Pelican Brain Trust: expand business?? auto repair facility

[kaisen]

Well, I come to the Pelican Brain Trust for advice:
Should I expand my business model and start an automotive repair facility?

The backstory:

I've been in the auto industry for the last eighteen years or so. I've been involved in all facets, but for the last decade I've managed operations in one form or another. About three years ago, ahead of the implosion of the auto industry, I saw the writing on the wall and started my own dealership. Not a dealership like you envision. I was used to running high-overhead large operations with dozens or hundreds of employees, and that sucked. So my business model is/was lean by design. Internet based. No overhead, no frills, no real employees. Flexible and efficient. Clients really don't care whether I'm big or small, have a multi-million dollar facility, or a indoor putting green. They just want great cars, honest dealings, and fair pricing. It has worked well.

In the normal course of business I pay shops and technicians about $4000 (avg) a month, representing 80-150 labor hours/mo. At first I utilized a fantastic highly trained technician that used to work for me years before. He now has a shop at home so I fed him a lot of business. Up to $8000 a month. But over time, I forced him to 'grow' and stressed him out with too much work. So I started sending overflow and specialty work to other local shops. This Fall my primary tech and I had a falling out over how he operated his shop (uninsured and unlicensed). I now regularly utilize about six different shops or mechanics (and some others only occasionally). And it's driving me nuts.

I pay $40-70 per hour, book time (more or less). The shops I use usually charge retail customers $65-105/hr, so it represents a break as professional courtesy and for volume. Unfortunately, these shops are busy so my work can get bumped for more time-sensitive (and profitable) customer-pay retail work.

Since time is money, this can really hurt. It's truly the bottleneck of my throughput. I find myself babysitting. I have to talk them into keeping their promises and schedules. They don't like it, so it's an art of diplomacy to motivate them without pissing them off.

The quality of work suffers too, it seems. And so I babysit more. And they hate it when I hold them to my standards. So it's more and more diplomacy.

Before you start thinking that I'm just hoping for too much from 'cheap' shops, that's just not the case. These are very, very good independent shops with great reputations. I also utilize factory dealerships, but they're expensive and not necessarily better.

Soooooo.....

I've been dragging my feet to add fixed expenses or employees. But I've consistently generated enough work to justify an internal technician. I can hire an experienced, trained A/B technician for about $22-25 per hour, book time. Add FICA, SS, and other govt taxes and it's $30/hr. So $5200/mo. Adding the physical facilities (addtl 2.5 bays) would run ~$1000/mo, insurances incl work comp would go up ~$250/mo. Other subscriptions, services, etc would run another $200/mo and utilities for the addtl facilities maybe $300/mo. So ROUGHLY $7000/mo for one technician. At 100% efficiency, that equates to a 'cost' of $40/hr. A second tech (or assistant) wouldn't need to be as skilled, so add about $3500 incl work comp. That lowers the 'efficient cost' to $30/hr.

I could comfortably charge $69/hr for a blended overall retail labor rate. Obviously, I could charge more (a similar established reputable shop down the same street charges $90/hr). Plus the control of workflow, plus the quality control, plus parts profit (which could be healthy).

I pay about $50 an hour now (on average). So if the sales operation consumed 100 hours in labor a month, that (only?) covers $5000 of expense.

I'd also have a $15-20K initial investment for tools and build-out. That's cash out of my operating capital that would make a dent in my sales operation. Sometimes I wish I could take out a business loan, but as you can imagine, that's almost impossible.

I'm super conservative when it comes to business. However, you can't make the risk-reward equation work for you if you don't take the risks. I'm thinking I need to go big or stay home, so to speak, with one full-time tech and one part-time tech at the start. Or not at all (stay home, see above), and just babysit my current resources and/or find new ones....cuz employees need babysitting too.

So ANY observations, suggestions, experience, or input would be welcome. I trust most of you guys!

E

[Loomis]

First of all, it sounds like you have enough internally-generated business to justify the added expenses. Do you have enough time in the day to handle all of the administrative chores, which - at least as a California business owner - are UNENDING. In other words, will this expansion pull you off your dealership game, which is your primary source of income?

Can you find good, reliable employees? They are worth their weight in gold. If not, it will feel like you are swimming through mud, never getting anywhere, always dissatisfied with the state of your business. Dealing with unhappy customers, etc.

The day you discover that you can take a 2-week vacation is the day you can call your business successful. At least for that day. If you are fortunate enough for that to be the case, then you will want to do whatever it takes to keep those employees happy and well-compensated. Congratulations, you now have another mouth(s) to feed.

