Below is a sample business plan for a hypothetical made-to-order manufacturing company. While the details are illustrative, they provide a solid framework you can tailor to your specific venture. Each section includes typical considerations and assumptions that apply in a made-to-order context.
I designed a financial model template specifically for made-to-order manufacturing. Check out all manufacturing models here.
Business Concept:
- Name: Precision Custom Manufacturing (PCM)
- Location: Based in an industrial zone with easy access to transportation and shipping services.
- Focus: Made-to-order manufacturing of custom metal components and assembly parts for industrial machinery, automotive prototypes, and specialty equipment.
Key Highlights:
- Offer customized, high-precision parts with quick turnaround.
- Target niche industries requiring small-to-medium production runs (e.g., medical device companies, automotive R&D, specialized robotics).
- Emphasize advanced manufacturing techniques (CNC machining, laser cutting, welding, finishing).
Financial Snapshot (Year 1 Projections):
- Sales Revenue: $1,200,000
- Gross Profit: $480,000 (40% margin)
- Net Profit: $120,000 (10% net margin)
- Breakeven: Month 10
2. Company Description
Legal Structure:
Operating as an S-Corporation (or LLC) to provide liability protection and tax flexibility.
Mission Statement:
To provide high-quality, custom-manufactured components on time and at a competitive price, ensuring client satisfaction through precision and reliability.
Goals & Objectives:
- Attain stable monthly production volume within the first six months.
- Establish long-term contracts with at least three recurring clients by end of Year 1.
- Maintain a gross margin of at least 40%.
- Expand machinery capabilities within two years to tap into new markets (e.g., aerospace, consumer product prototyping).
3. Market Analysis
Industry Overview:
- The made-to-order manufacturing sector is growing, driven by demand for specialized, small-batch runs.
- Clients often look for suppliers who can produce components quickly and meet strict tolerances.
Target Customers:
- Industrial Machinery Builders: Require custom parts for new machine prototypes or replacements.
- Automotive R&D Departments: Focus on prototype parts and small batches for concept vehicles.
- Medical Device Manufacturers: Need high-precision, often stainless-steel or titanium components with stringent quality standards.
Competitive Analysis:
- Competitors range from large job shops with broad capabilities to small specialty shops.
- PCM’s edge lies in short lead times, personalized customer service, and advanced technology (CNC, laser, etc.).
4. Products and Services
Products:
- Custom Metal Components: Machined parts (aluminum, steel, titanium) with tight tolerances.
- Sub-Assemblies: Welded, joined, or assembled parts, including finishing (powder coating, anodizing, etc.).
- Prototyping Services: Rapid turnaround for small batches or one-off designs.
Lead Times:
- Standard orders (e.g., simpler CNC parts) typically ship within 2–3 weeks from order confirmation.
- Complex assemblies or those requiring special finishes may have lead times of 4–6 weeks.
Value Proposition:
- Quick response to RFQs (Request for Quotes).
- Collaborative design feedback to optimize manufacturability.
- Quality assurance using industry-standard certifications (ISO 9001, AS9100 if pursuing aerospace).
5. Operations Plan
Location & Facilities:
- Facility with ~10,000 sq. ft. for production area, storage, and office space.
- Proximity to raw material suppliers and shipping carriers (rail/truck) is a priority.
Production Process:
- Order Confirmation & Design Review
- Work with client to finalize CAD drawings and specifications.
- Material Procurement
- Order metals and other inputs from established suppliers, typically with 7–10 day delivery.
- Manufacturing
- CNC machining, laser cutting, welding, assembling, finishing.
- Quality Control
- Each batch is inspected for dimensional accuracy, finish, and functionality.
- Shipping & Delivery
- Typically via freight carriers or direct drop-off if local.
Capacity Planning:
- Initial capacity supports up to 500 small-to-medium parts/units per month.
- Scalability through shift expansions and potential equipment upgrades.
6. Accounts Payable and Receivable
6.1 Accounts Payable (A/P)
- Supplier Terms:
- Average payment term: Net 30 days from invoice date.
- Some specialized material suppliers may require partial upfront deposits (e.g., 20%) due to costly metals like titanium.
- Managing Payables:
- Negotiate extended terms (e.g., Net 45) as production volume grows to ease short-term cash flow.
- Maintain strong relationships with key suppliers for better credit terms.
6.2 Accounts Receivable (A/R)
- Customer Terms:
- Standard term: Net 30 days from invoice date.
- Large or first-time orders may require a 50% deposit upon order confirmation, with remaining 50% due on completion.
- Repeat clients in good standing may receive slightly extended terms (e.g., Net 45) to encourage loyalty.
- Credit Policy:
- Evaluate new customers for credit risk.
- Implement tiered deposit structures depending on credit history.
- Use factoring or invoice financing if cash flow tightens (short-term solution).
