Machine Shop SWOT Analysis

Although they are not highly visible businesses, machine shops can be highly lucrative small business enterprises that produce highly recurring streams of revenue for their owners. As it relates to strengths, machine shops typically have great access to capital given at one of the ways that these businesses are able to readily expand is by simply acquiring additional machines in order to produce parts on behalf of a broad spectrum of customers. Most machine shops are able to remain profitable and cash flow positive in any economic climate given that a number of economically insulated industries often require specialized parts that can only be produced by a machine in late shop. These businesses typically generate strong gross margins from their sales, and they usually range anywhere from 50% to 70% depending on the specific types of parts and products being produced by the business. The startup cost for a new machine shop can range greatly, but the median startup cost is approximately $250,000. Again, almost all financial institutions are willing to provide working capital lines of credit or business loans that are secured by the substantial amount of tangible machinery that is needed to develop these types of businesses.

As it relates to weaknesses, these businesses do have very high operating expenses not only relating to facilities and utilities but also from personnel expenses as well. These businesses need to employ a number of well-trained machinists that can produce parts on behalf of of customers. A large amount of workmen’s compensation insurance coupled with liability insurance also has to be carried on a monthly basis given the nature of this work.

As it relates to opportunities, these businesses can readily expand by simply acquiring additional pieces of machinery in order to accommodate larger orders. Some entrepreneurs enter this field will often acquire existing businesses that are already profitable and have an extensive customer base.

For threats, there is really nothing that is going to impact the way that a machine shop operates with the exception of a major economic recession. During deleterious economic conditions, the demand for specialty produce parts may wane. However, certain industries – especially specialized contracting businesses – always require custom-made parts. As such, this coupled with the strong gross margins produced by the business typically ensures that these companies are able to remain profitable and cash flow positive at all times while satisfying all underlying financial obligations. These businesses are expected to be in continued demand moving forward, and he qualified entrepreneur can make this into a highly lucrative business enterprise.

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