This was a great video. I have generally been able to avoid debts in my business but sometimes it totally makes sense. As you presented - THE DETAILS ARE CRITICAL!!!!!! I just got a brand new Haas Mini Mill that was financed. I had the cash to get a Tormach - but really needed a faster and more capable machine. No regrets! Now I have a 15k rpm 15hp machine that is making FAR more money than I could with the Tormach. It makes sense and the machine is half paid for already (only 10 months). The Haas terms were favorable and they are easy to deal with.
@@georgie8132 I have owned a few businesses over a couple of decades. For this particular one, I got the first customer knowing that I could outsource if needed, but was planning to buy a machine. The project was engineering a project...not specifically a job shop machining thing. I use the CNC to support my engineering design biz.
Man you hit it right on the head when you said banks and lenders AREN'T your friends. No truer words were ever spoken! With all the hoops that need to be jumped through with borrowing money it sounds like the way to go would be strictly cash ALL the way, banks be damned! Thanks for the video.
"Line of credit" is even scarier. A builder I knew (well) had such and used it for working capital (land, materials, labor costs) to produce homes that were sold year after year. In the '80s, due to the Savings and Loan crisis, the bank regulators issued rules directing Banks to reduce their exposure to Real Estate. The bank called the loan, all other banks are in the same boat, next step was Bankruptcy (and liquidation) of a functional, profitable ongoing business. Don't get yourself in a position where you can lose everything because of bad decisions made by bureaucrats in Washington, D.C.
been there done that..... except the loan contract didnt let the bank call the loan, which they did anyway. the business was gone by the time we won in court but that bank was succesfully added to the list of banks that died due to 2008
Completely agree with no debt growth. I saved up to buy my Tormach and owe nothing. I won't be getting a fancier machine until I've earned the money first.
I was once told a story by an excavator contractor who was buying a house, the bank suggested that he would get a large mortgage to buy another excavator. Suggesting to still make payment on it in 30 years, while those things are "scrap" in 10 years. Luckily he knew better, sadly a lot of people dont.. great video!
this is, unfortunately, the kind of basic, useful information they don't even bother teaching in high school any more. could keep a lot of kids out of debt if you show them a few nasty charts like those where you negotiate your fancy new $70k truck's loan off monthly payment but never actually pay down the principal.. making those extra payments when you can is absolutely crucial like you said, you're killing principal in a hurry which means you're paying so much less interest. unfortunately to most people a good month means it's time to finance something new..
I'm not exaggerating when I say that I've learned more from your channel than from the tragically underfunded community college I attended, where I tried to learn CNC. You're clear, energetic, and inspiring. I'm a born and raised new yorker who has tried to look under every stone here in my city to try to expose myself to CNC. I ended up working at shop in brooklyn where I tried learning on the job. I was there for a little over a year. I left the shop to go work at an electronics manufacturer. The passion for machining never left me though. It's a good day when I can sit down and absorb any of your fusion videos, widgets or business vids. Keep it up John, and thanks for getting this info out there to the world. Keep inspiring us!
I like your idea of bootstrapping. I've borrowed money for equipment to do a job and when I get paid I pay off the loan. Don't buy equipment till you have a job to pay for it. Now I have done jobs that didn't pay off the equipment and I work basically free but won't take the job to buy the equipment unless I pay nearly all the loan or what I paid for the equipment. Knowing how loans work are so important for small and new business' . I'm glad you made this video.
ALWAYS read the fine print! I financed a lab scope and didn't read the fine print and found out I wont save anything if I pay the loan off today or in 5 years :( Great Video
Great video John! I never finance machines, but would definitely consider these options in the future as I expand and purchase a building and newer machinery in the coming years. Love your videos!
a used Haas vf1 or vf2 off ebay for 10- 15k. a loan means you are forced to be standing there running the machine to pay for the interest....and then the software and tooling. good luck. pay cash for your machines.....if it sits its paid for.
You generally shouldn't be making extra payments to a loan unless you can't make more with that money doing something else. If you're only paying a 5.5% interest rate, as in the example, you're probably better off investing the money in your business.
