Deal Flow: CNC Machine & Tool Shop

An Acquisition Opportunity with Healthy Margins, Low Overhead, and Scalable Potential

This CNC Machine & Tool Shop, located in Pinellas County, FL, represents a compelling opportunity for acquisition entrepreneurs with a background in manufacturing or an interest in exploring the precision machining industry.

With an established track record, the business has a robust $257,314 in cash flow and a healthy 39% profit margin. Modern CNC equipment and a loyal client base underscore the shop’s operational strength. Additionally, the SBA pre-approval for financing, coupled with low overhead costs — particularly a favorable lease agreement — makes this business really attractive to the ETA community.

But, the business’s heavy reliance on the current owner and the absence of a comprehensive sales and marketing strategy could present potential challenges. As the new owner, you would need to focus on building a proactive marketing and sales approach to unlock untapped growth potential.

Based on the listing, this business offers significant upside for a buyer with the right management expertise, a strategic focus on expanding the sales pipeline, and the capability to leverage the shop’s modern technology and diverse client base for scalable growth.

Here’s a detailed analysis of the business based on the listing:

Business Overview

• Asking Price: $1,500,000
• Cash Flow/SDE: $257,314
• Gross Revenue: $659,412
• FF&E (Furniture, Fixtures, and Equipment): $874,100 (included in the asking price)
• Inventory: $130,000 (included in the asking price)
• Lease: 5,600 sq. ft. facility in Central Tampa Bay/Largo, Florida
• Employees: 7
• Established: 1998
• Reason for Selling: Likely retirement (not explicitly stated)
• Support & Training: Owner will provide 4 weeks of training at no cost to the buyer.

Key Metrics & Valuation

• Cash Flow to Asking Price Ratio: The business generates $257,314 in cash flow on an asking price of $1,500,000, which results in a cash flow multiple of 5.8x. This is a relatively high multiple, especially for a manufacturing business. Typically, manufacturing businesses in this range of cash flow multiples can range from 3x to 5x, making this business slightly on the higher end. However, this is not uncommon for well-established companies with quality equipment, a loyal customer base, and strong profitability.
• Revenue and Profitability: The business generates $659,412 in gross revenue with a cash flow margin of 39% ($257,314 cash flow ÷ $659,412 revenue). This is a healthy margin for a manufacturing business and indicates efficient operations and strong profitability.
• FF&E and Inventory: The $874,100 in FF&E includes state-of-the-art CNC machinery and tools, with an average age of 5 years. These assets are essential for the operation of the business and should provide the buyer with a competitive advantage in terms of precision and capacity. The $130,000 in inventory is included in the asking price and likely consists of raw materials, tools, and parts used in the production process.

Business Model and Operations

• Service Offering: The company specializes in contract manufacturing of custom CNC-machined parts, including CNC turning, milling, wire EDM (Electrical Discharge Machining), sinker EDM, grinding, and more. It serves a wide range of industries such as medical, aerospace, automotive, pharmaceutical, and manufacturing. The company’s services include prototype production, short-run, production run, and high-volume manufacturing.
• Technology and Equipment: The company operates state-of-the-art CNC machinery, including several Stratasys machines. The equipment’s relatively new age (average of 5 years) and advanced capabilities contribute to the high precision and quality the company offers. The integration of QuickBooks for accounting, CAD software for designing, and an efficient data management system for handling orders and estimates provides operational efficiency.
• Client Base: The business has a loyal customer base of 100 active clients, and it services a wide range of industries, ensuring that it is not reliant on any single industry or client. This diversification mitigates risk. The business handles approximately 15 purchase orders per month, with order values ranging from $1,000 to $140,000, and has the capacity to handle much larger orders (up to $1,000,000). The company converts about 60% of its estimates into orders, indicating a solid sales conversion rate.
• Marketing and Sales: The business currently does no marketing or advertising and has no dedicated sales staff. Most sales come through referrals and loyalty from the existing customer base. However, this is a clear opportunity for a new owner to implement a more robust sales and marketing strategy, including digital marketing, social media, and direct sales efforts. Expanding these efforts could significantly increase sales and profits.
• Facilities: The business operates in a 5,600 sq. ft. leased facility, with a low rent of $2,500 per month. This is a relatively low cost for the amount of space, which should help maintain profitability. The facility is well-equipped to handle the current operations and has adequate space for future expansion if needed.

Strengths

1. Solid Cash Flow and Profit Margins: The business generates $257,314 in cash flow with a 39% cash flow margin, which is impressive for a manufacturing business. This indicates good operational efficiency and profitability, even with the business being relatively small.
2. Modern Equipment: The company has state-of-the-art CNC machinery that is only 5 years old on average. This ensures high precision, quality, and the ability to handle both small and large production runs.
3. Diverse Client Base: The business serves a variety of industries, including medical, aerospace, and automotive, providing diversified revenue streams. This diversification reduces risk and increases the company’s resilience during economic fluctuations in any single sector.
4. Loyal Customer Base: The company has a loyal customer base of 100 active clients, with a high percentage of repeat business. The 60% conversion rate of estimates to purchase orders is a strong indicator of the company’s reputation and trustworthiness within its client base.
5. Growth Potential: With a strong foundation in place, there is significant growth potential. The business does not currently engage in any marketing or direct sales efforts, which provides an opportunity for the buyer to expand the customer base and grow revenue by implementing a more structured sales strategy, including digital marketing and social media outreach.
6. SBA Financing: The business is pre-approved for SBA financing, making it easier for qualified buyers to acquire the business with favorable terms. This is a significant advantage, especially for buyers who may not have the full capital available upfront.
7. Skilled Management and Staff: The business has a skilled team in place and is fully staffed. The current management and employees are capable of continuing operations smoothly, ensuring a smooth transition for the new owner.

Risks and Considerations

1. Dependence on Owner: The business is currently operated by the owner with a small team. While there are skilled employees, the business is heavily reliant on the owner’s involvement, particularly in terms of customer relationships, management, and operations. The buyer will need to assess the extent to which the owner’s role is critical and how easily it can be replaced or managed by new ownership.
2. No Direct Sales or Marketing Efforts: The business does no direct sales and marketing, relying mostly on referrals and loyalty from its existing customers. A new owner will need to invest time and resources into developing a sales and marketing strategy to generate more leads, expand the client base, and increase sales.
3. Lease Expiration: The business operates in a leased facility, and while the terms are currently favorable, the buyer should review the lease and ensure the renewal options are in place or negotiate new terms if necessary. The facility is important to the operations of the business, especially with the large machinery and storage needs.
4. Competition: The CNC machining and contract manufacturing industry can be competitive. The buyer will need to evaluate the local competitive landscape, including other CNC machining shops and potential new entrants. Differentiation through quality, pricing, and service will be crucial for maintaining and growing market share.
5. Inventory Management: The business holds an inventory value of $130,000, which could be subject to fluctuations based on demand and supply chain factors. The buyer should review the inventory management processes to ensure they are efficient and that inventory levels are optimized.

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About: Silverwave Deal Flow combs through and analyzes thousands of businesses available for sale that may be of interest to entrepreneurs looking to acquire an existing business. We are not affiliated with the business listed for sale unless otherwise disclosed.