Cnc insider

CNC INSIDER

Calculating on CNC Router Investment

Return

Benefits of CNCs in the shop and on the checkbook Funding options that fit your business Section 179 tax break for 2013 Here’s how CNC machines grow woodshop profits

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INVEST. PRODUCE. PROFIT. Brian Acker

“The Laguna CNC Router has not only increased our productivity and accuracy, it has given us capabilities that we previously did not have access to. We can now cut our own molds and do details that were previously too time consuming.”

- Mike Mahoney, Honey Skateboards

LAGUNATOOLS.COM

Contents woodworkingnetwork.com

5 Your Opportunity

Evaluating your company’s Return on Investment

A recent survey from the Cabinet Makers Association shows a majority of woodworkers are optimistic about the immediate future of the industry. Is now is the time for your

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JD Woodcraft: CNC numbers add up

business to buy a CNC machine or upgrade from your current model?

Before you do, assess the Return on Investment (ROI) to see if getting a CNC is right for you.

Taking the step to bring a CNC ma-

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Save tax dollars this year with this small business tool

chine into your shop can be challenging and expensive. But learning about the process and thouroughly evaluating your company’s needs and goals can make the experience much more positive and rewarding

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Laguna’s digital information sources

for your company.

This CNC Insider, brought to you by woodworking technology company Laguna Tools, Inc. and equipment financer Susquehanna Commercial Finance, draws on resources from

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Financing options that could work for you

both companies – providing a wealth of financing tips, tax information, and experiences of custom woodworking businesses like yours that have taken the step of adding a CNC.

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3D Models & Castings: Immediate ROI

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YOUR BEST NEW HIRE! AS LOW AS $5.31* PER HOUR.

“No question the Laguna Tools Smartshop CNC has made us instantly leaner and greener”, said Hayden Hiatt, Vice President of Development for Huntington Industries.

“It used to take us an hour or longer to cut a single frame for one of our products. With the Laguna CNC, we can do the job, including curves and the most intricate angles, in about 20 minutes. That increased level of productivity and reduced labor costs has made us very competitive. ”The Smartshop is as solid and user friendly as it is technologically advanced. The level of customer service from Laguna Tools has been fantastic, in fact, so good that we bought a second machine.”

- Hayden Hiatt of Huntington Industries

*Based on $850 lease payment (avg)/160 hours in a working month=$5.31/hr. Subject to credit approval and other conditions may apply.

LAGUNATOOLS.COM

business Return on Investment

Learn from others’ experiences

So Just What is ROI Anyway?

Before you buy, a Return on Investment assement is beneficial.

By Wade Vonasek

R

eturn on Investment (ROI) should be extremely important to owners of almost any type of business. But do all business owners know exactly what it is? And are they all operating off of the same definition of ROI? According to Wikipedia, Return on Investment (ROI) is “the concept of an investment of some resource yielding a benefit to the investor.” Entrepreneur.com calls it “a profitability measure that evaluates the performance of a business by dividing net profit by net worth.” No matter how it is defined, ROI’s significance to a company’s bottom line shouldn’t be ignored.

The purpose of ROI is to determine a

company’s rate of return on money it might want to invest in its business, and then decide if the investment is financially wise for them to make. ROI gauges how well a business uses its capital to generate profit. A higher ROI basically says that the cost of the capital invested will return to the company with even stronger profits.

There are multiple methods of evaluating ROI available online, including interactive ROI calculators, which can be helpful.

Even with these tools, keep in mind that finding out ROI comes down to measuring the past performance of your company with future factors that may not be static and are based on estimations and assumptions.

ROI on CNC In figuring out his company’s ROI before financing a CNC machine, Greg Glodery of 3D Models & Castings evaluated whether current projects would generate the income needed for monthly CNC payments.

He also broke down his company’s monthly payment over time for the CNC versus the hourly wage for a new employee, with help from Susquehanna Commercial Finance.

Juan Duran, owner of JD Woodcraft stressed how important ROI was to his company when deciding to purchase a new CNC machine from Laguna Tools, as it was one of the first things he took under consideration. Factors over a given period of time such as reduction in waste, quicker production, and reduced labor and liability were all part of his assessment. These things all made his company’s ROI greater.

“All of these are advantages that come along with the purchase of the CNC, plus the ability to use this purchase as a tax write off,” Duran says.

“These are the things we used to calculate the return of investment.”