@ncholas 100% of the people that are foreclosed on owe money on the thing that was foreclosed. I heard Dave Ramsey talk use that line (only in reference to homes) on his podcast once. While I don't necessarily disagree with your logic, overthinking the math isn't exactly part of the Dave Ramsey way.
TOP reason small business fails is lack of cash flow. If you are a job shop and have "real" customers you are probably going to have net 30 and higher payment terms. A good size job comes in and you have to order $5000 worth of materials and tooling and you wont see that money back for 2 months. Then another order comes in. Now you have a bunch of cash tied up and you have to cover rent, financing, and other bills. To operate even a small shop you need tens of thousands in reserve cash, or the smallest hitch can shut you down permanently.
CNCA finaicing from HAAS works quite a lot differently than most commercial financing I had seen prior. Really pretty easy to secure, low interest rate, relatively low down payment. Debt can go very badly for people and it shouldn't be taken on casually, but it's not all doom and gloom either. These machines have incredible ROI if you know how to sell the work and they don't depreciate very quickly. Nothing wrong with no-debt growth, but just as I've had to confront some of my own cheapskate habits that were holding me back, being hardline anti-debt isn't always helpful either. The total interest paid on a 36 month loan on a new VF4ss is between $3-4k. It becomes a question of whether or not you want to sign yourself up for the stress and commitment of payments, and if you can stomach the worst case scenario playing out.
Excellent video. I have never used a bank for a loan on equipment. Tried it once and the BS they make you go through isn't worth it. Two times it was a machine financing company. They were fast, simple and easy to deal with and with better terms than the bank. The contracts for real estate (sale or lease) should require the same amount scrutiny as the machine purchase.
It's a good video and great for someone to touch on a very important thing in this country, the lack of m0 (debt free dollars) available for industry such as this, which creates vital infrastructure for virtually everything. Our banks operate at huge 90% reserve ratio that means 90% of money is created not by the fed, or by the treasury, gov, but by private banks in the form of loans. The bank has say 100 dollars of total savings from it's customers its allowed to lend out up to 90% of that to people. So the 190 dollars of money available, 90 is owed to banks, this works as long as people pay it back, but the second you put interest on it, then there simply isn't enough money available to pay back all loans. It simply doesn't account, thus default is guranteed. China is largest bond holder, u.s. bonds are the only net source of m0 debt free currency. Thus we're swimming in debt sourced money, playing a game of musical chairs debt payment where there not enough charis for everbody to pay off thier debt. While china is swimming in what few dollars our treasury prints. No wonder they have 7% growth per year and can out produce american manufacturers. They relatively are picking dollars off trees compared to us. We have to charge more.
Not saying loans are bad, but over all when we operate at say a 10% reserve, where 10% of money is from loans, instead of 90, it works much better. Loans are likely to be repaid, making more sense for everyone, banks, and loan payees.
Also for many, loans will play a role when procuring property suitable for machining operations. Tormach 440 or lathe isn't unobtainable, the property to keep it at is.
And this is the very reason i have followed you on UA-cam seance i found your Chanel. you would have made a good teacher, glade you went into machining instead . :)
John, thank you for this video. I remember a conversashoulyou and I had on the pitfall that is debt. It can have its place but really should be avoided at all costs, like you say. Banks have to make their mmoneyand I get that, but a lot of the things you shed light on here makes loans seem like awfully crooked business! Hence why it is always vital to read and reread any important document before you sign it. And if "they" get impatient, all the more reason to be wary...
That was very well explained, I'm in my thirties and have had two business before, both very small but profitable and I to this day literally don't have a credit score, instead it's three dash marks.
n ackermann this is north America, that rarely happens in real time, so I like how he shows the options for the loan but in reality , you will always be working with what you have until you are sure, that will be useful not for only the one year customers coming from china asking you to do inserts for joints Chinese factories screwed up and you have to do the joints of electrical housing or robotics arms, not the arms, the elbows of the arms
book1 30 im not sure what your heading with the china and robitc arms but you just don't go out and buy a machine tool because you want one. Every purchase in the machine shop needs to have a purpose. And yes you get contacts then buy machine tools you don't need a machine to get a contact and its safer if you know you can make money off the machine before you buy. If you buy a machine and expect the work to come your barking up the wrong tree i like the video im just saying i would not get a machine then get the jobs i would rather need the machine then try to find work. That what john dose he got both haas for work he needed done.
