20 pieces delivered by the end of June. Now I have to find the time and space to store this crap until its ready for delivery.

I'm so far away from your startup costs that it isn't going to answer any of your questions. Fortunately I've invested pretty heavy in good tools over the last 10 years that I don't need any tooling to start up. I have always wanted to do my own thing and the sales part is where I always get the most doubt or stress. Having someone willing to carry my stuff makes it a bit of a no brainer just to do a pilot run. And I'm not giving up my day to day gig until I can see its worth it. If not, I'll make a few extra bucks and not out any money.

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5/25/2018 9:04 AM

Debt is not a problem when you have cash flow. Don't worry about the debt, worry about sales. Spend your time thinking about how you will acquire customers.There will be a ramp up period that you will need to sustain but customers need to come in the door quickly or it will be over before it starts.

If anyone is going to lend you capital, the first question they will ask is what's your sales and marketing plan?

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I have the right to remain awesome.

5/25/2018 9:13 AM

It also depends on where you are located. Here you can get something reasonable where as out West you will pay 3x as much but have to way the pros and cons of the demand and clientele an area provides.

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I don't have to be as smart as you hope to be some day anymore. wink

5/25/2018 9:32 AM

How about getting investors ? For a percentage stake in quarterly profits....

They front the money. You pay them back quarterly dividends....

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GP740
Since 1987

5/25/2018 9:40 AM

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5/25/2018 1:15 PM
Edited Date/Time: 5/25/2018 1:15 PM

There are legitimate billionaires out there, that do nothing but invest in start ups....pitch them the idea. They invest. I guess kinda kind like the shark tank show.

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GP740
Since 1987

5/25/2018 1:24 PM
Edited Date/Time: 5/25/2018 1:24 PM

Banks demand collateral. If you had the collateral, you wouldnt need the loan. That is the last place you should be going for a loan.

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Part of Speech: Noun

Definition: A loser, poser, lame-ass. One who talks the talk, but could never walk the walk.

One who talks shit and doesn't back it up, but rather ends up eating their shit in return. A fuckin 'tard.


Usage: Slang

5/25/2018 4:03 PM

Ghost of Jabroni wrote:

Banks demand collateral. If you had the collateral, you wouldnt need the loan. That is the last place you should be going for ...more

Not everyone has an Uncle Sugar.

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6/6/2018 1:24 AM

Investors dont invest in ideas, ideas are free.

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6/6/2018 6:37 AM

From what you want I think your 500k is way low.
15 years ago, our 1 waterjet and just stuff was the better part of 200k. Rule of thumb used to be 2k per month for every 100k equipment purchase.
They call it a lease that you buy out for minimal amout when paid off. Then you'll need $$s to make payroll.

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www.alljackedupinc.com home of the Switch Hauler®

6/6/2018 7:05 AM

Most mfg companies start out small and build equipment and size as they go . Is that a possibility or are you trying to become a supplier from day 1 or nothing at all?

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6/8/2018 6:54 AM

Texas Built wrote:

Investors dont invest in ideas, ideas are free.

True. Gotta start small and show tangible evidence of your ability to grow.

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GP740
Since 1987

6/8/2018 7:43 AM

ToolMaker wrote:

From what you want I think your 500k is way low.
15 years ago, our 1 waterjet and just stuff was the better part of 200k. Rule ...more

I agree 500k is a low estimate. But I believe I could get a shop up and running for that amount. I have a good understanding of what used machines go for and the associated costs with getting them up and running.

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6/8/2018 7:51 AM

MR. X wrote:

Most mfg companies start out small and build equipment and size as they go . Is that a possibility or are you trying to become ...more

Constantly go back and forth on this thought. I am 100% confident the supplier work is out there....our current supply bases are saturated and rejecting work due to capacity constraints. The challenge of starting off big right from the beginning are obviously the massive startup costs and associated stresses from needing to secure work almost immediately.

On the other end, starting small, I could see buying a single production style laser and focusing on laser flat work only. The main challenge I see there is I am not 100% confident I could generate enough revenue off one machine to justify leaving my day job. I am consistently "out of the house" for about 60 hours a week for my day job so I would have to hire a CNC operator. I guess this is where it starts though....if one machine can make enough profit to buy another, 2-3 additional laser later I probably have enough security to walk away from the day job.

I am blessed with making a pretty good salary as an engineer now, working for one of the most reputable companies in the country, so it really makes me think hard about giving that up to do a startup.

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6/8/2018 7:56 AM

ToolMaker wrote:

From what you want I think your 500k is way low.
15 years ago, our 1 waterjet and just stuff was the better part of 200k. Rule ...more

I understand how machine tool leasing works. In total, I have led projects over the last 5 years that involved the procurement of over $20 million in new fabrication equipment. Majority was purchased, some was leased. I guess what I am getting at is that I am no stranger to the price tags and facility costs that come along with the equipment being discussed here.

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6/8/2018 8:10 AM

Yes you can get deals on used equip. We have a 60K press brake that we picked up for 15K but I'm told it's very hard to get financing on used equip. You'll probably have over 10K just in computers and software (solid works) to interact with your customers. You can set up a very nice shop for 500K, I was just commenting on your wish list.(multiple lasers?)
One of my good friends just spent $3/4M on just a new laser and press for their shop. Just a nice air compressor for that size shop is over $10K and that's not delivered or wired.
You have a huge advantage in that you have contacts with potential buyers already. You know the price points they are paying and that's huge. Not trying to scare you off but many businesses fail from under cap. not realizing how much they will really need. Maybe start off with a smaller wish list and grow? That much equip needs what 4-10k sq ft? That's another dilema. Too big a building, too much rent right off the bat, too small and you'll be looking to move soon, expensive.
Like I said not trying to scare you off. just commenting on your wish list.
TM

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www.alljackedupinc.com home of the Switch Hauler®

6/11/2018 5:55 AM

ToolMaker wrote:

Yes you can get deals on used equip. We have a 60K press brake that we picked up for 15K but I'm told it's very hard to get ...more

Don't worry....i'm doing a good enough job scaring myself off smile

It's quite a bit to wrap my head around and it's one of those deals where the costs just continue to compound when I start putting the pencil to paper.

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