CNC machines sometime provide a positive ROI because of their ability to lessen labor costs, provide possible tax savings, and produce larger quantities of higher quality products. In addition, well calculated financing can sometimes achieve ROI at a quicker pace than paying cash for the equipment.

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JD Woodcraft

JD Woodcraft

Just Simple Math

The choice to purchase a CNC machine came down to basics for JD Woodcraft.

By Wade Vonasek

O

nce in the shop and running, CNC machines are clearly beneficial in many ways to companies that purchase them. A CNC can sometimes do in a matter of hours what would take a day or days for a human to accomplish.

But the actual decision-making process that goes into buying one can be a difficult one. Does a company finance the CNC machine or pay cash? Which model will be

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best for the company, both financially and in terms of production? Does the company have enough work to make the purchase valid in terms of use, as well as to cover the costs of the machine? Is it better to buy the machine or hire more employees? What about return on investment? All of these questions are vital to analyze when diving into the world of CNC machines.

Riverside, CA-based JD Woodcraft de-

signs and manufactures customized woodwork, including cabinets, carpentry and millwork. When the company was contemplating buying a CNC machine, owner Juan Duran used his experience with a former company to help him make the decision.

Duran’s former company purchased two CNC machines while he was an employee. After his former company bought the first CNC, they ended up letting go of 15

Custom Woodworking Business | CNC INSIDER | woodworkingnetwork.com

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The architectural millwork (above) and residential furniture (right) are just a couple examples of what JD Woodcraft can accomplish with its CNC.

employees while still being able to handle the same amount of work they were already accomplishing. Then, when business picked up even further, the company decided purchasing another CNC machine was in order. His former company still kept the same amount of employees this time, but they also watched their production double. Duran went through the entire process with this company and says this proved to him the value of a CNC machine and how having them could make a business more successful.

“The main reason JD Woodcraft wanted to purchase a CNC is because we had a

previous CNC background, and we were used to the production speed and the quality of the products,” says Duran. “As far as any specific jobs that pushed us towards buying the CNC, there were many due to the fact that 90% of our products are custom store fixtures, and so in order to compete with other businesses, we decided to purchase the CNC.” Weighing the Options Before the recent purchase, JD Woodcraft had also weighed whether to hire more employees or invest in more productive machines. They quickly found the machine

to be much less costly than hiring more employees.

“Apples to apples, you can’t compete with the machine,” says Duran. “It does the work of nearly seven employees, and the machine takes less than an hour to do what would take an employee an entire day.”

This has allowed JD Woodcraft to redistribute employees to other jobs in the shop and made the company more productive as a whole.

“It will take a company to the next level,” says Duran. “The benefits of having the CNC are that we deal with less part handling, it takes less manpower, it is more ac-

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Selecting the Right Machine

curate, and there is no workers comp on the CNC.” Return on Investment (ROI) was extremely important to Duran in his decision as well. JD Woodcraft received an equipment loan from Chase Commercial Bank to pay for the CNC machine, rather than paying cash, in order to receive the tax write offs. And factors over a given period of time such as reduction in waste, quicker production, and reduced labor and liability were all part of the assessment.

“Before buying the CNC machine, one of the first things that we had to take under consideration was what the return on investment would be,” says Duran. “We took into account that the CNC machine would help reduce waste because of its precision, because the machine will make little to no mistakes, meaning that there will be little to no waste of materials. It has a faster production rate with less labor needed. The machine will help the employees complete a job faster and more precise. All of these are advantages that come along with the purchase of the CNC, plus the ability to use

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this purchase as a tax write off. These are the things we used to calculate the return of investment.”

After the Acquisition Installing the CNC proved to be relatively painless for JD Woodcraft. According to Duran, Laguna supplied the company with the correct specifications for electrical and air, and there were no unforeseen challenges because JD Woodcraft were already prepared. “The only thing we needed to do to prepare for the installation of the CNC was creating the space for it,” he adds.

Duran says that in the short term, the CNC will provide more production versus hiring more employees, and in the long term it will allow JD Woodcraft to be able to compete with bigger companies.

“The CNC machine is going to improve our products by greater quality and quantity, and it will be an easier process,” he says. “In the long run, including tax writeoffs and productivity, the company ends up not only saving money, but also improving its business.”

Know What You Need In addition to examining ROI and other financial aspects, it is important to address selecting the right CNC machine for the company’s specific applications. The CNC’s size, features and manufacturer are all significant. In Duran’s case, this was a Laguna SmartShop ll 5’ X 10’ 7.5HP spindle CNC Router.

