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Planning to open new shop


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Hello folks. I'm a new member and this is my first post. I am in the planning stages of opening up a new shop and I'm glad I stumbled across this site. So far seems Shoeb an excellent resource - I have many questions. First, let me describe my situation and you can let me know if I'm crazy or not.

 

I was a tech for over 13 years (first domestic, then imports, dealer and independent shops), then decided to change careers. Went back to school to learn computers and earn a degree, then made to switch full time into IT. That was 12 years ago. I've been a gear head all my life even after I stopped turning wrenches for a living. I am very much an auto enthusiast (currently restoring a 68 Dodge Charger) and have a strong entrepreneurial spirit. For years I've been dreaming of opening my own shop and I've finally decided the time is now.

 

My dream business would be auto restorations, customs and mods, but I don't think its possible for me to get right into business doing that and be successful. For that matter, I'm not sure I could make a general auto repair successful out of the gate either, but I feel it's a better option to get started. I do feel I have the business sense, knowledge of the auto business, and a strong enough work ethic to make a new shop successful -- but it's a little scary. I have friends that are techs and even two that own their own successful shops. Am I nuts? Am I at huge disadvantage by being out of the biz for so long?

 

I have many more questions to come that I will be posting soon. I am currently working through my business plan which is sure to generate even more. Thanks in advance and I look forward to your constructive feedback and thoughts.

 

-Pete

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First of all, you are not nuts. One of keys to success is to realize two things: What is your passion? And what are you really, really good at? Those are first ingredients to opening up a business and to being happy. You have a great background in cars, which will help you. The fact that you are putting together a business plan is excellent. Your business model must be put down on paper.

 

Many techs, who have turned into shop owners, have had tough times making the transition from tech to shop owner (myself included). I was a great tech, but a poor business man. When I finally woke up, I used my background as a tech, combined with a new set of business skills, to propel my business and grow. I realized that my skills in business were important to my overall success. So study business and learn, learn, learn.

 

As far as which way to go, either total car care or specialize, you will need to do a demographics study to see what will fit into your market and business model. But, never try to be everything to everyone one. For example: You can’t be a discount store and plan on building a business marketing to Mercedes, BMW, Jaguar, Land Rover and Bentley.

 

As far as being scary….it is. If it were easy, everyone would be doing it. But, don’t let the fear of failure hold you back. Minimize the risk through a well thought out plan.

 

Please, don’t be a stranger on ASO, we are here to help. And check out all the great information on this site. Also, check out my blog. My earlier blogs feature the steps taken when I built and opened another facility. If you are a premium member, there are downloads that you will you find very helpfull. I intend to add a lot more business downloads in the coming months.

 

Good luck, glad to have to you aboard!

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Thanks for the warm welcome, everyone. Joe your comments and blogs are insightful and very inspiring -- I am hooked on this website!!

 

Question 1 -- Guys, my first question is How do I determine my monthly operating costs?

 

There are many factors, and I have a detailed worksheet going trying to estimate these things, but I need to know things like monthly electric costs, shop services (safety kleen, chemical, uniforms, etc), insurance, etc.

 

Could someone either post an average example of these costs for a 4-6 bay shop, or does someone have a pre-build spreadsheet template I could use for calculating this?

 

Question 2 -- Could someone share the specifics on how to estimate revenues and profits for labor and parts? I've got a pretty good handle on labor, but not the parts aspect. For instance, if I know how many techs/bays/cars-counts I have and hour many labor hours/dollars sold, is there a formula to estimate gross parts sales revenue and profit on parts? Some percentage based on labor?

 

ALSO - please advise if it would be better to post these types of questions to different forum boards, or as separate topics. I would love to keep it all in one to make it easy to refer back to, but I'll post in specific areas if the moderators prefer.

 

Thanks again - Pete

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Great questions. Determining monthly costs can be difficult, but essential to projecting sales, breakeven, return on investment and calculating the amount of techs needed to support the company.

 

I think I would like to give you an overview, and then you can reply back to the post to break down the items further. I will give a list of standard expenses (at the end of post), but what you need to talk is to speak with all the right reps for all companies and utilities you will be dealing with. Prices are different for different parts of the country. A shop in Los Angeles or NYC will pay appreciably more for insurance, for example. So, speak with the electric company, call uniform companies, insurance agents, etc.

