# Buying a Machine Shop

What machine shops trade for, why two thirds of revenue is spent before it is earned, and the registration one defense part leaves behind.

Source: https://searchspheresource.com/guides/buying-a-machine-shop
Last checked: 2026-10-03

## The Largest Manufacturing Trade in the Country

Machine shops are the biggest six-digit manufacturing industry in the United States by establishment count: 17,163 of them in the 2022 Economic Census, ahead of commercial printing and well ahead of retail bakeries. What makes the trade unusual is that the size never turned into scale. Those 17,163 establishments belong to 16,876 firms, which is 1.017 locations per firm, so almost every shop in the country is its own company. Average receipts run 2.6 million dollars and average headcount thirteen. A [searcher](https://searchspheresource.com/glossary/searcher) looking for a fragmented trade with a real national population and almost no roll-up already in place is describing this one.

## What Machine Shops Trade For

The marketplace's machining and tooling class puts sold-business quartiles at 2.32x to 4.23x [SDE](https://searchspheresource.com/glossary/sde) from 2021 through 2025, with a median near 3.08 and an average of 3.45, and [revenue multiples](https://searchspheresource.com/glossary/gross-revenue-multiple) between 0.53x and 1.12x. The class median sale price is 840 thousand dollars on median revenue of 1.09 million and median owner earnings of 269 thousand, and the median listing took 206 days to sell. The publisher describes the population as ranging from small local machine shops to larger specialized businesses doing CNC work, tool and die, prototype manufacturing and custom fabrication, so the band covers the job shop a searcher is actually looking at.

## Two Thirds of Revenue Is Spent Before It Is Earned

The federal cost structure is the reason this trade rewards operators and punishes optimists. Across the class in 2022, receipts of 44.7 billion dollars carried 16.4 billion of supplies and materials and 13.6 billion of payroll. That is 36.6 percent and 30.4 percent, so materials and labor together take 67 percent of every dollar before rent, machines or the owner. A shop quoting from a stale material price is quoting at a loss, and a quote book that has not been repriced since the last steel move is the single most common thing wrong with a shop that looks cheap. Ask what the reprice cadence is and who does it.

## One Defense Part and the Shop Is Registered

A shop that makes even one part on the United States Munitions List must register, because the rule counts a single occasion of manufacturing as engaging in the business. 22 CFR 122.4 requires a registrant to notify the Directorate of Defense Trade Controls in writing, signed by a senior officer, within five days of a change in ownership or control. The clause that costs money is 122.4(c)(3): the notification must list the license numbers of all approvals on which unshipped balances will ship under the surviving registration, because any license not named is considered invalid. A foreign buyer has a different clock, sixty days in advance of the transfer.

## What to Verify in Diligence

A shop is a quote book, a machine list and a [customer concentration](https://searchspheresource.com/glossary/customer-concentration) problem. Verify:

## Financeability Notes

Machine shops finance well under [SBA 7(a)](https://searchspheresource.com/glossary/sba-7a) because the collateral is real and the trade has a deep used market: CNC equipment has a published auction record a lender can check, which is more than most service businesses offer. Expect underwriting to weigh customer concentration hardest, since a shop with one aerospace customer at half of revenue is a single-contract business wearing a manufacturer's clothes. Model debt service against a [market wage](https://searchspheresource.com/glossary/market-wage) for a working owner who programs and quotes, because that is the seller's real job, and against a materials line at current prices, not the trailing average.

