Equipment: what to buy first

Equipping a shop is where a new owner’s money goes fastest. Every catalogue offers a better machine, and every experienced welder has a list of tools they could not work without. Buying everything at once ties up cash the business will need for wages, steel and the slow first months; buying too little means turning work away or doing it slowly. The answer is a list, priced, ranked by what the work needs from the first day and what can wait, with each item’s yearly cost worked out so that it can be recovered in the hourly rate.

This chapter compares the tool list of a 1917 repair shop with a modern one, prices Mara’s first equipment, decides what to buy, lease, hire or subcontract, and converts the purchases into the yearly depreciation that Chapter 8 includes in the hourly cost.

The 1917 repair shop’s tools

Willis’s manual of 1917 assumed that most people buying welding apparatus already had the tools of a repair shop, but listed them for the rest: a vice, clamps, files, wrenches, tongs, chisels, a hammer, a forge, a bench grinder and if possible a portable one, a chain block, V-blocks, a square and straight edge, a portable kerosene torch for preheating, a stock of thin steel pieces for shims, a hacksaw, about 200 fire bricks, a roll of asbestos paper, and a welding table. Dunham’s list for a garage was similar, with charcoal, gas or oil for preheating and an angle-iron table with a fire-brick top.

The list shows a shop built around repairing castings, with preheating as a central activity, and with hand tools doing most of the preparation. The asbestos paper is a reminder that some old practices are now prohibited: asbestos is a known carcinogen and its use is banned in Australia, so any old equipment or insulation that may contain it must be identified and handled by licensed people, never reused.

Mara’s first equipment

The work mix in Chapter 1 sets the modern list. Mara priced her first equipment, a mixture of new and good used items, as an illustration.

Figure 1Mara's first equipment and its yearly depreciation

	Cost	Life assumed	Depreciation a year
Two wire-feed welders, 350 A	A$13,000	8 years	A$1,625
Engine-driven welder-generator for site	A$9,000	10 years	A$900
Fume control: fixed arm and mobile unit	A$10,000	10 years	A$1,000
Cold saw with roller stands	A$6,500	10 years	A$650
Plasma cutter, hand	A$5,500	7 years	A$786
Used lathe and hydraulic press	A$5,500	10 years	A$550
Fixture welding table	A$5,000	15 years	A$333
Grinders, hand tools and clamps	A$5,000	4 years	A$1,250
Drill press and magnetic drill	A$4,500	10 years	A$450
Tungsten arc and stick inverter	A$4,000	8 years	A$500
Site ute fit-out: rack, boxes, cylinder cage	A$4,000	6 years	A$667
Air compressor	A$3,500	10 years	A$350
Lifting beam and hoist	A$3,500	15 years	A$233
Screens, PPE, first aid, extinguishers	A$3,300	4 years	A$825
Office, computer and software	A$2,500	4 years	A$625
Oxy-acetylene kit and trolley	A$1,200	10 years	A$120
Total	about A$86,000	—	about A$10,860

The total of about A$86,000 does not include the site vehicle itself, which Mara already owned and would charge to the business by the kilometre, or the electrical work on the unit, which Chapter 10 includes in the set-up costs. The depreciation of about A$10,900 a year is the cost of wearing out the equipment, which must be recovered in prices just as surely as wages and rent.

Depreciation as a cost

Depreciation spreads the cost of equipment over the years it is used. Straight-line depreciation, the simplest method, divides the cost, less any value expected at the end, by the years of use. A welder bought for A$6,500 and expected to last eight years costs about A$810 a year. That cost is real even though no money leaves the business each year: at the end of eight years, the welder must be replaced, and if the prices charged in the meantime did not include its cost, the money will not be there. Tax depreciation rules may allow different rates, and an accountant advises on them; for pricing, the owner uses the life they actually expect.

