How to write a business plan for a CNC machining workshop?

Putting together a business plan for a CNC machining workshop can be daunting - especially if you're creating a business for the first time - but with this comprehensive guide, you'll have the necessary tools to do it confidently.

We will explore why writing one is so important in both starting up and growing an existing CNC machining workshop, as well as what should go into making an effective plan - from its structure to content - and what tools can be used to streamline the process and avoid errors.

Without further ado, let us begin!

Why write a business plan for a CNC machining workshop?

Having a clear understanding of why you want to write a business plan for your CNC machining workshop will make it simpler for you to grasp the rationale behind its structure and content. So before delving into the plan's actual details, let's take a moment to remind ourselves of the primary reasons why you'd want to create a CNC machining workshop business plan.

To have a clear roadmap to grow the business

Small businesses rarely experience a constant and predictable environment. Economic cycles go up and down, while the business landscape is mutating constantly with new regulations, technologies, competitors, and consumer behaviours emerging when we least expect it.

In this dynamic context, it's essential to have a clear roadmap for your CNC machining workshop. Otherwise, you are navigating in the dark which is dangerous given that - as a business owner - your capital is at risk.

That's why crafting a well-thought-out business plan is crucial to ensure the long-term success and sustainability of your venture.

To create an effective business plan, you'll need to take a step-by-step approach. First, you'll have to assess your current position (if you're already in business), and then identify where you'd like your CNC machining workshop to be in the next three to five years.

Once you have a clear destination for your CNC machining workshop, you'll focus on three key areas:

• Resources: you'll determine the human, equipment, and capital resources needed to reach your goals successfully.
• Speed: you'll establish the optimal pace at which your business needs to grow if it is to meet its objectives within the desired timeframe.
• Risks: you'll identify and address potential risks you might encounter along the way.

By going through this process regularly, you'll be able to make informed decisions about resource allocation, paving the way for the long-term success of your business.

To anticipate future cash flows

Regularly comparing your actual financial performance to the projections in the financial forecast of your CNC machining workshop's business plan gives you the ability to monitor your business's financial health and make necessary adjustments as needed.

This practice allows you to detect potential financial issues, such as unexpected cash shortfalls before they escalate into major problems. Giving you time to find additional financing or put in place corrective measures.

Additionally, it helps you identify growth opportunities, like excess cash flow that could be allocated to launch new products and services or expand into new markets.

Staying on track with these regular comparisons enables you to make well-informed decisions about the amount of financing your business might require, or the excess cash flow you can expect to generate from your main business activities.

To secure financing

Crafting a comprehensive business plan for your CNC machining workshop, whether you're starting up or already established, is paramount when you're seeking financing from banks or investors.

Given how fragile small businesses are, financiers will want to ensure that you have a clear roadmap in place as well as command and control of your future cash flows before entertaining the idea of funding you.

For banks, the information in your business plan will be used to assess your borrowing capacity - which is defined as the maximum amount of debt your business can afford alongside your ability to repay the loan. This evaluation helps them decide whether to extend credit to your business and under what terms (interest rate, duration, repayment options, collateral, etc.).

Similarly, investors will thoroughly review your plan to determine if their investment can yield an attractive return. They'll be looking for evidence that your CNC machining workshop has the potential for healthy growth, profitability, and consistent cash flow generation over time.

Now that you understand the importance of creating a business plan for your CNC machining workshop, let's delve into the necessary information needed to craft an effective plan.

Information needed to create a business plan for a CNC machining workshop

Drafting a CNC machining workshop business plan requires research so that you can project sales, investments and cost accurately in your financial forecast, and convince the reader that there is a viable commercial opportunity to be seized.

Below, we'll focus on three critical pieces of information you should gather before starting to write your plan.

Carrying out market research for a CNC machining workshop

Before you begin writing your business plan for a CNC machining workshop, conducting market research is a critical step in ensuring precise and realistic financial projections.

Market research grants you valuable insights into your target customer base, competitors, pricing strategies, and other crucial factors that can impact the success of your business.

In the course of this research, you may stumble upon trends that could impact your CNC machining workshop.