## Terms in This Industry

- **Quote book**: The prices a shop is currently honoring, and the material cost they were set against. A machine shop's revenue is priced before it is made, sometimes months before, and the cost of the steel or aluminum moves in between. Materials and payroll together take about two thirds of every dollar in this trade, so a quote written against a stale material price is a job the shop will lose money completing. The book is also a commitment: customers hold shops to quoted prices long after they were given. Ask when prices were last reset, against what cost, who does the resetting, and how many open quotes are outstanding.
- **Spindle hours**: Machine time actually cut, which is the capacity a shop sells, not the floor it has. Shops are sold on the machine list, which is a list of assets and not a measure of throughput. What matters is how many hours each spindle actually runs, because an idle machine is depreciation and a bottleneck machine is the whole business. A shop with nine machines and one that runs three shifts has a capacity problem a buyer can fix with capital, or a demand problem no capital reaches. Ask for hours by machine, and read them against the age and last service record of each.
- **ITAR registration**: The defense-trade registration a single munitions-list part obliges a shop to hold. It is the compliance obligation most likely to arrive unannounced in a shop that thinks of itself as a job shop. One part on the United States Munitions List obliges the business to register, and the registration stays with the company that holds it. On a change of ownership or control the registrant must notify the federal directorate in writing, signed by a senior officer, within five days. A foreign buyer faces a different clock, sixty days ahead of the transfer. Ask what defense work is in the shop's history, not what is on the floor today.
- **Unshipped balance**: Export approvals with shipments still to run, which must be named at a change of ownership. This is the sentence in the notification rule that costs money. The written notice of a change in ownership has to list the license numbers of every approval on which unshipped balances will be shipped under the surviving registration, because any license not named is considered invalid. A shop with open export approvals and an incomplete notification loses the right to ship against them, and the customer order does not wait. Ask for the list of active approvals and their remaining balances before the notification is drafted, not after.
- **Materials share**: Supplies and materials as a percentage of receipts, which the federal file publishes for the trade. The class average is about thirty-seven percent, and payroll takes another thirty, so two thirds of revenue is committed before rent, machines or the owner. That ratio is the fastest read on whether a shop is priced properly. Materially above the class average means either the quote book is stale or the scrap rate is high. Materially below usually means the work is labor-heavy and not material-heavy, which is a different business with a different risk. Compute it from the seller's own purchases, not from the tax return line.
- **First article inspection**: A measured report proving the first part matches the drawing, which is a customer's rule and not law. Worth knowing what this is and what it is not. The report itself comes from an industry standard a customer imposes through its own quality system, so a shop that has run a job for years holds something a competitor cannot quote around, because requalifying costs the customer time and paperwork. It is NOT the federal instrument of nearly the same name, which is a contracting officer's written acceptance of test results and is normally not required at all where the specification is complete and detailed. Treating the two as one is the mistake to avoid. What the law does require of a shop on government work is records: books, documents, accounting practices and supporting evidence made available to the agency and to the Comptroller General for three years after final payment. The subpart says contracts and contractors include subcontracts and subcontractors, so a sub-tier shop is caught by it.
- **Unreturned manifest**: A waste shipment whose signed copy never came back, which the shop must chase and then file on. Materials share counts what comes in. This is the part that does not become a part: spent coolant, spent solvent and grinding sludge leave on a manifest, and the shop's liability does not end when the truck does. A large quantity generator with no signed copy back within sixty days files an exception report, with a first clock at forty-five days to chase the transporter, and since December 2025 the paper route is gone. A shop under the very small generator line of a hundred kilograms a month files nothing, so the first question is which class the seller is in, and the answer is a monthly weight the seller may never have computed. Above it, a gap in the manifest file is an open liability a stock buyer takes whole, and it is what turns a lender's Phase I into a Phase II.
- **CMMC status**: The Defense Department cybersecurity status a shop needs to win work putting federal data on its systems. ITAR registration and the unshipped balance are the State Department's half of defense work. This is the Defense Department's half, and it follows the customer's information. Every shop at every tier that will process, store or transmit controlled unclassified information on its own systems needs a current CMMC status, and the prime must confirm it before awarding the subcontract. Handling that kind of information takes Level 2, and a prime held to third-party certification passes that requirement down. Phase 1 began on November 10, 2025, with self-assessed status as the intended condition of award. From November 10, 2026, the department intends to add third-party Level 2 certification to applicable solicitations. A final status lasts three years, needs an affirmation every year, and belongs to each information system that was assessed. Ask for the shop's SPRS entries, its CMMC identifiers and any open plan of action, and price whatever is missing.

## What the Data Says

- The 2022 Economic Census counts 17,163 machine shop establishments across 16,876 firms, the largest six-digit manufacturing industry in the country by establishment count and almost entirely single-site at 1.017 locations per firm. (2022 Economic Census, NAICS 332710 Machine Shops: https://data.census.gov/table/ECNBASIC2022.EC2231BASIC?n=332710)
- The Bureau of Labor Statistics counts 259,100 employees in machine shops as of July 2026, against 226,604 recorded in the 2022 Economic Census. (BLS Current Employment Statistics, machine shops (CEU3133271001): https://data.bls.gov/timeseries/CEU3133271001)
- The SBA size standard for machine shops is a headcount rather than a receipts figure: 500 employees, which almost [no shop](https://searchspheresource.com/glossary/no-shop) in the trade approaches. (13 CFR 121.201, small business size standards: https://www.ecfr.gov/current/title-13/chapter-I/part-121/subpart-A/subject-group-ECFR882d0d17e0a5c56/section-121.201)

This industry ranks in the Metro Target Scans for Chicago (https://searchspheresource.com/data/metro-target-scans/chicago). The scans rank a trade on acquisition-loan volume, loan size and moat, and on survival only where the loan file holds enough seasoned loans to publish a rate.

## Who Else Is Buying in This Industry

- PMGC Holdings (Newport Beach, California): A listed holding company rolling up US precision machining, which buys single CNC shops outright and prints the revenue it bought in the release. Newest here: A&B Aerospace, Inc. · 2026 · An Azusa, California precision machining company for aerospace, which absorbed the AGA subsidiary that July. 3 more confirmed on its profile. (https://searchspheresource.com/buyers/pmgc-holdings)
- Cadrex Manufacturing Solutions (Westminster, Colorado): A sponsor-built precision manufacturing platform that buys machine shops and metal fabricators outright, and runs them as facilities inside one North American footprint. Newest here: D&R Machine Company · 2023 · A Southampton, Pennsylvania CNC machining shop for aerospace and defense, founded in 1971, with nearly forty CNC machines. 3 more confirmed on its profile. (https://searchspheresource.com/buyers/cadrex-manufacturing-solutions)

## What It Costs to Replace the Owner

The multiples are quoted on SDE, which adds the owner's pay back into earnings, so they hold only if you do the owner's job. For this trade the replacement is usually the plant supervisor over the machines and the crew, paid a median of $74,450 a year nationally; at a 3x multiple that wage takes about $223,350 off what the business is worth to you. First-line supervisors of production and operating workers, BLS Occupational Employment and Wage Statistics (2025), national, all industries, before payroll taxes and benefits (https://searchspheresource.com/data/manager-wages).

## The Numbers That Run This Business

- Quote-to-order rate
- Customer concentration by gross profit
- Spindle hours by machine
- Materials as a share of revenue
- Work in progress against billings

Site index for machines: https://searchspheresource.com/llms.txt