N ackermann, its important to define "high dollar." For many, a Tormach 440 is high dollar. With that said, good luck getting contract work without real and expensive machines.
Foomanlol not not try to bash on people who are not in the industry but look a liberty machine that what he did to get the machine he had a costumer who need the work done and he had the experience to do the work and just needed the machine. Im speaking in refoance if you had a real machine machine shop i cant imagine trying to get a big dollar contract if you were working out of your garage and didn't have anything to show then its another story.
It doesn't really work like that. You can't really "line up jobs" with extra time you buy a machine. Machining jobs are usually immediate, short term jobs, not something you can line up. The ones you can line up (reoccurring jobs or future jobs) but they're not as common as jobs that take place over a shorter time period than it takes to get a machine. You can't just start saving jobs, and then for them in 6 months when you get a machine. You can't line up jobs, then say now ok get a machine. The customer will want their parts before you can get a machine. Finance the machine, paying cash for it is the dumbest thing you can do. Even if you have $10M in the bank, and you want a $100K machine... Finance it. That $100K is a lot better if it's in your bank/investment portfolio than it is in the bank's bank/investment portfolio.
While it is of course almost always a better options to acquire fixed assets with your own funds, debt allows for a leap forward. Then it is your job as an entrepeneur to correctly estimate the leap you can take by properly estimating your future cashflow and building a return on investment analysis. I believe that John already has very properly describded the process. Also do not mistake investment debt with operating debt, investing for the expansion is financing the future, financing your working capital has to trigger quality of earnings question : bad business, bad customers, bad operationnal efficiency... (get your CPA to help you) Then John said pretty much all of it, do care for the fine prints and what they mean. Treat your loaners like you do you suppliers, tenderize, go to one with the offfer from the others make them fight for your business. Again a CPA or financing trader can help. Also do not overlook financial leases, cost of ownership is slightly higher but liabilities are usually constrained to the acquired piece of equipment.
great vid. Don't forget tax ramifications. Here in Australia we depreciate at 15% for the first year then 30% per year until its gone... Can make a machine a more viable proposition.... I guess the justification costing is an entirely different topc.
Wow. 5.5% interest rate is super cheap. When I started in 2012 I was at 13.5% collateral free, now 11%. Loans are the best thing for a business. How else would a business grow fast
Paying 170k$ of borrowed money for a CNC is just stupid, unless you're a really big company, where $$$ doesn't matter. Maybe not as stupid as buying a car, but close. If you crash it or otherwise have trouble keeping it running, you'll loose money in all different direction, to bank, to the fixers and to customers. There is lots of old iron around, sometimes for scrap price, that usually needs some love, but is still good enough for most work. Buy it cheap and fix it and keep your freedom (and don't get into the jaws of the banksters).
This was a great video. I have generally been able to avoid debts in my business but sometimes it totally makes sense. As you presented - THE DETAILS ARE CRITICAL!!!!!!
I just got a brand new Haas Mini Mill that was financed. I had the cash to get a Tormach - but really needed a faster and more capable machine. No regrets! Now I have a 15k rpm 15hp machine that is making FAR more money than I could with the Tormach. It makes sense and the machine is half paid for already (only 10 months).
The Haas terms were favorable and they are easy to deal with.
How do you find your first customer?
@@georgie8132 I have owned a few businesses over a couple of decades. For this particular one, I got the first customer knowing that I could outsource if needed, but was planning to buy a machine. The project was engineering a project...not specifically a job shop machining thing. I use the CNC to support my engineering design biz.
Man you hit it right on the head when you said banks and lenders AREN'T your friends. No truer words were ever spoken! With all the hoops that need to be jumped through with borrowing money it sounds like the way to go would be strictly cash ALL the way, banks be damned! Thanks for the video.