You have already identified an additional profit source (parts), which will come in handy and may be the difference between treading water and actually making a real profit (dirty word in today's political climate, but vital nonetheless). Again, until you are "making money in your sleep" you will always be a slave to your business. Let your foot off the gas, and it stalls.

Unless you go for it, you will always be wondering what if? Get started now, and when/if this crappy economy turns around you will be in a great position to grow. Rents are low, good employees should be available, and it is a great time to get your infrastructure in place.

Speaking of infrastructure, THE most important piece of the equation is a relationship with a good banker. You will definitely need a line of credit. Not impossible, even in this climate. Judging by the cash throughput of your current business and the fact that you have a semblance of a business plan, you should qualify for credit. Go to a few community banks, not those *****head mega-banks. You'd be surprised how eager they are to find an honest-to-goodness straight business person to lend money to.

Also find a good bookkeeper who can run payroll. Get direct deposit for your employees so you don't have to be around to sign paychecks (remember that 2-week vacation?). Find a good CPA, but watch out on the costs - the bookkeeper should keep everything straight and the CPA should set strategy and handle the tax accounting, which is handed to him with a pretty bow by the bookkeeper.

You need a lawyer, too. Just interview a few and pay the one you like a couple hundred bucks to review a contract or something. That way they'll take your call when you call in a panic on a Friday afternoon.

Of course, find a good insurance broker too. See how much admin stuff you have now done, without even selling or fixing your first car? Maybe about 4 PM or so you can turn your attention to actually making a buck. In my opionion, it's a b!tch, but ultimately worth it if you still have some earning years ahead of you.

Best of luck to you!

[LWJ]

I see opportunity. The catch is that you are only using about 100 hours per month. That leaves some unused labor. If this is your bottleneck, then, you can grow into this. Also, there is the capital outlay.

An idea is to find a partner. Of course, the right one would be a dream and the wrong one a nightmare. A partner could have tools and perhaps capital as well as be able to fill the other 100 hours per month.

If handled correctly, this could be an ideal starting point for a mechanical entrepreneur.

On a practical side, my idea sounds like a pain.

Good luck. I want to hear more about your dealership and how it operates. Sounds like you have a good handle on your business.

Thanks,
Larry

[MotoSook]

From my limited knowledge, I would say that your biggest challenge will be the operations of the day to day business. Your auto sales business has been successful, because you have been able to dedicate a lot of your effort to that. Once you start the shop you may find yourself diluting that effort to manage the operations of the shop. So as you said, go big or go home. And that means you'll need a manager to coordinate the operations. If you can find a good lead tech who can handle that you'll have an in valuable asset, but there are issues with that. The tech will eventually wonder why he's not doing it all for himself or he'll find he's doing more managing than wrenching. With a good second tech you'll be able to make it work better, but the lead tech will want more compensation. He's no longer just a tech.

You can cut the lead tech in on the ownership perhaps, but he's got to be able to manage and wrench part-time. If that doesn't work, you'll find you need more employees.

[McLovin]

I think you've been smart to be conservative. In this line of business, "go big or go home" has lead to a lot of independent dealerships going out of biz in the last few years.

That being said, it doesn't seem like there is a ton of risk in trying this. If you are already averaging $4K/month for repairs, that's a cost you are already incurring, so bringing it "in house" has less risk. The initial investment to get going doesn't seem "break the bank" high, either.

Overall, seems like it has a lot of upside potential, with little downside. Given your situation, sounds like you could try it for a year, and the worst case scenario is to break even, or lose maybe a little. It seems like a very reasonable plan.

(all that being said, aside from financial issues, >employees always = >headaches.)

[turbo6bar]

Originally Posted by kaisen

I'm super conservative when it comes to business. However, you can't make the risk-reward equation work for you if you don't take the risks. I'm thinking I need to go big or stay home, so to speak, with one full-time tech and one part-time tech at the start. Or not at all (stay home, see above), and just babysit my current resources and/or find new ones....cuz employees need babysitting too.

If by "going big" you mean a shop and two employees, I would agree. There isn't much reason to go half-way and not meeting your current repair needs.

Have you considered offering to pay your current shop a higher rate to get higher in the queue? Once you open your own shop, you're open to more headaches, more risk, more everything. Is the costs savings and control worth more than a higher hourly rate to your current repair guys?

[red-beard]

I suggest going to each of the shops and trying to make an exclusive deal. Maybe one of them is a little underutilized. See if they will cut you a break on price and they will have a good steady flow of business. You might need to "guarantee" a certain amount of work, which means you still pay if it falls short.