 

You will need an accountant, and he or she will let you know what payroll cost will be per employee, tax liabilities, etc. You will have to allow for all these payroll expense when determining your cost of doing business analysis.

 

As far as projecting sales, that could be difficult too, because it depends on car counts, productivity, tech expertise, shop layout, the type of work you plan on doing, among other factors.

 

My original shop, before I expanded, was a 6 bay facility. I expected averaged monthly gross sales of $110,000 to $140,000 per month from that facility, and at times we would hit $150,000. When I expanded to 10 bays and now 11 bays, those number increased accordingly. However, you need to remember that my business was started in 1980. It takes time to build up to that.

 

So I expect each bay to gross 4K min per week. Now, that does not mean I have a tech for each bay. With eleven bays, I have 6 techs and a working foreman. The extra bays are for cars waiting for parts, waiting for authorization, etc.

 

Let me stop here, and let you review all this first. And, you can relpy back, hopefully other shop owners can join in also, to give you different percpectives.

 

Here’s a basic list of fixed and variable expenses:

 

Rent/Mortgage

Property/School Tax

Manager payroll

Technician payroll

Service advisor payroll

Training/meetings

Utilities: phone, electric, heating, water

General Maintenance

Computer updates & vehicle information systems

Supplies

Security system

Maintenance/Support Staff Personnel Payroll

Payroll Expense-FICA, Med,Disibility,UI

Property/Liability Insurance

Workers comp, Projected

Auto insurance

Health/Medical insurance (company pay)

Other Insurance

Equipment Purchase Payments/align, etc

Small Tool / supply expense

Uniforms

Building/equipment repairs

Public relations/warranty expense

Waste removal/environmental management

On-going advertising/marketing

Rubbish removal

Professional fees-Accountant, Attorney, Finance Advisor

Meals, misc

Auto/Truck Expenses

Office/General supplies

ROI /Corp fees

Contingency

Other, misc. & one-time expenses

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I've been at the "shop ownership" for quite some time and I'll have to admit I've made more than a few mistakes.

 

I believe you have to make a decision once you decide to open your own shop. Do you want to be in business for yourself and be your own boss AND be the main mechanic??... then staying small is the answer( or relatively small). If you would like to run the business, be your own boss, and use your knowledge and expertise to increase your capital while providing a service for the community and more jobs for more techs... then bigger works well.

 

It's a choice you have to make. It's not for everyone, and as all the other comments have said... it ain't easy..if it was everybody would be doing it.

 

Stick around... ASO has a lot to offer. Keep in touch. Glad ya found us. Gonzo

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Thanks, guys, for all the detailed info. I'm definitely not looking to be the main mechanic -- been out of it too long for that. I am really looking to build an auto business then build enough capital to start another one, then who knows from there (grow and expand for sure). I know it will be hard, I know it won't happen overnight. I look forward to the challenge, but before I jump in with both feet I need to be realistic with myself on how it's all going to work. My main concern right now is knowing the break-even point so I can know if it's possible to break away from the day job while starting up, of if I should try to do both for a while -- I can't picture either scenario being a simple one!

 

Could anyone share what they are paying a month for utilities? I know it can vary, but it will give me an idea where to start with my planning worksheet.

 

Also, Joe, of those weekly and monthly gross sales can you estimate how much of that is parts revenue?

 

Thanks - Pete

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If this is your first attempt into business ownership in general, look up and see if there is a local Score chapter in your area. http://www.score.org/ They offer several excellent classes for specifically starting a business and the investment in the class cost is very minimal and the material that they give you is worth the cost you pay for the class.

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If this is your first attempt into business ownership in general, look up and see if there is a local Score chapter in your area. http://www.score.org/ They offer several excellent classes for specifically starting a business and the investment in the class cost is very minimal and the material that they give you is worth the cost you pay for the class.

 

Thanks, CARMandP. I'll check them out.

 

-Pete

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Before you start on this path be sure to read the EMyth.

