Start a CNC Machining Business by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your CNC Machining Business. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a CNC Machining Business?
CNC machines aren’t inexpensive. Lathes alone can cost anywhere from a few thousand dollars to tens of thousands, and many shops have several pieces of equipment. Nevertheless, there are ways for business owners to keep their startup costs relatively low -- and it’s possible to start a CNC machining business for very little.
First, many business owners start out working from their garage or a workshop that they already have. This eliminates the need to lease a workspace until there’s regular work.
Second, business owners don’t need lots of equipment or the fanciest available equipment when first getting started. For example, Todd Adlon opened his shop with just a mill and a lathe, adding equipment later on. Several other business owners got started with just a basic lathe.
Having only basic equipment will limit the amount and type of work that a CNC machining business can do, but there’s enough basic work available to support a small shop that has only one or two machines. Specifically, there are lots of clients who need prototypes made, and larger shops often won’t make one-off prototypes.
What are the ongoing expenses for a CNC Machining Business?
The ongoing expenses for a CNC machining business can be substantial. They include raw material costs, utilities, equipment maintenance costs, lease payments, and employee salaries.
Who is the target market?
Most CNC machining businesses serve other businesses, although a few make products that are directly marketed to individuals.
Business-to-business machine shops can be divided into two categories: job shops and product shops. Job shops take orders from clients and then make items that are built to their client’s specifications. Product shops design and create their own products, then sell those products to businesses.
How does a CNC Machining Business make money?
A CNC machining business makes money by selling machined parts. Prototypes may be sold as single items, but most orders are for large quantities of the same part.
How much can you charge customers?
The cost of CNC machining job varies greatly depending on the type of product ordered, how many are ordered and whether there are special setup requirements. Kennewell CNC Machining uses the following rubric to set prices for lathe jobs:
- A setup charge of $120 to $160
- Raw materials are marked up by 20 to 35 percent
- Special fixtures are added onto the total cost
- Machining is charged at a rate of $60 to $150 per hour
- Post-machining work that’s subcontracted is marked up by 20 to 35 percent
How much profit can a CNC Machining Business make?
Most successful CNC machining businesses operate on a 10 to 15 percent net profit margin. For a shop that has just $500,000 in annual work, that generates a profit of $50,000 to $75,000 on top of the business owner’s salary.
How can you make your business more profitable?
CNC machining businesses can increase their profitability and diversify their revenue by slowly expanding the machining services they offer. Shops can do this without taking on too much risk if they only expand when a contract for a different type of work becomes available. If a contract will pay for a new piece of equipment, then taking on that creates an easy way to afford new machinery that lets a business expand its offerings.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your CNC Machining Business is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Certain state permits and licenses may be needed to operate a 3D printing design business. Learn more about licensing requirements in your state by visiting SBA’s reference to state licenses and permits.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources.
Trademark & Copyright Protection
If you are developing a unique product, concept, brand, or design, it is prudent to protect your rights by registering for the appropriate trademarks and copyrights.
STEP 7: Get Business Insurance
Insurance is highly recommended for all business owners. If you hire employees, workers compensation insurance may be a legal requirement in your state.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a CNC Machining Business
CNC machining businesses may reach potential clients through industry organizations, networking events, and old-fashioned cold calling. Some businesses also have success working through platforms like Xometry, which matches product designers and other clients with CNC machining businesses.
How to keep customers coming back
CNC machining businesses can set themselves apart from many competitors by getting certifications that matter to their clients. Following ISO 9000 standards and becoming ISO 9001-certified are two marks that clients look for.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A CNC Machining Business In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Anyone who likes building things and working with their hands may enjoy running a CNC machining business. Although machined parts are made by computerized equipment, there still is a substantial amount of hands-on work involved in the manufacturing process.
What happens during a typical day at a CNC Machining Business?
CNC machining involves loading materials into machines, programming machines, and letting the machines run. Depending on the work being done and type of machine, it may be necessary to manually operate the machine or manipulate the parts at certain times.
When not working directly with machines, business owners and employees take customer orders, order additional supplies and ship completed orders. Additionally, there is usually a designated person who schedules the machining work to maximize efficiency. This person may be the business owner or an employee.
What are some skills and experiences that will help you build a successful CNC Machining Business?
Business owners must know how to operate CNC machines, which is more complex than using non-computerized equipment. Most business owners have previous experience working as a CNC machinist for other businesses, and those who aren’t already familiar with these machines may want to spend some time working for someone else before opening their own shop.
Additionally, business owners can take CNC machining classes. Vocational schools, technical schools, and community colleges sometimes offer such courses, and there are also online programs. Tooling University and SME are two organizations that offer online courses.
What is the growth potential for a CNC Machining Business?
A CNC machining business can remain a small operation that’s run by one or two people, or it can grow to be a large company that completes orders for clients throughout North America. Arsenal Products is a relatively small CNC machining business in Austin, Texas, and Plethora is an example of a larger company.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
What are some insider tips for jump starting a CNC Machining Business?
Todd Adlon and many other business owners warn against growing a CNC machining business too quickly. Investing in equipment and hiring employees before a business is ready to only increases overhead and makes it harder to remain profitable.
Instead, a strategy that slowly grows a CNC machining business is more likely to provide long-term sustainability and profitability. Business owners should only hire employees once there’s enough work for them do to, only purchase machines once there are employees to operate them and only lease larger spaces once there’s the equipment to fill it.
How and when to build a team
Many business owners start out working by themselves, bringing on CNC machinists as employees once the business’ workload and revenue allows. Half of all CNC machinists make between $20.20 and $31.28 per hour, according to the Bureau of Labor Statistics.