“At the company I used to work for before opening my own shop, I worked with a similar CNC machine,” says Duran. “It was a 4’x8’, which is smaller than the one I purchased. I bought a bigger machine just because there was no way I could go wrong with a bigger CNC. But they are similar, so I knew how it worked and I knew it would be perfect for my company’s work.”

Integration of the CNC with the existing machines in the shop was not an issue for JD Woodcraft. Duran says the process was a smooth transition due to his previous CNC background. He already had experience operating a CNC machine and the software needed to use it, so the challenges were minimal.

“The process of deciding which software to purchase for the CNC was a little more difficult,” says Duran. “I looked at quite a few. A lot of them were too expensive for my budget. I was interested in getting the same software that I used at my old company. It was just perfect, but was way too expensive for us at the moment.” lagunatools.com/cnc/5x10Smartshop-CNC_router

Custom Woodworking Business | CNC INSIDER | woodworkingnetwork.com woodworkingnetwork.com

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7/11/2013 4:15:02 PM

investment IRS Rule 179

Section 179: Who qualifies?

Section 179 allows most businesses to write off up to $500,000 of capital purchases in one year, instead of depreciating them, through December 31, 2013.

IS NOW THE TIME FOR INVESTMENT?

Section 179 can save companies tax dollars on equipment in 2013.

By Wade Vonasek

G

eared towards helping small- to medium-sized businesses, Section 179 of the United States Internal Revenue Service tax code is a deduction that allows smaller companies to deduct the full purchase price of certain types of property and equipment purchased or financed during the tax year from its gross income as an expense, rather than requiring the cost of the property to be capitalized and depreciated.

How it Works When a business buys certain items of equipment, it usually can write them off a little at a time through depreciation. For

example, if a company spends $50,000 on a machine, it gets to write off around $10,000 a year for five years, depending on the company’s tax status.

With Section 179, most small businesses can write-off the entire cost of its capital purchases in a year instead of depreciating them, up to $500,000, through December 31, 2013. Property is generally limited to tangible, depreciable, personal property which is acquired by purchase to conduct business. The thinking is that if a business can write off the entire amount, it might add more equipment this year instead of waiting to add more over time, essentially stimulating the economy and the company.

Small Business Tool The Section 179 tax deduction can be used by sole proprietors, partnerships and corporations that purchase, finance, and/ or lease less than $2 million in new or used business equipment during tax year 2013. Most tangible goods purchased or financed and placed into service between January 1, 2013 and December 31, 2013 qualify for the Section 179 deduction, including: •Equipment purchased for use in business •Tangible personal property used in business •Business Vehicles with a gross vehicle weight in excess of 6,000 lbs •Computers •Computer “Off-the-Shelf” Software •Office Furniture •Office Equipment •Property attached to a company’s building that is not a structural component of the building •Partial Business Use (deduction based on percentage of time equipment used for business purposes).

The Section 179 deduction decreases on a dollar for dollar scale after $2,000,000 of equipment is purchased. section179.org

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response Call to Action

Contact Laguna A handy online form is accessible to obtain detailed information on Laguna Tool’s equipment and products, which include CNC, edgebanders, sanders and more. Some literature is also available in DVD/video form with a valid telephone number.

LAGUNA LAUNCHES CNC PORTFOLIO

Free, downloadable brochure on CNC woodworking technology.

By Wade Vonasek

L

aguna Tools is offering a free, downloadable color portfolio featuring the latest in CNC woodworking technology, and will debut it at the AWFS Woodworking Fair in Las Vegas, July 24-27, 2013. The downloadable brochure will be available both at the AWFS Woodworking Fair, and online at www.lagunatools.com.

“CNC technology has revolutionized woodworking around the world,” said Catherine Helshoj, Vice President of Laguna Tools. “It drastically reduces material waste, eliminates costly errors, measurably increases shop productivity – and allows woodworking craftsmen to take their art to an entirely different level.”

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A CNC machine can replace numerous other manual machines in one operation, utilizing shop space more efficiently and reducing labor costs, while still designed to be user friendly and useful for all skill levels. Laguna will also help the buyer select the best software for its application.

“Once professionals and hobbyists see the potential a CNC machine could make in their business – or craft – they typically either place an order on the spot or begin budgeting to purchase one,” says Helshoj.

“We look forward to demonstrating for woodworkers the full potential that CNC equipment developed and designed in the U.S. will make in their business or hobby.”