7. Cash Flow Planning
Key Considerations:
- Working Capital Requirements:
- Need to finance raw materials (A/P), labor, overhead, and any specialized tooling before receiving customer payments.
- A line of credit from a bank or an SBA loan can help bridge the gap between purchase of materials and receipt of customer payments.
- Cash Flow Gaps:
- Production lead time (2–3 weeks) plus Net 30 from customers means approximately 6–7 weeks from material purchase to final payment.
- Proactively manage payment schedules with partial deposits to reduce financing burden.
- Seasonality & Production Cycles:
- Some customers (e.g., automotive R&D) might have cyclical demand aligning with model-year rollouts.
- Keep a buffer of 2–3 months of operating expenses in the bank.
Sample Month-by-Month Cash Flow (Year 1, Assume $100k Monthly Sales in Steady Months):
| Month | Sales | COGS (60%)* | Operating Expenses (30%)** | Net Cash Flow*** |
|---|---|---|---|---|
| 1 | $60,000 | $36,000 | $18,000 | $6,000 |
| 2 | $80,000 | $48,000 | $24,000 | $8,000 |
| 3 | $100,000 | $60,000 | $30,000 | $10,000 |
| 4 | $100,000 | $60,000 | $30,000 | $10,000 |
| ... | ... | ... | ... | ... |
- *COGS = Direct materials, labor, manufacturing overhead.
- **Operating Expenses include rent, utilities, SG&A, marketing.
- ***Net Cash Flow does not factor in timing of receivables/payables intricately, so actual monthly net might vary. You will likely also have debt service to account for (see full financial model to understand a more clear picture of your assumptions).
8. Estimated Financials Based on Assumptions
Below is a simplified snapshot for Year 1:
- Revenues: $1,200,000 (averaging $100k per month in steady-state months)
- Cost of Goods Sold (COGS): $720,000 (~60% of revenue)
- Materials and Direct Labor
- Gross Profit: $480,000 (40% margin)
- Operating Expenses: $360,000 (30% of revenue)
- Rent, utilities, salaries, marketing, insurance, professional fees
- Net Profit (Before Taxes): $120,000 (10% net margin)
Assumptions:
- Material Costs: Average $30 per kg for steel, $60 for aluminum, $100+ for specialty metals.
- Labor: Full-time staff of 5–7 skilled machinists, 2 quality inspectors, 1 production manager, 1 administrative assistant.
- Overhead: Reasonable lease terms for manufacturing space ($5,000/month) plus utilities and insurance.
9. Risk Management
- Supply Chain Disruptions: Maintain multiple suppliers for each material type.
- Machinery Breakdowns: Implement preventative maintenance schedules and keep backup capacity if possible.
- Economic Downturn: Diversify client base across industries to mitigate cyclical downturns.
- Compliance & Liability: Obtain necessary certifications and insurance to limit exposure.
10. Exit Strategies
1. Acquisition by a Larger Manufacturer
- As the company builds a strong client roster and proven track record, it could become an attractive acquisition target for larger contract manufacturers or industry competitors.
- Key factors: well-documented processes, loyal customer base, established brand, and consistent profitability.
2. Management Buyout
- Current management team or key employees could purchase the founding owners’ stake.
- This often allows continuity of leadership and maintains long-standing client relationships.
3. Sale to a Private Equity Group
- Private equity (PE) firms are interested in niche, profitable manufacturing operations.
- Typically requires consistent earnings and a clear growth path (e.g., new industries, expanded facility).
4. Passing Ownership to Family or Successors
- If structured as a family business, grooming the next generation or a successor from within for a seamless transition.
11. Conclusion
Precision Custom Manufacturing aims to capitalize on the growing demand for specialized, short-run manufacturing services. By maintaining a competitive lead time, rigorous quality, and strong customer relationships, the company can achieve sustainable profitability. With prudent financial management—especially around accounts payable/receivable and cash flow—PCM can minimize liquidity risks. Over time, building a solid reputation and stable cash flows will position the company for a profitable exit or continuation strategy.
Next Steps / Action Items
- Finalize Funding: Secure a line of credit or an SBA-backed loan to cover working capital in the initial months.
- Set Up Supplier Agreements: Negotiate favorable terms and MOQs (minimum order quantities).
- Implement ERP System: Streamline order tracking, scheduling, and financial reporting.
- Marketing & Sales Efforts: Target trade shows, online advertising (LinkedIn, industry journals), and direct outreach to potential clients.
- Finalize Exit Roadmap: Even from the start, maintain financial records and operational processes that are transparent and well-documented.
This example provides a structured approach to planning and operating a made-to-order manufacturing company. Tailor each aspect—from target market to machinery requirements—to reflect your specific product niche, region, and capital resources.
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Article found in Startups.