This would keep your costs low, it would lower your operating costs and would help out another local business.

Make sure the VALUES of the shop you team with match with your values. This is where you ended up having a problem with your buddy.

[Seahawk]

Originally Posted by red-beard

I suggest going to each of the shops and trying to make an exclusive deal...

I agree, at least until you have the capital, business base and time to devote to your plan as stated above.

My business is not cars, but in my experience most small business have the same basic threshold admin costs, time sinks, etc.

My partner and I decided when we started our company to not be the "prime" contractor on any work we bring in, either in manufacturing, systems engineering support to government contractors or Small Business Innovative Research Awards we bid.

For a strict overhead perspective it made perfect sense. We were able to take advantage of our "primes" infrastructure (contracting folks, admin staff, office space, technical writers, etc.) and keep our company's overhead very low. We are, like you, very conservative.

Our lawyer is a CPA and we pay him "by the hour". He is not an employee.

Our original business plan called for expanding our overhead when we reached certain personnel and income figures. While we have met our goals for expanding our admin base, we have decided we like the flexibility of being very agile and affordable, as well as not being tied to one specific contract, which mitigates our risk.

There are, however, the same bottlenecks being a sub on a contract you are experiencing with the various shops supporting your work: You aren't "in charge" of the efforts so diplomacy and cajoling is often the only path to resolve issues that creep up.

So, as Red mentioned, we entered into some partnership deals with our preferred primes which we, like you will be able to do, were able to do because we could take our business elsewhere: We got guaranteed billing rates and turn around times, work share and profit percentages.

If capacity at the shops remains an issue, one other avenue you may want to explore is entering into a partnership with a new start-up you help back: He or she handles the shop details and management (with your oversight), you give them a set level of work, share in parts profit, etc....they can expand their business with other work but you get priority. We are doing this on our manufacturing side.

I know partnerships are often contentious, but so far with well structured contracts we've avoided problems.

It sounds like you have established a really interesting and profitable niche in the automotive industry...I wish you continued success.

[turbo6bar]

Here's my pessimistic take:
1) As already mentioned, employees equals more headaches. You have to find the right employees and manage them.
2) Assuming you don't have retail repairs to fill the down time, you'll be floating this business for a while. Fill billable time to outside clients and you could go into the black quickly. OTOH, you'll now be dealing with potentially fickle customers.
3) Are you certain your expense estimates are accurate? Taxes, fees, utilities, rents, etc.
4) It sounds like you will be open to the public. Do you need an office presence? A receptionist or office lady, perhaps.

On the outset, it appears you will be exchanging a fixed expense for greater risk, added workload, more control, and the potential for enhanced profits.

I've heard the sour economy has led folks to keep vehicles longer and absorb the cost of repairs. When the economy strengthens, will vehicle repairs go down as folks transition into newer cars? In other words, will the repair shops see a decline in retail work and a need for guys like you? Will you be growing when the field is in a cyclical peak? I don't know the answer. I'm merely rambling.

Now, don't take my pessimism wrong. I want to see you succeed. My German blood forces me to be pessimistic. I can't help it.

[Jagshund]

You'd get a lot better service if the contractors knew how much business to expect from you each month. I have a friend in a similar situation down here, except he's running the garage and a local body shop tried to take their business in-house to save money. Then they found themselves with another employee to worry about (who continually gripped about how great it was to work at a Chrysler dealership while taking his umpteeth smoke break) and no computers to program modules- something they expected my friend to do at the same rate that he offered while taking in all of their business. Long story short, they're currently taking a hard look at firing the mechanic and sending their business back outside.

I'd think the startup on test units alone would run over $30k (for non-factory pcs running factory software). Everyone I know around the North Atlanta area charges $98/hour retail and $82 for their contract work unless they're not equipped to do the pc work. However, if you become proficient with the computer end you may find yourself with a lot more business than you expected- filter your new employees accordingly. Many of them cannot diagnose without replacing 10 components first.

[Reg]

I have not read all posts but my 2 cents is this:

1 You will still be babysitting
2 is the mentality bigger really better?

I'd say expand your preferred shops if they cannot keep up. There must be other shops you can spread your work to. Maybe not as much money to potentially be made, but less overhead and less responsibility. At least if there is a muck up when you outsource you can hold someone else accountable or partly accountable.

My business is at a point where I really could use another employee but I find myself holding back as when there is more expense, there is more pressure to get the numbers up up up.

Reg