"Line of credit" is even scarier. A builder I knew (well) had such and used it for working capital (land, materials, labor costs) to produce homes that were sold year after year. In the '80s, due to the Savings and Loan crisis, the bank regulators issued rules directing Banks to reduce their exposure to Real Estate. The bank called the loan, all other banks are in the same boat, next step was Bankruptcy (and liquidation) of a functional, profitable ongoing business. Don't get yourself in a position where you can lose everything because of bad decisions made by bureaucrats in Washington, D.C.
been there done that..... except the loan contract didnt let the bank call the loan, which they did anyway.
the business was gone by the time we won in court but that bank was succesfully added to the list of banks that died due to 2008
Completely agree with no debt growth. I saved up to buy my Tormach and owe nothing. I won't be getting a fancier machine until I've earned the money first.
I was once told a story by an excavator contractor who was buying a house, the bank suggested that he would get a large mortgage to buy another excavator. Suggesting to still make payment on it in 30 years, while those things are "scrap" in 10 years. Luckily he knew better, sadly a lot of people dont.. great video!
this is, unfortunately, the kind of basic, useful information they don't even bother teaching in high school any more. could keep a lot of kids out of debt if you show them a few nasty charts like those where you negotiate your fancy new $70k truck's loan off monthly payment but never actually pay down the principal.. making those extra payments when you can is absolutely crucial like you said, you're killing principal in a hurry which means you're paying so much less interest. unfortunately to most people a good month means it's time to finance something new..
I'm not exaggerating when I say that I've learned more from your channel than from the tragically underfunded community college I attended, where I tried to learn CNC. You're clear, energetic, and inspiring. I'm a born and raised new yorker who has tried to look under every stone here in my city to try to expose myself to CNC. I ended up working at shop in brooklyn where I tried learning on the job. I was there for a little over a year. I left the shop to go work at an electronics manufacturer. The passion for machining never left me though. It's a good day when I can sit down and absorb any of your fusion videos, widgets or business vids. Keep it up John, and thanks for getting this info out there to the world. Keep inspiring us!
This video couldn't come at a better time! We are actually in the middle of buying a machine. Thanks John!
I like your idea of bootstrapping. I've borrowed money for equipment to do a job and when I get paid I pay off the loan. Don't buy equipment till you have a job to pay for it. Now I have done jobs that didn't pay off the equipment and I work basically free but won't take the job to buy the equipment unless I pay nearly all the loan or what I paid for the equipment.
Knowing how loans work are so important for small and new business' . I'm glad you made this video.
The teachings of Dave are the BEST!!!
Don't be slave to the lender.
ALWAYS read the fine print! I financed a lab scope and didn't read the fine print and found out I wont save anything if I pay the loan off today or in 5 years :( Great Video
Wow, first you talk about Lathes, and now DEBT? Are you feeling okay? Is there something we need to know John?
Great video John! I never finance machines, but would definitely consider these options in the future as I expand and purchase a building and newer machinery in the coming years. Love your videos!
a used Haas vf1 or vf2 off ebay for 10- 15k. a loan means you are forced to be standing there running the machine to pay for the interest....and then the software and tooling. good luck.
pay cash for your machines.....if it sits its paid for.
Over the top John. Like a college class in one video. Amazing.
Really good in depth video, not just for entrepreneurs but also for personal loans!
You generally shouldn't be making extra payments to a loan unless you can't make more with that money doing something else. If you're only paying a 5.5% interest rate, as in the example, you're probably better off investing the money in your business.
I agree 100%. Financing is often much cheaper than avoiding interest payments if/when the numbers are in your favor re-investing.
@ncholas 100% of the people that are foreclosed on owe money on the thing that was foreclosed. I heard Dave Ramsey talk use that line (only in reference to homes) on his podcast once. While I don't necessarily disagree with your logic, overthinking the math isn't exactly part of the Dave Ramsey way.
