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Advise needed: Moving into a "Real" shop?

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  • Advise needed: Moving into a "Real" shop?

    Well, I'm in a pickle.

    My long-time customer (7 years so far), has asked me to move into his "real" shop.
    I'll be leaving the cozy confines of my garage.
    It's a 2500 Sq. Ft. commercial warehouse with a Mazak quickturn lathe, and an old Cincinnati Sabre mill that I can use willy-nilly.
    Basically, he wants me to supervise the two "button-pushers" in his shop, while still letting me run my business out of his location.

    From a business standpoint, this move would help me create my "REAL" business, and no longer be a hobby shop in my garage.
    But, I'll be facing a daily 30 minute commute each-way, in rush-hour traffic again. UUGGHH!!!

    What should I be concerned with? Have any of you guys faced a similar situation?
    Should I require him to pay me a small salary for babysitting his boys, on top of the normal business we do?
    Any help or expertise is appreciated.

    I'm still on the fence about this move.

  • #2
    Shared space is often an issue. Sounds like you will not have the access issues that can come with that.

    There is a tendency for the host business to become the primary job, and if it is also a customer, then there gets to be an issue of "what are you wasting time on that other stuff for, I thought we had a deal going here, but you are not supporting me".

    Basically, it can easily turn into "Hey you are working here for me now, get it?". The shared space turns into a sort of "investment in your business", and new rights get asserted.

    It CAN work, if the situation is actually spelled out and set down beforehand, with everyone agreeing. That way there is no issue of a different understanding of how the deal was set up.
    2730

    Keep eye on ball.
    Hashim Khan


    It's just a box of rain, I don't know who put it there.

    Comment


    • #3
      I don't know what your exact situation is, but as JT hints, get everything down on paper, and double-signed before 'moving in'.

      Find a lawyer with experience in things like this, get a boilerplate contract written up, and put things down on paper, so both parties are well aware of what is expected from the other, and what will be happening.

      Give yourself escape clauses- If X doesn't happen, or Y changes, you can take your ball and go home, with no penalty. Have clauses so that if something happens (the shop goes bankrupt, loses it's contracts, owner passes away, whatever) you have clear rights to whatever tooling or machinery you personally own. If the place goes into bankruptcy, for example, you need to be able to show the court that yes, this machine and that tooling are mine, bought and paid for, used only under contract by me, and are not to be included in the bankruptcy.

      Having been in more than one scenario where the other person had different ideas of what the business partnership's goal was- it's always a matter of who gets to pocket the money first- document everything. Binding legal documents.

      Doc.
      Doc's Machine. (Probably not what you expect.)

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      • #4
        I started my own shop so I didn't have to deal with anyone else and their baggage. If and when I get big enough that I need to add machines and maybe employees, then I'll consider leaving my garage, but it will be MY lease or we'll buy a house with a big separate garage. I live in farm country so finding a house with a 30'x50' garage is commonplace. Most houses around here have garages bigger than the houses. Unfortunately even though we have 2.5 acres, the layout wouldn't really allow me to build a big shop (or I wouldn't have stuffed a VMC in my basement/garage).
        Last edited by Jigs; 06-29-2017, 03:02 PM.

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        • #5
          Acting as a supervisor may carry other expectations with it. Among others is the expectation that you will give the supervision task higher priority than you give to your own business simply because supervision is real time. Another may be that you are expected to shoulder the blame if they screw up.

          You may also run into "employee/employer" status questions since you will be acting as shop foreman. The IRS has a checklist that they use to determine whether you are a contractor or employee. This will impact your taxes in several ways, including deductions for your equipment purchases, self employed taxes, etc. You also get the question of how much value you have to declare on your taxes for using his shop. Of course, much of this is not an issue until the audit several years down the road.

          As Doc said, a good contract will protect you. A talk with an accountant can help too.

          Dan
          At the end of the project, there is a profound difference between spare parts and left over parts.

          Location: SF East Bay.

