How to Start a CNC Shop: Everything You Need to Know

Consider Your CNC Shop’s Business Plan

Virtually no business can open up shop without capital investment—and that requires financial assistance in the form of a loan. A great source is the U.S. government’s Small Business Administration—which has some bureaucracy to deal with—but can be very helpful and supportive.

But you’ll need a business plan.

“The SBA wants to see the business story you are telling—and your plan to make it successful,” says Spurling.

And you’ll need a sense of your customer base. The Spurling family ended up moving to the Battle Creek area because of a promotion for Spurling’s father—which also ended up putting them in the heart of automotive part-making in central Michigan. There are also several large medical manufacturers in the area—including Stryker, a medical device maker, which is now a Rocket Machining & Design customer.

There are opportunities in medical parts-making. See it for yourself. Read “Precision Manufacturing: One Shop’s Journey in Making Medical Equipment Parts.”

Part of the business plan was understanding the machines and supplies needed to get up and running. Rocket Machining & Design initially purchased four machines: two lathes and two mills. But the plan and reality were always dependent on the work that came in.

The finished floor at RM&D
before the equipment.

“In hindsight, if I could do it differently, I would have purchased three mills and one lathe,” says Spurling. “But we’ve purchased more machines since then. And we’ve sold one of those lathes and purchased another two mills. So we’re now up to a total of four mills and one lathe.”

One of the machines is a 3+2 CNC machine that can take advantage of many cutting geometries. The company has plans to purchase a full 5-axis machine in the near future.

How much has all this equipment cost?

“Roughly half a million dollars,” says Spurling. “It’s not just the mills and lathes, it’s also the saw to process materials, a surface grinder, tables, air compressors, furniture and fixtures, surface plates, gaging equipment, tooling, tool boxes, and many other items. You think about the big-ticket items, but that just scratches the surface.”

CNC Shop: The Surprises Along the Way

The Loan Process for Your CNC Shop—and the Nuance of Withdrawals

Spurling thought you apply for a loan, the lender reviews the business plan, you get approved—and the entirety of your loan amount ends up in your business bank account so you can start leasing CNC equipment, buying cutting tools and CAD/CAM software.

Nope. The SBA does not give it to you all at once.

“I could only have a certain percentage of the loan in cash in my bank account at any one time,” says Spurling. “Then I had to submit draws from the loan in order to purchase anything, like say, our large expenditure, like a HAAS VF5 for $75,000. I filled out the information to the banker, then the banker wired the money.”

Rocket Machining was allowed to have about 30 percent of the loan in cash—so if the company spent all the cash on necessary products then they’d have to submit an itemized list of purchases to the SBA to refill the cash. Sounds simple. But there was another catch: The company was only allowed one “draw” per month.

“I was like, ‘What’?!” Spurling says. “It was going to take us two years to build the shop at those rates, so we negotiated with them—and were able to get more funds released to open shop.”

How Your CNC Shop’s Cash Flow Impacts Material and Supplies

When you are first starting out, it can be challenging to receive a line of credit for longer than a 30-day payment to replenish raw materials, says Spurling. So you need to manage your loan funds wisely.

As a newcomer, he would order $2,500 of raw metal material and machine all of that in 30 days—but not have payment for the work from customers yet. And the material supplier would not let Rocket Machining order more material without paying for that initial order.

Spurling was keen to point out that suppliers can also be a great resource for advising on what an early stage CNC shop needs out of the gate. It pays to go with a large product distributor that has excellent customer service, guaranteed shipping delivery times and competitive prices, he explains.

“It helps immensely,” says Spurling.

One of the other challenges was having the time to research the best prices for material. Another supplier allowed him to place a sizable order, which helped. As the business grew over time, Spurling was able to hire a person solely focused on purchasing and negotiating material pricing with existing suppliers. That hire only came in the last four months.

 Need help with your machining calculations and measurements? Use our interactive metalworking machining and metalworking productivity calculators.