TOP reason small business fails is lack of cash flow. If you are a job shop and have "real" customers you are probably going to have net 30 and higher payment terms. A good size job comes in and you have to order $5000 worth of materials and tooling and you wont see that money back for 2 months. Then another order comes in. Now you have a bunch of cash tied up and you have to cover rent, financing, and other bills. To operate even a small shop you need tens of thousands in reserve cash, or the smallest hitch can shut you down permanently.
CNCA finaicing from HAAS works quite a lot differently than most commercial financing I had seen prior. Really pretty easy to secure, low interest rate, relatively low down payment. Debt can go very badly for people and it shouldn't be taken on casually, but it's not all doom and gloom either. These machines have incredible ROI if you know how to sell the work and they don't depreciate very quickly. Nothing wrong with no-debt growth, but just as I've had to confront some of my own cheapskate habits that were holding me back, being hardline anti-debt isn't always helpful either. The total interest paid on a 36 month loan on a new VF4ss is between $3-4k. It becomes a question of whether or not you want to sign yourself up for the stress and commitment of payments, and if you can stomach the worst case scenario playing out.
WELL DONE BIG JOHN WELL DONE..YOU COVERED IT ALL..
Excellent video.
I have never used a bank for a loan on equipment. Tried it once and the BS they make you go through isn't worth it. Two times it was a machine financing company. They were fast, simple and easy to deal with and with better terms than the bank.
The contracts for real estate (sale or lease) should require the same amount scrutiny as the machine purchase.
Great video with lots to learn from!
It's a good video and great for someone to touch on a very important thing in this country, the lack of m0 (debt free dollars) available for industry such as this, which creates vital infrastructure for virtually everything. Our banks operate at huge 90% reserve ratio that means 90% of money is created not by the fed, or by the treasury, gov, but by private banks in the form of loans. The bank has say 100 dollars of total savings from it's customers its allowed to lend out up to 90% of that to people. So the 190 dollars of money available, 90 is owed to banks, this works as long as people pay it back, but the second you put interest on it, then there simply isn't enough money available to pay back all loans. It simply doesn't account, thus default is guranteed. China is largest bond holder, u.s. bonds are the only net source of m0 debt free currency. Thus we're swimming in debt sourced money, playing a game of musical chairs debt payment where there not enough charis for everbody to pay off thier debt. While china is swimming in what few dollars our treasury prints. No wonder they have 7% growth per year and can out produce american manufacturers. They relatively are picking dollars off trees compared to us. We have to charge more.
Not saying loans are bad, but over all when we operate at say a 10% reserve, where 10% of money is from loans, instead of 90, it works much better. Loans are likely to be repaid, making more sense for everyone, banks, and loan payees.
Also for many, loans will play a role when procuring property suitable for machining operations. Tormach 440 or lathe isn't unobtainable, the property to keep it at is.
And this is the very reason i have followed you on UA-cam seance i found your Chanel. you would have made a good teacher, glade you went into machining instead . :)
Thank you! I wish this would be shown to high school students so they could be exposed to a finance scenario..
Great info whether you are buying a machine, a car, or a house!
Good advice for buying a CNC machine, but also relevant for house and car purchases.
John, thank you for this video. I remember a conversashoulyou and I had on the pitfall that is debt. It can have its place but really should be avoided at all costs, like you say.
Banks have to make their mmoneyand I get that, but a lot of the things you shed light on here makes loans seem like awfully crooked business! Hence why it is always vital to read and reread any important document before you sign it. And if "they" get impatient, all the more reason to be wary...
That was very well explained, I'm in my thirties and have had two business before, both very small but profitable and I to this day literally don't have a credit score, instead it's three dash marks.
