Why I Wouldn’t Invest in a CNC Machine Shop

I’ve spent more than 17 years in manufacturing, working both on the OEM side and with custom manufacturers. I’ve seen how contract manufacturing, sheet metal shops, and CNC machine shops perform across different industries. For someone new to the space, a machine shop that has been around for decades might look like a safe bet. Longevity feels like stability. In reality, that assumption can be misleading. Here’s why. Most CNC machine shops are owner-operated. The founder usually had technical expertise, industry contacts, or a reputation for quality work. They started a shop, built relationships, and made it work. The challenge comes when these owners retire. For many of them, the shop was more of a job and lifestyle than a scalable business. That creates both opportunity and risk. Many of these shops run on razor-thin margins, sometimes even at a loss on a job-by-job basis. This makes it difficult to reinvest in people or equipment, which in turn limits growth. Another factor is customer concentration. Most shops serve aerospace or defense companies depending on their region. If you are looking at a shop, you need to understand the local ecosystem. Who are they serving, and how exposed are they to a single customer or industry cycle? Unlike OEMs, machine shops rarely own intellectual property. They are service providers who live and die by the swings of the economy and the industries around them. No matter how strong your quality or customer service is, buyers will often view you as a commodity. Relationships help, but cost pressures usually win. That is why due diligence is critical. I wouldn’t touch a shop without understanding: • Gross margin by product or process • What true differentiators exist, verified directly by customer feedback • Whether the business generates healthy EBITDA and not just top-line revenue • If there is enough margin to reinvest in people and machines Without these, you risk buying a money pit. If you are a large corporate buyer with deep pockets, you might take it on as a turnaround or tax play. But for an individual searcher or small business owner, the downside can be significant. This is just my perspective based on what I’ve seen. I’d love to hear from those who have acquired machine shops. What was your experience? What lessons did you take away?