 

Utilities will vary greatly depending upon the building size, construction, utility rates. In this area I would probably expect to spend somewhere between $800-$1200 monthly.

 

What would benefit you would be to take a week or at least 2-3 days and go somewhere and work behind the counter of a successful shop. Watch the operation and work flow and pick managements brain. You might find it invaluable.

 

What you do depends upon what your captal is but personally I wouldn't do less than 6 bays. Car-x says you need a population base of at least 80,000.

 

Thanks, I will check out EMyth.

 

Hadn't thought about working behind the counter of another business but that's a great idea.

 

Four to six bays is what I was thinking and I do have the population for it (100,000+ in the immediate area and another 60-100k or so in nearby surrounding areas). Plenty of money too -- median salary in the area is 100k /yr. Trouble is finding a good place to set up shop. I'm Leary of building something new for a first shop so I'd prefer to lease either a suitable space in an industrial park or buy into an existing operational shop. My fear of the industrial park option though is that if it's not visible to drivers by in a retail location, no one will ever kow I exist. This area is suburbia and there just aren't a bunch of visible shops around - most industrial stuff is hidden away. Any thoughts on that?

Edited by Pete K
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Thanks, guys, for all the detailed info. I'm definitely not looking to be the main mechanic -- been out of it too long for that. I am really looking to build an auto business then build enough capital to start another one, then who knows from there (grow and expand for sure). I know it will be hard, I know it won't happen overnight. I look forward to the challenge, but before I jump in with both feet I need to be realistic with myself on how it's all going to work. My main concern right now is knowing the break-even point so I can know if it's possible to break away from the day job while starting up, of if I should try to do both for a while -- I can't picture either scenario being a simple one!

 

Could anyone share what they are paying a month for utilities? I know it can vary, but it will give me an idea where to start with my planning worksheet.

 

Also, Joe, of those weekly and monthly gross sales can you estimate how much of that is parts revenue?

 

Thanks - Pete

 

Labor drives the business and needs to be tracked. Each tech should produce enough labor hours so that the business remains profitable. There are a lot of benchmark numbers, but it depends on the mix of the type of jobs you do. If a shop does mostly major repairs, the labor hours should be high. I have two facilities, a traditional repair shop and a quick maintenance shop. For my repair shop my labor production goal is 100% or better, in the quick maintenance shop, we look for 75%. That's because we do many small jobs such as state inspections, tires, tire repairs, LOF's, etc. Many of which are While-U-Wait. But with this model, we can upsell any major repairs and shift it over to our repair shop.

 

My Labor to Parts ratio is: Gross Labor Sales 45% of total sales, Gross Part Sales 55% of total sales. Many experts will tell you that the mix of parts and labor needs to be 50/50, and some may tell you that labor sales should be more than your parts sales.

 

I am not in total agreement with that. With my Total Car Care concept, I sell a lot of related products: additives, wipers, accessories, mirrors, bumper covers, filters, etc. This tends to inflate part sales. I have no problem with that, since I am also a believer in total profit per car. You can earn much needed profits with sales of related products. In other words, a customer is in your shop for a check engine light and you happen to notice he also needs a set of wipers, a headlight and an air filter. Those additional items, may not add to you labor column, but will add dollars to your bottom line profit.

 

Hope this helped.

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  • 1 year later...

My fear of the industrial park option though is that if it's not visible to drivers by in a retail location, no one will ever kow I exist. This area is suburbia and there just aren't a bunch of visible shops around - most industrial stuff is hidden away. Any thoughts on that?

 

(dug this one out of the archives, since it's one of the few areas I can give advice on.)

 

When choosing a location, you have two options:

  • Cheap rent, low visibility, relies on marketing
  • High rent, high visibility, markets itself

In essence, you can save money by being off the beaten path, but you will spend that money again on all the marketing you have to do to get customers into your shop. Or, you can spend extra money to get on a busy road, maybe on a lighted corner, and then spend a lot less on marketing, because people see you every time they drive to the grocery store.

 

Or do both ... great location + great marketing. Win-win.