You may discover that customers are increasingly interested in CNC machining services that can provide cost savings or shorter lead times. Additionally, you could discover that clients may be looking for CNC machining services that offer high levels of customization to meet their specific needs.

Such market trends play a pivotal role in revenue forecasting, as they provide essential data regarding potential customers' spending habits and preferences.

By integrating these findings into your financial projections, you can provide investors with more accurate information, enabling them to make well-informed decisions about investing in your CNC machining workshop.

Developing the marketing plan for a CNC machining workshop

Before delving into your CNC machining workshop business plan, it's imperative to budget for sales and marketing expenses.

To achieve this, a comprehensive sales and marketing plan is essential. This plan should provide an accurate projection of the necessary actions to acquire and retain customers.

Additionally, it will outline the required workforce to carry out these initiatives and the corresponding budget for promotions, advertising, and other marketing endeavours.

By budgeting accordingly, you can ensure that the right resources are allocated to these vital activities, aligning them with the sales and growth objectives outlined in your business plan.

The staffing and equipment needs of a CNC machining workshop

Whether you are at the beginning stages of your CNC machining workshop or expanding its horizons, having a clear plan for recruitment and capital expenditures (investment in equipment and real estate) is vital to ensure your business's success.

To achieve this, both the recruitment and investment plans must align coherently with the projected timing and level of growth in your forecast. It is essential to secure appropriate funding for these plans.

A CNC machining workshop might incur staffing costs such as wages for machinists, supervisors, and office personnel, as well as payroll-related costs such as taxes and employee benefits. Equipment costs could include the purchase of CNC machines, cutting tools, measuring instruments, and other specialized tools. Additionally, the workshop may need to allocate funds for preventive maintenance, repairs, and replacement of worn parts.

To create a financial forecast that accurately represents your business's outlook, remember to factor in other day-to-day operating expenses.

Now that you have all the necessary information, it's time to dive in and start creating your business plan and developing the financial forecast for your CNC machining workshop.

What goes into your CNC machining workshop's financial forecast?

The objective of the financial forecast of your CNC machining workshop's business plan is to show the growth, profitability, funding requirements, and cash generation potential of your business over the next 3 to 5 years.

The four key outputs of a financial forecast for a CNC machining workshop are:

• The profit and loss (P&L) statement,
• The projected balance sheet,
• The cash flow forecast,
• And the sources and uses table.

Let's look at each of these in a bit more detail.

The projected P&L statement

The projected P&L statement for a CNC machining workshop shows how much revenue and profit your business is expected to make in the future.

A healthy CNC machining workshop's P&L statement should show:

• Sales growing at (minimum) or above (better) inflation
• Stable (minimum) or expanding (better) profit margins
• A healthy level of net profitability

This will of course depend on the stage of your business: numbers for a startup will look different than for an established CNC machining workshop.

The projected balance sheet of your CNC machining workshop

Your CNC machining workshop's forecasted balance sheet enables the reader of your plan to assess your financial structure, working capital, and investment policy.

It is composed of three types of elements: assets, liabilities and equity:

• Assets: represent what the business owns and uses to produce cash flows. It includes resources such as cash, equipment, and accounts receivable (money owed by clients).
• Liabilities: represent funds advanced to the business by lenders and other creditors. It includes items such as accounts payable (money owed to suppliers), taxes due and loans.
• Equity: is the combination of what has been invested by the business owners and the cumulative profits and losses generated by the business to date (which are called retained earnings). Equity is a proxy for the value of the owner's stake in the business.

Your CNC machining workshop's balance sheet will usually be analyzed in conjunction with the other financial statements included in your forecast.

Two key points of focus will be:

• Your CNC machining workshop's liquidity: does your business have sufficient cash and short-term assets to pay what it owes over the next 12 months?
• And its solvency: does your business have the capacity to repay its debt over the medium-term?

The cash flow forecast

As we've seen earlier in this guide, monitoring future cash flows is the key to success and the only way of ensuring that your CNC machining workshop has enough cash to operate.

As you can expect showing future cash flows is the main role of the cash flow forecast in your CNC machining workshop business plan.

