How do I tell if a machine shop for sale is profitable?

A machine shop’s statements show what was earned. They rarely show why. Margins depend on how well a shop quotes, how busy the machines are and how much work gets redone. Before you rely on any profit number a seller gives you, ask for the job-level records behind it and read them yourself, ideally alongside your accountant.

Quoted hours against actual hours

Ask for a sample of finished jobs showing the hours quoted and the hours actually spent, by job type. A shop that routinely runs over its quotes is giving away margin one job at a time. Look for patterns: certain customers, certain materials or certain parts that always overrun. How to check a machine shop’s quoting before buying goes into this in more detail.

Machine time, scrap and rework

Ask how many hours each machine runs in a typical week and how much of that is billable cutting time rather than setup or waiting. Then ask about scrap and rework: how often parts are remade, who pays for it, and whether anyone tracks it. A shop that does not track it may be losing more than it knows.

Material and the owner’s own hours

Find out how material is billed. Is it passed through to the customer at cost, marked up, or absorbed when prices move? Then look at the owner. If the owner programs, sets up and runs machines every day without drawing a wage for it, ask what it would cost to replace those hours.

What to ask the seller for

• Job costing records for a range of recent jobs, good and bad.
• Machine hours by week, and a list of which machines sit idle.
• A record of scrap, rework and customer returns.
• A description of what the owner does each week and what it would cost to replace.