          Comment


          • #6
            All the above is solid, real world advice. Think hard before getting into this situation. It might work out, but there are many ways it can go south.
            Kansas City area

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            • #7
              Think of everything now that could possibly come up at the new shop and decide how you and he will handle it. Once you are in the middle of a big situation that will cost or benefit one of you by $500, it is much harder to arrive at a decision without hard feelings/yelling etc.

              Potential problems: 1. Customer likes you (or him ) better and moves business to you/him.
              2. Building burns down-who has insurance?
              3. He has you doing too much uncompensated work and he doesn't reciprocate.
              4. He dies/you die. (solution=key man life insurance?)

              Many more possible problems beyond this........

              Comment


              • #8
                One MORE thing...... That comes out of the music biz......

                Bankruptcy is one thing.... IRS problems are another. Bankruptcy usually gives warning so you can get out, the IRS does not. Happens when the main shop fails to pay the withholding for employees, or the like. Bars commonly didn't pay, so the IRS closes them regularly.

                One day, you show up, and the place is padlocked. You will NOT be able to remove even ONE item unless you have a good receipt for it from the seller WITH the serial number AND your name on the receipt. Not one stinking screwdriver. EVERYTHING INSIDE THE BUILDING is presumed to belong to the main company, unless you can PROVE otherwise. If it is inside, it gets auctioned off to pay the back taxes.

                That is an excellent way to lose everything you own, since virtually nobody has good receipts for most of their shop tools. This is something that has been relatively common for bands that play a particular bar for long enough that they do not break down and remove the setup every night. Seen it happen several times.

                The IRS DOES NOT BELIEVE any agreement between you and the owner.... that is presumed to be a way of sneaking assets out that should be sold. You have to have receipts or you lose it.

                Just another thing to consider. You may think they are never going to have that kind of trouble, but that is exactly when it happens... When you are sure it will not, and are not "covered".
                2730

                Keep eye on ball.
                Hashim Khan


                It's just a box of rain, I don't know who put it there.

                Comment


                • #9
                  As a business owner for 36 years my advice would be to stay HOME. Expand on your own if and when it needs to be done. I'm sure you will be glad that you remained in YOUR garage.
                  Toolznthings

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                  • #10
                    Having been in the employer/employee/contractor situation as a contractor for 12 years and being lucky enough to have missed an IRS lawsuit by 1 year (I left company X for company Y and the IRS lawsuit covered everyone "contracting" for company X starting the year after I left), that can be a real significant issue. I'd be really concerned in what is actually involved in "supervising" his workers.
                    Kevin

                    More tools than sense.

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                    • #11
                      Thanks guys.
                      I'm been hesitant with the idea of moving into his shop. After seeing your advise, I think I won't do it.
                      The CONS are definitely outweighing the PROS.
                      Actually, the only PROS were having an actual "Business" location (Not a home garage), and the free use of the CNC's dangling in front of my face.
                      Every other aspect seems like a big negative. (Traffic, commute, legal issues, babysitting employees, hot shop, head-butting, worrying about my stuff, compensation, etc.)
                      You guys are a wealth of knowledge and experience.

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                      • #12
                        one word: liability

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                        • #13
                          Originally posted by KiddZimaHater View Post
                          Thanks guys.
                          I'm been hesitant with the idea of moving into his shop. After seeing your advise, I think I won't do it.
                          The CONS are definitely outweighing the PROS.
                          Actually, the only PROS were having an actual "Business" location (Not a home garage), and the free use of the CNC's dangling in front of my face.
                          Every other aspect seems like a big negative. (Traffic, commute, legal issues, babysitting employees, hot shop, head-butting, worrying about my stuff, compensation, etc.)
                          You guys are a wealth of knowledge and experience.
                          Glad that we could be of help. Some of those pitfalls are not real obvious until they bite you.

                          Dan
                          At the end of the project, there is a profound difference between spare parts and left over parts.

                          Location: SF East Bay.

                          Comment


                          • #14
                            Yup the day he walks in and finds you and a couple strippers on the floor..bottles strewn about.....
                            Lets just say it can strain the relationship..

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                            • #15
                              The only thing worse than a quasi-partnership would be 3 "partners" involved. It is forever Two against One. Just a different two each time.

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