It is best practice to organise the cash flow statement by nature in order to show the cash impact of the following areas:

• Cash flow generated from operations: the operating cash flow shows how much cash is generated or consumed by the business's commercial activities
• Cash flow from investing activities: the investing cash flow shows how much cash is being invested in capital expenditure (equipment, real estate, etc.) either to maintain the business's equipment or to expand its capabilities
• Cash flow from financing activities: the financing cash flow shows how much cash is raised or distributed to financiers

Looking at the cash flow forecast helps you to make sure that your business has enough cash to keep running, and can help you anticipate potential cash shortfalls.

Your CNC machining workshop business plan will normally include both yearly and monthly cash flow forecasts so that the readers can view the impact of seasonality on your business cash position and generation.

The initial financing plan

The initial financing plan - also called a sources and uses table - is an important tool when starting a CNC machining workshop.

It shows where the money needed to set up the business will come from (sources) and how it will be allocated (uses).

Having this table helps understand what costs are involved in setting up the CNC machining workshop, how the risks are distributed between the shareholders and the lenders, and what will be the starting cash position (which needs to be sufficient to sustain operations until the business breaks even).

Now that the financial forecast of a CNC machining workshop business plan is understood, let's focus on what goes into the written part of the plan.

The written part of a CNC machining workshop business plan

The written part of a CNC machining workshop business plan plays a key role: it lays out the plan of action you intend to execute to seize the commercial opportunity you've identified on the market and provides the context needed for the reader to decide if they believe your plan to be achievable and your financial forecast to be realistic.

The written part of a CNC machining workshop business plan is composed of 7 main sections:

1. The executive summary
2. The presentation of the company
3. The products and services
4. The market analysis
5. The strategy
6. The operations
7. The financial plan

Let's go through the content of each section in more detail!

1. The executive summary

The first section of your CNC machining workshop's business plan is the executive summary which provides, as its name suggests, an enticing summary of your plan which should hook the reader and make them want to know more about your business.

When writing the executive summary, it is important to provide an overview of the business, the market, the key financials, and what you are asking from the reader.

Start with a brief introduction of the business, its name, concept, location, how long it has been in operation, and what makes it unique. Mention any services or products you plan to offer and who you sell to.

Then you should follow with an overview of the addressable market for your CNC machining workshop, current trends, and potential growth opportunities.

You should then include a summary of your key financial figures such as projected revenues, profits, and cash flows.

Finally, you should detail any funding requirements in the ask section.

2. The presentation of the company

The second section in your CNC machining workshop's business plan should focus on the structure and ownership, location, and management team of the company.

The structure and ownership part provides an overview of the legal structure of the business, who the owners are and how much each has invested and owns. If you are seeking financing it is important that the reader gets a clear picture of which legal entity is receiving the funds, and who controls the business.

The location part should give an overview of the premises from which the company is operating, and why that location is of particular interest (catchment area, accessibility, amenities nearby, etc.).

When describing the location of your CNC machining workshop to a third party financier, you may want to emphasize its strategic position in the market. You could highlight its proximity to a major transportation hub, which may enable efficient access to a variety of suppliers and customers. You might also point out the presence of a highly skilled labor force in the area that could help you optimize production. Additionally, you could mention the availability of a supportive local business environment, which could help foster growth.

Finally, you should introduce the management team. Explain each member's role, background, and experience.

It is also important to emphasize any past successes that the members of the management team have achieved, and how long they've been working together, as this will help potential lenders or investors understand why they should trust in their leadership.

3. The products and services section

The products and services section of your business plan should include a detailed description of the offerings that your company provides to its customers. 

For example, your CNC machining workshop might offer custom machined precision parts made from materials such as aluminum, steel, and plastic; intricate precision machining for medical, aerospace, and defense industries; and CNC machining of parts for prototypes, replacements, or repairs. These products and services are offered as they enable customers to get the exact parts they need that are made to precise specifications, and provide industries with custom parts that meet their exact requirements.

When drafting this section, you should be precise about the categories of products or services you sell, the types of customers you are targeting and how customers can buy them.