 

In choosing a location, I did a MAJOR study of our demographics. I went to Staples and printed out a 6'x6' map of our entire city and glued it to our kitchen wall. I then stuck in red pin in that map for every repair shop in the whole city. I then stuck a green pin in the map for every retail hub (grocery stores, Wal-Marts, shopping centers, etc.) This allowed me to see a high level view of which neighborhoods were lacking in repair. I identified six locations in the city. Then, I got in the car and started driving every road in these areas. Came up with about FORTY possible shop locations. Started making offers at the top and got a bite on the second one.

 

If you find a GOOD real estate agent, he might do some of the above (COSTAR software will do a lot of that), but most of the legwork will be on your own time.

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  • 2 weeks later...

I'd actually advise against going after the "do it all" type of a business, especially that you say you know and love the restoration.

You need to study the market anyway, why not compare two as long as you are doing the math.

 

Also (in my opinion) the following words from the Xrac's post above, should be framed, stickied whatever it takes :)

 

"What would benefit you would be to take a week or at least 2-3 days and go somewhere and work behind the counter of a successful shop. Watch the operation and work flow and pick managements brain. You might find it invaluable."

 

I was in your shoes (almost to the T) about 7 years ago and wish someone would have told me this very statement.

When you follow Xrac's advise make sure not to cheat yourself, i.e. go work at the shop while you do your full time job. Trust me, it's not as easy as it seems.

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Thanks again for the feedback, guys. Sorry it has been so long since I posted last. Have had a series of things going on that have delayed my planning. At any rate, I have not lost interest and am still looking for ideas on the best way to start something up.

 

A few items I have changed in my planning over the past few months and now I have more questions:

 

1. I definitely want to my new shop to focus on auto restoration work, not general repairs.

 

Question: Can anyone provide any info or detail on estimating revenue for project type work? Also, do the major RO systems (Mitchell and the like) have the ability to handle project based work since this is different from general repairs.

 

Any other thoughts, feedback, advice, etc on opening and running a resto shop? Anyone know of any success stories here?

 

2. Start from scratch or buy into something? I am struggling with how to jump in. Should I start something very small and grow it slowly? Or try to buy an already operating business (hopefully successful with a decent revenue stream). Restoration shops for sale in my area are few and far between and very expensive ($500K and up). I considered looking for body shops for sale (there are many) since they seem to do well in this area, it would be a turn key revenue stream from day one (in concept) and I could expand into restoration work fairly easily since the shop would have the paint booth, body tools, resources, etc that would be required for restorations. To buy or lease all of this AND build business from nothing during start up would be almost impossible in my mind. Thoughts on that???

 

 

3. Auto Sales -- I have considered car sales in the beginning as well (I currently do flip cars occasionally now) as a way to stay busy and bring in at least some revenue while waiting for the resto work to start "rolling" in. I figure nobody is going to have me restore anything if they haven't heard of me or seen my work so what better way to get your name out there, showcase some work AND make a little cash during the startup phase --- buy cars, restore, sell. Any thoughts on that concept?

 

Thanks again guys --- really appreciate and look forward to your feedback!!!

 

-Pete K

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  • 2 weeks later...

I've seen resto shops come and go for a long...long time. They'll do good for a few years BUT only when the economy is good. The kind of people you are thinking of working with are people who have the extra cash to put into a restoration project. When the economy tanks so does that "loose change" and you're out of business.

 

Car sales, what lovely fun that is. Did ever wonder why most used car (only) or note lots are only so big? Money... that's the real reason. It's hard to make much on a car when you have such a large inventory. A couple of cars here or there that you're going to flip is one thing... doing it full time... maybe. Some people have run a used car sales shop for a lifetime, your results may vary.

 

Buying a bodyshop or repair shop is probably a good first step (if ya got the cash) I would try to find one where the owner is slowing down, getting ready to retire, has reasonable working equipment, and most important something you can take a run with. Something that you could get started in, start doing some ads, and beef up the business.

 

Good luck...

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Restoration shops are a whole different breed that caters to a very select type of customer. This type of work is more about the personalities you cater to than the work itself.

 

I have a close friend of mine that does very well, and it is making money hand over fist in this bad economy dealing with very wealthy people. His customer are very demanding and overbearing, they don't need their cars or boats or yachts. And some of them are scum bags that try to get over on him with legal technicalities.