The cost of the money

Equipment is bought with money that could have been used elsewhere, or that was borrowed. Mara financed part of the equipment with a business loan at an illustrative 8% interest. On average, over the equipment’s life, about half its cost is tied up, so the interest cost is roughly 8% × A$86,000 ÷ 2 ≈ A$3,440 a year. Like depreciation, it is a cost of owning the equipment and belongs in the hourly rate.

Must-have and can-wait

Not everything on the list was needed on the first day. Mara ranked each item:

• must-have from the first day: the welders, fume control, cutting, drilling, the table, grinders and hand tools, the oxy-acetylene kit, PPE, first aid and extinguishers;
• needed within the first months: the welder-generator for site work, the lifting beam, the lathe and press for repairs;
• later, if the work justifies it: a press brake or bender, a plasma cutting table, a band saw for mitres, a second tungsten arc machine.

Items in the second group could be hired or the work subcontracted until they were bought; items in the third would be decided from the job records after six months.

Buy, lease, hire or subcontract

Each piece of equipment can be obtained in several ways, and the right one depends on how much it will be used.

Figure 2How Mara decided how to obtain each piece of equipment

1. 1Used most daysbuy, new or good used
2. 2Used every week or twobuy used, or lease if cash is short
3. 3Used a few times a monthhire when needed, if hire is available locally
4. 4Used a few times a yearsubcontract the operation to a shop that has the machine
5. 5Not yet knownsubcontract or hire until the job records show the use

A worked example: the bender

This is an illustration. Mara’s farm work includes bending flat bar and tube for gates and stock equipment, perhaps 40 bending jobs a year. A suitable bender costs about A$7,000 new. Owning it would cost about A$700 a year in depreciation over ten years, about A$280 in interest, and about A$200 in maintenance, about A$1,180 a year. Subcontracting the bending to a nearby shop would cost about A$45 a job, about A$1,800 a year, plus Mara’s time driving parts there and back and the delay.

Figure 3Owning a bender against subcontracting the bending, a year

Own the benderA$1,180 a year, excluding GST

Subcontract the bendingA$1,800 a year, excluding GST

At 40 jobs a year, owning is cheaper, but only by about A$600 a year, which the floor space for the bender, in a unit already tight (Chapter 2), might well cancel. Mara decided to subcontract the bending for the first six months, count the jobs, and buy the bender if the count reached the estimate.

New or used

Good used equipment can save a great deal, especially machines that last, such as saws, drills, presses and lathes. Used welding machines need more care: an older transformer machine may be robust but heavy and less efficient, while a used inverter may have hidden faults in its electronics. Mara’s rules for used equipment were to see it working, check its rating plate against her power supply (Chapter 3), check that spare parts and service are still available, and have electrical equipment tested and tagged before use. She bought the lathe, press and drill press used, and the welders, plasma cutter and fume control new, with warranties. The used items saved about A$6,000 against new prices, and the new items came with the service support a two-person shop cannot do without.

Standardise where possible

Two welders of the same make and model share consumables, spare parts, settings and the welders’ habits, and either can stand in for the other. Mara bought both wire-feed welders the same, and chose a tungsten arc and stick inverter from the same maker, so that guns, contact tips, liners and nozzles were common, and so that a procedure set up on one machine could be used on the other. Standardising cuts the consumables stock and the time spent finding the right part. It also halves the number of manuals and settings charts to keep.

Consumables and stock

Equipment needs consumables: wire, electrodes, tungsten, contact tips, nozzles, liners, grinding and cutting discs, saw blades, drill bits, plasma electrodes and tips. A starting stock of perhaps A$3,000 to A$4,000 of consumables, as an illustration, is part of the money needed to open, and the stock must be replenished from the takings. Mara’s rule was to stock the consumables for the common work and buy the unusual ones for the job, charging them to it.