4. The market analysis

When presenting your market analysis in your CNC machining workshop business plan, you should detail the customers' demographics and segmentation, target market, competition, barriers to entry, and any regulations that may apply.

The goal of this section is to help the reader understand how big and attractive your market is, and demonstrate that you have a solid understanding of the industry.

You should start with the demographics and segmentation subsection, which gives an overview of the addressable market for your CNC machining workshop, the main trends in the marketplace, and introduces the different customer segments and their preferences in terms of purchasing habits and budgets.

The target market section should follow and zoom on the customer segments your CNC machining workshop is targeting, and explain how your products and services meet the specific needs of these customers.

For example, your target market might include businesses in the automotive industry. This could include car manufacturers and parts suppliers who need high-quality and precise parts for their cars. Additionally, this segment could include aerospace companies that need complex and intricate parts for their aircraft.

Then comes the competition subsection, where you should introduce your main competitors and explain what differentiates you from them.

Finally, you should finish your market analysis by giving an overview of the main regulations applicable to your CNC machining workshop.

5. The strategy section

When writing the strategy section of a business plan for your CNC machining workshop, it is essential to include information about your competitive edge, pricing strategy, sales & marketing plan, milestones, and risks and mitigants.

The competitive edge subsection should explain what sets your company apart from its competitors. This part is especially key if you are writing the business plan of a startup, as you have to make a name for yourself in the marketplace against established players.

The pricing strategy subsection should demonstrate how you intend to remain profitable while still offering competitive prices to your customers.

The sales & marketing plan should outline how you intend to reach out and acquire new customers, as well as retain existing ones with loyalty programs or special offers. 

The milestones subsection should outline what your company has achieved to date, and its main objectives for the years to come - along with dates so that everyone involved has clear expectations of when progress can be expected.

The risks and mitigants subsection should list the main risks that jeopardize the execution of your plan and explain what measures you have taken to minimize these. This is essential in order for investors or lenders to feel secure in investing in your venture.

Your CNC machining workshop faces a variety of risks. For example, there could be a risk of injury to workers due to the dangerous machinery used. Furthermore, there may be a risk of a fire due to the combination of flammable materials and high temperatures that can be produced by the machines. It is important to be aware of these risks and take the necessary precautions to ensure the safety of your staff and workshop.

6. The operations section

The operations of your CNC machining workshop must be presented in detail in your business plan.

The first thing you should cover in this section is your staffing team, the main roles, and the overall recruitment plan to support the growth expected in your business plan. You should also outline the qualifications and experience necessary to fulfil each role, and how you intend to recruit (using job boards, referrals, or headhunters).

You should then state the operating hours of your CNC machining workshop - so that the reader can check the adequacy of your staffing levels - and any plans for varying opening times during peak season. Additionally, the plan should include details on how you will handle customer queries outside of normal operating hours.

The next part of this section should focus on the key assets and IP required to operate your business. If you depend on any licenses or trademarks, physical structures (equipment or property) or lease agreements, these should all go in there.

You may have key assets such as expensive machinery, tools, and computer numerical control (CNC) systems. You could also have intellectual property such as product designs, processes, and trade secrets. These may be used to create a variety of products with precise dimensions and shapes for a variety of applications.

Finally, you should include a list of suppliers that you plan to work with and a breakdown of their services and main commercial terms (price, payment terms, contract duration, etc.). Investors are always keen to know if there is a particular reason why you have chosen to work with a specific supplier (higher-quality products or past relationships for example).

7. The presentation of the financial plan

The financial plan section is where we will include the financial forecast we talked about earlier in this guide.

Now that you have a clear idea of the content of a CNC machining workshop business plan, let's look at some of the tools you can use to create yours.

What tool should I use to write my CNC machining workshop's business plan?

In this section, we will be reviewing the two main solutions for creating a CNC machining workshop business plan:

• Using specialized online business plan software,
• Outsourcing the plan to the business plan writer.

Using an online business plan software for your CNC machining workshop's business plan

Using online business planning software is the most efficient and modern way to create a CNC machining workshop business plan.

