Questions! Preparing a Cash Flow for a small business.

[Blacknbart]

Looking to start a garage based business using a router system (Hopefully ShopBot!). I have been in the signage industry for 10 years as well Packaging and manufacturing for 6 years. I am in the middle of preparing a plan and wanted to get my cash flow chart set up first. Some of the questions that have been boggling me are::confused:

How do you figure cash sales for a small CNC shop year?
$50 to $70 per hour cut charge plus materials and shop labor maybe?

How do you figure material costs for a year? So many materials and many different prices. How do you explain it in one month by month cost.

Is there a good book to reference on how to pull these numbers out of thin air? I want to get my Financing in order so I can present it to banks and lenders.
Thank you for your help,

Bart Thatcher

[knight_toolworks]

most of my customers supply materials so thats something to think about.

[Brady Watson]

In this day & age, my advice would be to not finance. Be patient and save your money to buy the tools you need to get started. Then segway into the business as you build up your experience and your equipment. You'll own your equipment outright and not be strapped with payments (and stress) right out of the box. There is a lot to be said for doing it this way. There are plenty of good used machines out there that are either ready for work, and/or can be had cheap with only a small investment to upgrade them to current status.

You should realize one very important fact, that many don't get until it is too late: Simply owning a CNC is absolutely no guarantee that you will make money. It's just a piece of equipment. Customers are buying what YOUR BRAIN has to offer. The machine is just a means to that end. Don't be fooled. I feel that the new 'CNC craze' is just like the 'computer programmer' craze back in the late 90s. Everyone and their brother is getting into it. How are you going to differentiate yourself to stay in business?

"Cash" is ideal, but not realistic - Unless you are keen on doing work for people in your neighborhood. The general public really can't appreciate everything that goes into doing your job, since you 'just push a button' - You really want to get into business to business sales, as this is where you will make your money & be appreciated for your efforts.

YOU are the largest factor in your success. If you operate with integrity, and do what you say you are going to do when you say you are going to do it, then you are well on your way. You have to be honest with yourself and your capabilities and make up for what you don't know by dedicated learning.

-B

[ken_rychlik]

Get a part time job and pay for the equipment with cash.

Buy a used machine to start with. Then if it doesn't work out, you won't loose your shirt.

It will take you a year or so to get good with it if your lucky.

Material is not really a concern. Either buy it and cost it out into the job, or let the customer buy thier own.

Like Brady said, it is not a majic thing that just because you have a cnc you will easily make $50 plus per hour any time you want.

Worry more about who your customer will be instead of how to finance a machine.

[Blacknbart]

Thank you for the reply's I have been thinking about used machinery,a full time job to pay for the future as well it would be a plus to have the customers bring in there own materials. I actually have that written in my outline of the business plan. I was just trying to conjure up a Monthly Cash flow analysis to get a better scope of things or at least become familiar with writing one.

[dlcw]

Bart,

Your cash flow requirements will be determined by:

All of your projected expenses to run your operation (insurance, utilities, office, sales, marketing, equip. maint., bits, blades, legal, website, phone, internet access, etc.)

+

Your expected "income" (how much do you want to put in your pocket)

+

Materials you have to purchase for the work you do (cost of goods sold)

= The amount of income you need to operate your venture

Cash flow is a separate issue in that you can sell lots of jobs, do the work, deliver the job and not get paid for long periods of time (potential in business-to-business operations). You have a lot of accounts receivable, but very little cash flow to keep pay your bills and keep the lights on. Our local ambulance company is facing this issue right now. Over $1 million in receivables but no one is paying, so the receivables aren't worth the paper they are written on. Looks good on paper but doesn't keep the lights on.

When dealing with customers (either consumers or B2B) I set payment terms right up front, in the contract, so there is no confusion about when payments are expected. I do not deliver projects until I am paid in full as that is my collateral for getting paid.

With expectations properly set, I've only had one problem in 9 years. I went to deliver a dining table and the customer asked if I could leave it and they would stop by the shop the next day with final payment. 2 months later, and several contacts with the customer, they decided they couldn't afford it anymore. So I sold the table to another customer. If I had delivered the table and trusted them, I would have been out a lot of money.

When I first started, 10 years ago, I was a little lax in this part of my business and got burned, once on a kitchen and once on a piece of furniture. Since then I have stuck to my guns and get paid before the customer gets the project.

[harryball]

You've gotten some good advice. I would briefly share a few tidbits of wisdom that I've come to respect more with every experience.

Before you buy something that will "let" you do what you want, find another way to do it. If you want to build cabinets... you should be building them already the hard way. If you want to make signs, start painting. I could go on but I think you get the point. Buying a CNC machine will not "let" you make anything.

Save your money and buy, don't finance. Since that's often like telling teenagers not to have sex, here are a few tips. Don't finance more than your CURRENT cash flow can pay. Don't count on a magic machine printing cash to pay for itself. Buy used or rent/borrow/share a machine if you can. Don't expect to make money the day after it is delivered.

Don't forget it costs money to operate it. That may seem like a duh statement, but you'll soon learn that you need more than bits and power. Spoilboard material, tapes, vac masks, vac pumps, power cables, more memory for you design PC (or possibly new)... the list can go on and on.

NEVER sell a project to pay for your machine before you have your machine up and running... especially if you have not ordered it yet.

Just a few thoughts, good luck!

/RB

[bleeth]

I agree with absolutely everything Rob says about not financing except for the motivational aspect of knowing you darned well need to come up with money to make your payments. An old Boss of mine many years ago in the Boat business used to push every new salesman to go out and buy a new car. It was amazing how the reps who did would generally outsell those with low expenses!
On the subject of sales: Never lose sight of the fact that fully half of your business as an owner is to sell your products/services. The streets are littered with great craftsman who opened shops because they knew how to build things but didn't have a proper marketing/sales plan or budget for it and went bust. There is no substitute for beating the streets and trade shows for clients.
Of course, in this economic climate it is an even greater challenge to open now but that can easily be interpreted as a greater opportunity.

[harryball]

I guess everyone is different. I work much better when I don't feel trapped or forced. Whenever I'ved tried to carry debt I just can't stomach it. I end up worse for wear, unable to concentrate or focus on anything else. When we paid off our house it was like a huge weight was lifted off. It took 9 years and people thought we were dirt poor toward the 7th year. Sold everything and sent my lunch money in as well.

For those that need the motivation... I guess you'll figure it out. If I were the salesman and they tried to force me to buy a new car I'd bet them I could pay cash for it in 12 months or quit. Now that is motivation.

/RB

[Blacknbart]

Fellas,

Thanks for the words of wisdom, I will take them in account in my future plans. Currently I have been doing my homework and plan to finish my business plan this coming November. After that who knows! Staying Positive and moving forward!

Cheers,

Bart

[dragginbutt]

Bart, you say you have been in teh sign business before. So why can't you develop the figures based on income generated in the past? Volume of sales, profit, number of customers etc. ALl this goes into the equation. If you have hard figures, and the receipts or invoices to prove it, that is much more useful to a lender in determinning your ability to repay the loan. To just throw out numbers with no industry stats, or your own personal documented sales receipts, they will consider it all to be vapor ware. In reality if you cannot pull this together, you either are not being honest with yourself or you are setting yourself up for a great fall. I agree with one commenter, owning a CNC machine is not a guarantee. I'd be real interested in your ability to run it, show me you have customer orders for your services etc. THAT is much mre important than a spread sheet with fake numbers. If you are profitable doing it befor, then show me how the purchase of a CNC will improve your bottom line and production. Use the old numbers as a baseline, then build on that and sell a story based on real hard facts.