Keeping the Lights On: Strategies to Help Machine Shops Cut Costs and Debt
Running a machine shop is capital intensive. The costs of CNC machines, tooling, facilities, and skilled workers make it difficult to keep a machine shop profitable in challenging economic times. If your shop is struggling with debt and falling revenue, here are 9 strategies to help reduce expenses, increase efficiency, and keep your business running.
1. Renegotiate Loan Terms
Call or set up an appointment to meet with your lenders in person to discuss options. Come prepared with financial statements and projections to explain your situation. Ask specifically about extending repayment timelines, lowering interest rates, or deferring payments for 3-6 months. Any temporary relief can help improve cash flow.
2. Sell Underutilized Assets
Walk through your whole facility and document hours of usage for each machine. Identify equipment that sits idle over 50% of typical workdays. Older machines with significant maintenance costs are also good candidates for liquidation. Use the extra cash to pay down high interest debt first.
3. Reduce Energy Use
Involve your team to help spot energy waste. Challenge them to find ways to reduce electric bills by 10% or more. Provide incentives for the best ideas. Investigate your power consumption patterns and usage during downtimes. Look at minimizing energy needs during your highest tariff hours.
4. Negotiate with Suppliers
Don’t just ask for better terms, bring win-win proposals. Offer increased volumes in exchange for discounts. Propose long-term supply contracts for pricing stability. See if you can secure 60-90 day terms to ease short-term cash flow. Appeal to your loyalty and relationship.
5. Eliminate Unprofitable Work
Categorize your customer base into A, B, and C tiers based on profit margins. Be objective – sometimes “problem” clients fall into the C tier. Halt work with C tier clients first. Institute minimum profit margin requirements on all new jobs. Stick to your most money-making services.
6. Reduce Staff Hours
Be transparent about the challenges and explain the need for temporary belt tightening. Start by reducing overtime. Consider alternating 4-day workweeks or temporary 2-3 week furloughs. Suspend 401k matches temporarily. Assure employees these are short-term measures to protect the long-term health of the company.
7. Rent Out Extra Space
Even small spaces like a storage closet could generate rental income. Offer temporary use of your parking lot for container storage. Clear out unused floor space and configure it for a small tenant. Visit other local machine shops to see if they have extra capacity and would consider subletting.
8. Take Advantage of Tax Incentives
Hire an accountant or business taxation expert to help uncover every available tax credit and incentive. Look into employee retention credits, machinery write-offs, R&D credits, sales tax relief, and training funds. File for applicable incentives routinely, don’t leave potential savings on the table.
9. Seek Free Business Counseling
Search online directories for small business development centers and score mentors in your region. Attend free seminars and workshops to learn cost management approaches. Bring your P&L statements and accounting data to counseling sessions to allow for detailed assessments. Leverage these free consulting resources.
The key is being proactive and exploring every option before debt overwhelms your machine shop. Protect the business you have built through smart money management. Your experienced team and capabilities are valuable – take steps to preserve them for the long run.
If you need confidential consulting on reducing business debt, contact us to schedule a free assessment. Our team understands the unique challenges facing machine shops and manufacturers. We can help you make an action plan to overcome financial hurdles while protecting jobs. Don’t go it alone – help is available.