There are several advantages to using specialized software:

• You can easily create your financial forecast by letting the software take care of the financial calculations for you without errors
• You are guided through the writing process by detailed instructions and examples for each part of the plan
• You can access a library of dozens of complete business plan samples and templates for inspiration
• You get a professional business plan, formatted and ready to be sent to your bank or investors
• You can easily track your actual financial performance against your financial forecast
• You can create scenarios to stress test your forecast's main assumptions
• You can easily update your forecast as time goes by to maintain visibility on future cash flows
• You have a friendly support team on standby to assist you when you are stuck

If you're interested in using this type of solution, you can try The Business Plan Shop for free by signing up here.

Hiring a business plan writer to write your CNC machining workshop's business plan

Outsourcing your CNC machining workshop business plan to a business plan writer can also be a viable option.

Business plan writers are skilled in creating error-free business plans and accurate financial forecasts. Moreover, hiring a consultant can save you valuable time, allowing you to focus on day-to-day business operations.

However, it's essential to be aware that hiring business plan writers will be expensive, as you're not only paying for their time but also the software they use and their profit margin.

Based on experience, you should budget at least £1.5k ($2.0k) excluding tax for a comprehensive business plan, and more if you require changes after initial discussions with lenders or investors.

Also, exercise caution when seeking investment. Investors prefer their funds to be directed towards business growth rather than spent on consulting fees. Therefore, the amount you spend on business plan writing services and other consulting services should be insignificant compared to the amount raised.

Keep in mind that one drawback is that you usually don't own the business plan itself; you only receive the output, while the actual document is saved in the consultant's business planning software. This can make it challenging to update the document without retaining the consultant's services.

For these reasons, carefully consider outsourcing your CNC machining workshop business plan to a business plan writer, weighing the advantages and disadvantages of seeking outside assistance.

Why not create your CNC machining workshop's business plan using Word or Excel?

Using Microsoft Excel and Word (or their Google, Apple, or open-source equivalents) to write a CNC machining workshop business plan is a terrible idea.

Why?

For starters, creating an accurate and error-free financial forecast on Excel (or any spreadsheet) is very technical and requires both a strong grasp of accounting principles and solid skills in financial modelling.

As a result, it is unlikely anyone will trust your numbers unless - like us at The Business Plan Shop - you hold a degree in finance and accounting and have significant financial modelling experience in your past.

The second reason is that it is inefficient. Building forecasts on spreadsheets was the only option in the 1990s and early 2000s, nowadays technology has advanced and software can do it much faster and much more accurately.

And with the rise of AI, software is also becoming smarter at helping us detect mistakes in our forecasts and helping us analyse the numbers to make better decisions.

Also, using software makes it easy to compare actuals vs. forecasts and maintain our forecasts up to date to maintain visibility on future cash flows - as we discussed earlier in this guide - whereas this is a pain to do with a spreadsheet.

That's for the forecast, but what about the written part of my CNC machining workshop business plan?

This part is less error-prone, but here also software brings tremendous gains in productivity:

• Word processors don't include instructions and examples for each part of your business plan
• Word processors don't update your numbers automatically when they change in your forecast
• Word processors don't handle the formatting for you
• ...

Overall, while Word or Excel may be viable options for creating a CNC machining workshop business plan for some entrepreneurs, it is by far not the best or most efficient solution.

Takeaways

1. A business plan has 2 complementary parts: a financial forecast showcasing the expected growth, profits and cash flows of the business; and a written part which provides the context needed to judge if the forecast is realistic and relevant.
2. Having an up-to-date business plan is the only way to keep visibility on your CNC machining workshop's future cash flows.
3. Using business plan software is the modern way of writing and maintaining business plans.

We hope that this practical guide gave you insights on how to write the business plan for your CNC machining workshop. Do not hesitate to get in touch with our team if you still have questions.

Also on The Business Plan Shop

• In-depth business plan structure
• Guide to milestones in your business plan
• How to write the risks and mitigants section of your business plan?
• Difference between business plan and pitch deck
• Key steps to write a business plan?
• Free business plan template

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