 

But those that pay on time, rock his world.

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Jeff - Working on a few classics now. Working the car shows is actually part of my strategy. Appreciate your thoughts on the body shop idea.

 

Xrac -- Appreciate your feedback. It is a different animal for sure, but it's what I'm most passionate about. If I'm going to get into this business I think it best to go this route to stay motivated.

 

Gonzo - Appreciate you thoughts. The sales aspect of it is really only a backup plan to get cashflow in the startup phase or during those slow times. Not really what I'd want to do full time, unless it proved successful.

 

Harry -- Agree that the customer base could be all over the map. Scares me a bit since I've dealt with some of the scum bag ones in the past. Use to call them squirrels, the ones that wanted to hot rod their Hondas and VWs but not spend a lot of money. I'd really be looking to capture the higher end market but since it is likely to take a long time to build up to that, I feel the body shop and car sales concept can help us stay afloat in the beginning.

 

Anyone have tips on what to look for in the purchase of a successful body shop? Seems to be a lot more of them for sale in my area than service/repair shops for some reason. It's a big big business in my area (Wash DC metro area).

 

Thanks -- PeteK

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I never had a body shop, but one of my friends did. Considering the fact that you want to make it multipurpose and the competition, see if you can find something that primarily serves luxury client. That should give you better hope for been profitable right from the start.

Balance sheet is the best indication of how the shop is doing, not the number of booths. You should look into any new environmental laws that may or may not be grandfathered to the new ownership. Those things (just like the cigarettes)

can kill you :(

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  • 9 months later...

Hi folks - Long time since I last posted but thought I'd provide an update. I decided to get a little more aggressive with moving my shop plans forward. I started looking for low cost shop space to get started working on cars to flip and handle small customer jobs/projects. I'm sticking with the plan to get started slowly and then break away from the day job once the shop is generating enough revenue.

 

I now have a business partner who is willing to help with some startup capital so we decided to start with some low cost space with the plan to move to bigger/nicer space in about a year. I feel like I hit the jackpot when looking - the agent I was working with referred me to a shop owner who might be looking to rent out a bay or two since his rent was about to double (he didn't want to move out). I approached him and we immediately hit it off. I signed a 1 year sub-lease to rent 2 bays and full use of all shop equipment -- this is a successful, fully running shop so everything is there for my use (tire machine, balancer, lifts, brake lathe, press, alignment machine, compressor, ac machine, scanners, even full shared use of the front desk and lobby). A huge savings for me as you can imagine.

 

Anyway, not only am I getting exactly what I needed for some commercial work space, I am learning from the shop owner that I rent from who is a great guy and willing to share a lot of knowledge.

 

His business is very different than mine and we don't compete with each other which is working for now -- I sub some work to him, he shares his shop management knowledge. It's been working well so far.

 

Any thoughts or comments? Suggestions?

 

Thanks - Pete

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Congrats, Pete!

Sounds like you got pretty lucky finding a suitable shop space, tools AND a mentor/coach all in one. A lot of starting business owners could only dream of being so lucky.

 

What kind of work are you doing right now? You seemed to flip flop a bit before, going from restorations to autobody then high end.

How busy are you at the moment? When do you project that you'll be able to work for yourself full time?

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Right now, I am doing any type of work I can get my hands on from friends, family and a few word of mouth customers but also proactively purchasing and repairing cars to flip for a profit.

 

I just sold a Saab (not my first choice) for a profit, next will be another vehicle that my business partner is partially donating to the business.

 

So far so good. The short term plan is the keep flipping to pay the rent while working hard to generate interest and business doing what we really want to be doing -- performance and resto projects.

 

If car flips continue to be profitable, we will keep doing them. Seems to be a good way to generate revenue while waiting for business to spool up, or during upcoming slow periods.

 

I honestly think it will be six months to a year before I can break away from my day job and make a full time run of this. I have a friend who does advertising and branding/marketing who is willing to run my entire campaign in trade for some work on his 53 Ford. Who knows, maybe his campaign will speed up this process.

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