I'm so excited someone asked this question!

First, if you really want to get a solid understanding of American industry leading up to and during WW2, get Freedoms Forge by Arthur Herman. It is an excellent book that focuses on two industrialists William S. Knudsen and Henry J. Kaiser. IMO, there were no two men more important in allied production, which in turn allowed for countries with sub-par industry like the Soviet Union to effectively fight the war. It is impossible to overestimate the importance of production in modern warfare. Men win battles, but no matter how dedicated and well trained, without bullets and foods, they cannot win. Anyway, back to your question.

First, you need to understand the absolute mishandling of US industry during WW1 set the stage for how WW2 would be handled. There was this belief that a switch could be flipped and all the factories in the US could start turning out war material. These generals did not understand that factories need time to retool, retrain, and readjust their logistical needs to produce new materials. This hasn't changed, and the auto industry take roughly a month to retool each year for the new model year. It takes that long for some slightly different tools, so imagine how long it would take for a factory that typically produces tires to begin making aircraft. So, during WW1, there was no preparation for industries to convert to wartime needs and even though the US had the worlds largest industrial base, relatively little war material made it way to Europe before the war ended. It took 18 months for the US to retool and get into a true wartime production, which was to late.

Fast-forward to 1940, the US realized that the odds of being dragged into WW2 were increasing. Thankfully, lessons from WW1 had been learned, and a man by the name of Bernard Baruch advised President Roosevelt to establish a position to oversee the conversion of American industry from civilian to military needs. He recommend Kundsen as the best man with the most experience in production. Knudsen at the time was the president of the worlds largest cooperation, General Motors. The company, and the industry as a whole, was enjoying record sales and had fully recovered from the Great Depression. Knudsen accept the promotion, and began to utilize his immense influence in the auto industry to begin getting the US ready for war in 1940. Not everyone was on board (Ford being the most prominent), but many companies like Chrysler and Packard agreed to begin shifting some production to make tanks and aircraft engines. This was in June 1940, so we can count that as when the gears of war production began to turn. At this point, no factories were specifically designed for war production, so many modifications had to be made to allow for the often times larger and more complex military equipment to be manufactured. As an example, an engineer at Ford (once they joined the effort) went to meet with Consolidated Aircraft to get specifications of the B-24, he brought a suitcase. He was shocked when they had a container of specifications to produce the 1 million+ parts required for the aircraft. Before the war started, many major industrial players had already begun to convert to wartime production.

Once Pearl Harbor occurred, Knudsen had a much greater authority under the Office of Production Management to force companies to retool for war production. A common myth is that 100% of American production was forced to produce war material, but the reality is the US has the lowest percentage of its industry converted to supply the war. Improvements in technology and productivity allowed each American worker to produce significantly more than their European and Asian counterparts.

To get more into the meat of your question, companies could be forced to shift production, but more often than not they did so voluntarily. There was a immense amount of patriotism and desire to help the war effort, so that encouraged many businesses. Producing for the government meant also meant guaranteed profits, demand, and assistance to help retool and build new factories. Companies would find out what the demand was, and convert based on their experience. A company that canned soup wasn't expected to make machine guns . In short, companies could be forced to convert and told what to make, but many volunteered and stayed within their areas of expertise.

By the end of 1942, the existing factories were for the most part converted, or almost complete. The next step was to make factories specifically designed for the war, such as the Boeing B-29 plant in Wichita, Kansas. For small and medium sized companies, they had to request resources from the War Production Board and could also request financing. The government would essentially pay to build new factories if a company couldn't afford to do so. In many cases especially in the most basic, but important industries such as steel and aluminum, the government mandated that companies build additional capacity to help the war effort. By the end of 1944, the US was operating at over 96% efficacy in industrial production, unemployment was all but gone, and there were literally no more workers to fight the war and man the factories. There has been no other time or country in history to achieve such levels of efficiency.

I know I went into a little too much detail, but I hope this answers some of your questions.