How to Start a Contract Manufacturing Business

Contract manufacturers make the things their business partners don't want to, supplying other companies with everything from electronic products to pharmaceutical drugs. When an electronic corporation decides it no longer wishes to manufacture its own products, for example, it contracts that responsibility out, then focuses on its own product development or marketing. Creating any manufacturing company can be a challenge because of the environmental and safety regulations you must deal with. Contract manufacturers must also find business partners willing to delegate their manufacturing operations.

Write a business plan. Use the plan to work out answers to essential questions such as what you're going to manufacture, how much revenue you'll need to succeed and how you will compete with established companies in the manufacturing field you plan to enter.

Locate a site where you can set up your factory. You'll need a location that meets your region's environmental, noise and zoning laws. You're also going to need space for manufacturing equipment, a workforce and somewhere to store the finished product until you make delivery.

Amass enough financing to cover the high costs of manufacturing: buying or building a factory, equipping the building, obtaining raw materials and paying your workforce. You can raise money by taking out loans or by selling ownership shares in the company.

Contact businesses that may be potential customers. Sell them on the advantages of using your company to do their manufacturing. If they already use a rival manufacturer, be prepared to demonstrate that you can do the same job better, more quickly or for less money.

Tips

  • When drafting your business plan and your budget, ask yourself what manufacturing operations are necessary to make your product. Then determine the equipment and labor skills you'll need to carry out those operations.

    Your business plan should identify the raw materials you need and explain how you're going to obtain them.

Warnings

  • It can take two or three years for a new manufacturer to start turning a profit. Make sure your financing is enough to keep you going during that period.

    Your factory must comply with environmental and worker-safety laws, both state and federal.

References

Resources

About the Author

A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.