Upgrading as the work grows

The first equipment list is a starting point, and the shop will outgrow some of it. Mara kept a list of equipment she would add as the work justified it, each with the job count or hours that would trigger the purchase, so that each decision could be made from the job records rather than from a salesperson’s visit or a good month’s optimism. The bender came first, at forty jobs a year; a band saw for mitres was next, at the point where mitred cuts were taking more than an hour a week on the cold saw.

Maintenance

Every machine needs maintenance, and a new owner must budget for it in time and money: cleaning and inspecting welders and guns, changing liners and drive rolls, servicing the compressor and the generator’s engine, sharpening or replacing saw blades, changing filters in the fume extraction, and testing electrical equipment. Mara planned about an hour a week of maintenance and set aside about A$1,500 a year for parts and servicing, as an illustration. Maintenance is unbillable time, which is part of why utilisation is below 100% (Chapter 1).

Keeping equipment safe to use

Equipment bought is equipment that must be kept safe. Portable electrical tools, leads and welding machines in a workshop are inspected and tested at intervals, as the work health and safety regulations and the applicable standards require, and the results recorded. Lifting equipment, such as the hoist and its beam, needs inspection by a competent person before use and at intervals, and the lifting beam’s capacity marked on it. Pressure equipment, such as the air compressor’s receiver, may need inspection or registration depending on its size and the jurisdiction. Guards on the saw, drill and lathe must be fitted and used. Mara kept a simple equipment register listing each item, its purchase date, its inspection and test dates and its maintenance, which also served as the list for insurance.

Insurance and security

A shop full of equipment worth A$86,000 is worth stealing, and welding shops are a known target for thieves after portable welders, generators and power tools. Mara’s insurer required a monitored alarm, a secure roller door and an equipment list with serial numbers; she added a lockable cage for the portable tools and kept the welder-generator on the ute behind a locked gate at night. Insurance for the equipment, for the business’s liability to customers and the public, and for workers’ compensation are all costs that Chapter 8 includes in overhead, and an insurer’s requirements are best known before the shop is fitted out rather than after.

Equipment and the customer

Equipment also tells customers what a shop can do. A customer who sees a clean, organised shop with good equipment, properly guarded and maintained, is more willing to trust it with a trailer or a structural job than one who sees a cluttered floor and worn-out machines. That is not a reason to buy equipment the work does not need, but it is a reason to look after what the shop has and to keep it in order. Mara found that customers dropping off repairs often asked about the fixture table and the extraction arm, and that both became part of how she described the shop’s work.

A failure: the plasma table

This is an illustration. Before opening, Mara was offered a used computer-controlled plasma cutting table at a fraction of its new price. It would have let her cut brackets and gussets in quantity. She almost bought it, then checked: the table needed a 3 m by 2 m space plus room to load sheets, which the layout did not have; its power source drew more than the unit’s supply could spare alongside the welders (Chapter 3); and it needed its own downdraft extraction (Chapter 5).

She turned it down. Six months later, the job records showed that she cut fewer than a hundred profiled parts a year, which a local laser cutting service did quickly and accurately at less than the cost of owning the table. The cheapest machine in the world is expensive if the shop cannot use it.

Exercise: hire or buy a magnetic drill

Mara wants a second magnetic drill to keep on the site ute, so that the shop’s drill stays in the shop; site jobs need it about twice a month, for about half a day each time. A suitable drill costs A$2,400 new and is expected to last eight years; hire costs about A$80 a day, including collection. Taking interest at 8% on half the cost, which is cheaper?

Owning costs about 2,400 ÷ 8 = A$300 a year in depreciation and about 0.08 × 2,400 ÷ 2 ≈ A$96 in interest, about A$396 a year, plus a little maintenance. Hiring for 24 half-days, charged as 24 days, costs about 24 × 80 = A$1,920 a year, plus the time to collect and return it.

Owning is much cheaper at this use, about A$1,500 a year less, and the drill is there when an urgent job comes in. Hire suits equipment used a few times a year; at twice a month, buying wins clearly.