Video Library Laguna Tools website features a video channel, with videos of the company’s machines in action, customer profiles, how-to presentations, show videos, and Tooltalk, featuring Laguna staff and guests covering a variety of woodworking subjects.

Newsletter Laguna Tools distributes an e-newsletter containing insider news on new products, demonstration videos, customer stories and more delivered directly to your inbox.

Custom Woodworking Business | CNC INSIDER | woodworkingnetwork.com

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7/11/2013 4:29:36 PM

business Financing

PROVIDING OPTIONS TO WOODWORKERS

Susquehanna Commercial Finance offers flexibility with financing.

By John Marrazzo

S

tatistics show nine out of ten US companies use financing to acquire their capital equipment and Susquehanna Commercial Finance, Inc. (SCF) has developed many products that make dealing with the company fast and easy. SCF evaluates the customer’s credit application immediately and makes a decision on the application typically with one business day (for requests less than $250,000). SCF’s lease agreement, for transactions under $50,000, is one-page and very user friendly so the customer can spend their time producing products and not caught up reading fine print. Whether in a city, county or state agency, SCF has special municipal financing terms. Most equipment suppliers need a down payment prior to delivering the customer’s equipment, so SCF offers prefunding arrangements if required so the buyer can maintain a positive cash flow.

Starting a new business is very challenging these days, as banks typically do not consider new business financing unless one puts up their home as collateral or secures the financing with 100% cash in their bank that they can not touch. One certainly

does not want to tie up working capital by paying cash that could be much needed down the road. SCF offers new businesses equipment financing up to $50,000 (with a copy of last year’s tax returns) and if the customer’s request is under $35,000, all SCF needs is just its simple one-page credit application, with only the customer’s financed equipment as collateral.

SCF’s customers appreciate that they have the flexibility to pay off their leases or loans any time after 12 months and the company discounts the remaining interest from the balance due. Not all lenders in the equipment financing industry offer this option, which means the customer may be required to pay the sum of the remaining payments to pay off early. With SCF’s early pay off, a customer can keep their working capital and better assess its cash flow down the road. The savings get even better as the government tax benefits, such as Revenue Code Section 179 – Depreciation Deduction, are passed on to the customer.

More and more, SCF sees cash-preferred customers turn to financing to take advantage of these benefits.

About Susquehanna Commercial Finance Flexible Programs Susquehanna Commercial Finance, Inc. (SCF) is a wholly-owned subsidiary of Susquehanna Bancshares, Inc., a financial services holding company with assets of $18 billion. Through the strength of its parent, it can offer the security and resources of a large national financial institution but still provide the flexible programs and personal service of a small company. SCF has been providing leases and loan products to the woodworking industry for nearly 15 years. As a resource for equipment financing, the customer has the comfort of knowing their loan will not be sold to another lender and they can count on service after the sale.

Susquehanna’s team of dedicated woodworking specialists average more than 25 years of equipment financing experience. Whether it’s just a standard $1.00 buyout lease, commercial loan, or a creatively structured step up/deferred payment schedule, the company understands its customers’ different needs and tailors a customized financing program to their liking.

SCF can help a customer maintain working capital, receive government tax benefits, and let their new equipment generate income while in use and see and immediate return on investment. Contact John Marrazzo with SCF at 800-786-0004, ext. 32209 to discuss financing needs. susquehanna.net/scf

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SusqueWho??

Susquehanna Commercial Finance...

A different kind of lender for your Woodworking equipment needs.

At Susquehanna Commercial Finance, Inc., we’re doing what counts to take the guesswork out of financing your equipment purchases. We understand the importance of your financial goals and take the time to find the best solutions for you.

Susquehanna Commercial Finance helps businesses of all types and sizes throughout the United States acquire the equipment they need to operate and grow. Our experienced team offers a full array of equipment financing structures and programs for any type of business.

If you’re planning to update equipment or expand operations, our products and programs can provide you solutions to: • • • • • • •

Manage and improve cash flow Finance up to 100% of the equipment cost Preserve lines of credit Match payments to cash flow cycles Pay for equipment as it is used to generate income Avoid equipment obsolescence Use tax advantages to improve after-tax income

Contact me today to learn more.

John Marrazzo, Senior Account Executive 484.913.2209 John.Marrazzo@susquehanna.net

Doing what counts.™ | susquehanna.net/scf Susquehanna Commercial Finance, Inc. 2 Country View Road , Suite 300 | Malvern, PA 19355

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3D Models & Castings

3D Models & Castings upgraded to a Laguna SmartShop II (above) which provides intricate cuts like this flower medallion (above right).