Great business advice for everyone looking into purchasing money making assets
i would not even consider getting a high dollar machine until i had the jobs lined up or have a customer who is willing to grantee the work flow
n ackermann this is north America, that rarely happens in real time, so I like how he shows the options for the loan but in reality , you will always be working with what you have until you are sure, that will be useful not for only the one year customers coming from china asking you to do inserts for joints Chinese factories screwed up and you have to do the joints of electrical housing or robotics arms, not the arms, the elbows of the arms
book1 30 im not sure what your heading with the china and robitc arms but you just don't go out and buy a machine tool because you want one. Every purchase in the machine shop needs to have a purpose. And yes you get contacts then buy machine tools you don't need a machine to get a contact and its safer if you know you can make money off the machine before you buy. If you buy a machine and expect the work to come your barking up the wrong tree i like the video im just saying i would not get a machine then get the jobs i would rather need the machine then try to find work. That what john dose he got both haas for work he needed done.
N ackermann, its important to define "high dollar." For many, a Tormach 440 is high dollar. With that said, good luck getting contract work without real and expensive machines.
Foomanlol not not try to bash on people who are not in the industry but look a liberty machine that what he did to get the machine he had a costumer who need the work done and he had the experience to do the work and just needed the machine. Im speaking in refoance if you had a real machine machine shop i cant imagine trying to get a big dollar contract if you were working out of your garage and didn't have anything to show then its another story.
It doesn't really work like that. You can't really "line up jobs" with extra time you buy a machine. Machining jobs are usually immediate, short term jobs, not something you can line up. The ones you can line up (reoccurring jobs or future jobs) but they're not as common as jobs that take place over a shorter time period than it takes to get a machine. You can't just start saving jobs, and then for them in 6 months when you get a machine. You can't line up jobs, then say now ok get a machine. The customer will want their parts before you can get a machine. Finance the machine, paying cash for it is the dumbest thing you can do. Even if you have $10M in the bank, and you want a $100K machine... Finance it. That $100K is a lot better if it's in your bank/investment portfolio than it is in the bank's bank/investment portfolio.
While it is of course almost always a better options to acquire fixed assets with your own funds, debt allows for a leap forward. Then it is your job as an entrepeneur to correctly estimate the leap you can take by properly estimating your future cashflow and building a return on investment analysis. I believe that John already has very properly describded the process.
Also do not mistake investment debt with operating debt, investing for the expansion is financing the future, financing your working capital has to trigger quality of earnings question : bad business, bad customers, bad operationnal efficiency... (get your CPA to help you)
Then John said pretty much all of it, do care for the fine prints and what they mean. Treat your loaners like you do you suppliers, tenderize, go to one with the offfer from the others make them fight for your business. Again a CPA or financing trader can help.
Also do not overlook financial leases, cost of ownership is slightly higher but liabilities are usually constrained to the acquired piece of equipment.
great vid. Don't forget tax ramifications. Here in Australia we depreciate at 15% for the first year then 30% per year until its gone... Can make a machine a more viable proposition.... I guess the justification costing is an entirely different topc.
the more loan you got the faster you can grow the business .. but also a fast lane to bankrupcy if the market change..
Because full throttle Cnc has a video on this recently ?
great info. keep up the good work.
Nice vid John, lots of “common sense” tips and suggestions.
Top work mate
Another great video! Thanks for posting.
Very nice. Thank you for making awesome videos.
Brilliant advice.
Wow. 5.5% interest rate is super cheap. When I started in 2012 I was at 13.5% collateral free, now 11%. Loans are the best thing for a business. How else would a business grow fast
Fantastic info here. Although these days Real estate just goes up and up at least it does here in Vancouver lol
There is a NFP that by loans and writes them off it the US what they buy the loan for is strange.
17:18 Heyyy, that's pretty good. :P
Holy hell this is a great vid 👍
Paying 170k$ of borrowed money for a CNC is just stupid, unless you're a really big company, where $$$ doesn't matter. Maybe not as stupid as buying a car, but close. If you crash it or otherwise have trouble keeping it running, you'll loose money in all different direction, to bank, to the fixers and to customers. There is lots of old iron around, sometimes for scrap price, that usually needs some love, but is still good enough for most work. Buy it cheap and fix it and keep your freedom (and don't get into the jaws of the banksters).
got distracted when I saw you can use a + in front of excel formula and it turns to =
Appreciate the heck out of your efforts, but it's kind-of annoying to listen to you call "borrowing", "barroween".