3D Models & Castings

Smart Decisions Financing CNC machines has proved advantageous for 3D Models & Castings.

By Wade Vonasek

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D Models & Castings’ first foray into CNC machines sprung up out of necessity. A customer who owned a restaurant needed custom cutting boards.

The health department in the area said that because of codes, the cutting boards needed to be able to go through the restaurant’s automatic dishwasher.

However, the size of the cutting boards was an issue, as they were too large to fit in the dishwasher. To remedy this, a puzzle

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cut was developed that would allow the cutting board to be one piece when in use, but have the ability to be broken down into two pieces before entering the dishwasher.

Using a CNC machine for this job was practical, providing consistency and the ability to flawlessly make difficult puzzle cuts. So, owner Greg Glodery dropped by Laguna Tools to look around at the options available. He ended up with Susquehanna Commercial Finance (SCF), starting the

process of getting his company its first CNC machine. It wouldn’t be the last.

Process of Upgrading 3D Models & Castings later outgrew the router it had been using for just under two years, and the company needed to upgrade to a bigger and faster router with an automatic tool changer.

“The old machine did not have an automatic tool changer on it,” Glodery says.

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“Changing bits takes valuable, extra time, so we wanted to upgrade.”

This was in 2011, and with the state of the woodworking industry at the time, making this investment was not easy, and the choice to upgrade was not taken lightly. It was important for the company to maintain working capital in a time of recession. Glodery says 3D Models & Castings evaluated whether the current projects it was performing were generating enough income to support the monthly payment on a new CNC machine. The company also compared the cost of hiring another employee versus purchasing a new machine, and needed to make an important decision.

John Marrazzo, from SCF, helped the company compare the monthly payment to finance a new machine with the expense of hiring a new employee. After breaking down the company’s monthly payment over time in financing a new machine, then comparing it to the hourly wage for a new employee, SCF found the machine resulted in a cost near $4.50 per hour, which included the upgrade to the automatic tool changer. It was much less costly for 3D Models & Castings to invest in a new CNC, and Glodery decided to finance it through SCF again.

“Steve Alvarez at Laguna was able to offer a good trade-in for an upgrade with the tool changer,” Glodery says, adding that the price of the machine was also competitive, and the upgrade had a higher HP router motor and a bigger bed, with improved software on the industrial processor.

ROI and the Early Pay-Off Option Marrazzo says that one of the advantages of financing is that it allows a company to see an immediate return on investment (ROI), where as paying cash can take from up to six months to a full year to realize ROI. With financing seeing ROI from day one, the equipment is basically paying for itself.

After making the most recent purchase, 3D Models & Castings was able to see that immediate ROI. “The machine makes us money,” Glodery says, nearly three times the return of their investment.

Fortunately for 3D Models & Castings, SCF also offers an early pay off option. This option gave the company the flexibility to pay off the contract early after 12 months without being penalized. This provides a company with the ability to start smaller and upgrade when the necessity arises. In this case, the previous lease offered by SCF did not leave 3D Models & Castings stuck with an outdated machine.

Because of SCF’s early pay off option, the aggressive trade-in value offered by Laguna, and 3D Models & Castings having made payments that exceeded the balance due, the company was able to roll into a new lease when it needed to upgrade its equipment. After approximately 17 payments, the residual value of the old machine (what 3D Models & Castings owed SCF) was actually less than what 3D Models & Castings received as a trade-in from Laguna.

About 3D Models & Castings www.3dmodelsandcastings.com

Santa Ana, CA-based 3D Models & Castings originally began when a competitor purchased the rapid prototyping company that Greg Glodery and his partner worked for at the time.

This prompted the pair to move on and build their own company.

Established in 2005, 3D Models & Castings puts Glodery and his partners’ over 30 years of manufacturing and production experience to work. Initially, the company had a 3D color printer and did prototype models, master molds, and costing for small short run production. Later, the company also started manufacturing cutting boards, signs and flat millwork, and recently began offering its customers vacuum/ thermo-forming capabilities as well..

Currently, the company also does work for small cabinet shops, charging one flat fee for all the millwork. The Laguna CNC machine the company recently purchased can cut parts for a whole kitchen in less than a day, and has the ability to nest parts as well. This saves money on material costs and produces less waste, a win-win situation.

“The new machine makes it easier to do more things without moving too much material,” Glodery says.

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