New Business

[nick]

Hi,

 

I have wanted to start my own shop for a while. I am having trouble finding resources for this matter. I am wondering how you started your businesses. Capital, business plans, first year profits? I am master tech and make decent money however I have two houses and a family to support. So, to jump into a business I would need enough money to fall back on while the business grows. I would definitely start out with a small shop to keep cost down. Any help will be appreciated.

 

Thanks Nick

[ATLAuto]

Your first step is to minimize all expenses. From a banks perspective, your two houses are a major liability. Drop one or rent it out.

 

In order to get a loan, you will need to have a solid down payment, a good business plan, and a large stash of working capital to get you through the startup.

[Joe Marconi]

Find out if there are any business organizations or business groups in your area. Also check with the local chamber of commerce and speak to the financial loan officer at local commercial banks. The reason I mention this is that your success will be largely determined by the strength of your business plan, not your ability to fix cars.

 

I know this may contrary to many, but it is the truth. Servicing and repairing cars is what you will do. How you become profitable and successful will be determined by how well you understand business, finance, pricing, labor production, employee management, etc.

 

If you start off on the right foot, you will be ahead or the curve, that I can guarantee.

 

Trust me on this. For the first 10 years in business, I was busy and made no money. I was a great mechanic, but a poor business man.

 

The more I learned about business, the more success the business attained.

 

Good luck and great post!

[nick]

The house is rented. What do you recommend for a business plan. Study up and do it myself or hire someone to do it with my input? Do you know how much of a down payment is needed for a business loan? I was thinking it would be 20-40%. Which makes me wonder how people get this kind of money together. I had also thought about going in without a loan and start small.

[John Pearson]

I started in my own personal garage and bought stuff when I needed it. after about a year of nights and weekends I got a guy to help me at my personal garage (1800SQ feet with a lift) 6 months after that I moved my shop in to a 1000SQFT shop with a few more tools but still a full time job. During this time we have added an AC machine, a couple factory scan tools, alignment machine, and lots of other STUFF.

 

5 months ago I quit my full time job and do this for real now with a full time office lady. I found if you work with your wife all day every day you might just end up hating them. At this point we have signed a lease for an addition and financed a piece of land to build a building on in the future. We also financed the purchase of 4 new lifts for 38,000 just to build a reputation with the bank.

 

My tip is start small, and work with what you have got and when you can add what you need. Do quality work at a quality price and take care of people like you are related to them.

[nick]

I understand this might be a personal question and multiple factors would change the outcome. However can anyone give me a rough estimate if the business is making 1 million gross a year ,what might a net profit estimate be. I'm just trying to figure out what I would need to do in sales in order to take home close to the amount I do now.

[mspecperformance]

If you are doing everything "right" according to industry standards ideally you would be walking away every year with at least 20% net. That equals to 200k. Depending on who you ask the target net profit goal may be different. I believe average nationwide is around 2-5% whilst some consulting firms aim for 10-15%. I am more comfortable with shooting for 20%.

[ATLAuto]

I was thinking it would be 20-40%. Which makes me wonder how people get this kind of money together...

 

I would go after an SBA loan, as a new business. 10-20% down is normal, depending on your business health and previous year financials.

 

In terms of getting that cash together ($300k+) ... this is really the reason why most guys go with franchises. The franchise will foot a lot of this bill in return for you paying them 5-9% of gross yearly.

 

I understand this might be a personal question and multiple factors would change the outcome. However can anyone give me a rough estimate if the business is making 1 million gross a year ,what might a net profit estimate be. I'm just trying to figure out what I would need to do in sales in order to take home close to the amount I do now.

 

20-30% net profit is the golden standard. Tire shops will hit 15%. Well run import shops will hit 30%.

[mspecperformance]

 

I would go after an SBA loan, as a new business. 10-20% down is normal, depending on your business health and previous year financials.

 

In terms of getting that cash together ($300k+) ... this is really the reason why most guys go with franchises. The franchise will foot a lot of this bill in return for you paying them 5-9% of gross yearly.

 

 

20-30% net profit is the golden standard. Tire shops will hit 15%. Well run import shops will hit 30%.

 

 

Thinking of 30% my nose will start to bleed LOL

[nick]

I estimate I make my shop gross labor and parts about 600k a year. I know that I wouldn't get that starting out but I Could work up to it.

[ATLAuto]

The thing with net profit is that it is not linear. i.e. if you are making 20% on $500k ($100k), you will not make double on $1M ($200k). You will make more than double, because your overhead is already covered. Likely 30-40% on that additional gross.

[mspecperformance]

CORRECT! I guess I'm not there yet lol

[alfredauto]

Figure $1000 per bay per working day gross revenue as a guide. A 6 bay shop with 3-4 techs will put you where you want to be with a fat wallet. Its a trick to actually pull it off, I certainly don't.

 

This is the reason most 1 or 2 bay shops close after a few years. Economy of scale is very important.

Edited March 28, 2015 by alfredauto

[mspecperformance]

Figure $1000 per bay per working day gross revenue as a guide. A 6 bay shop with 3-4 techs will put you where you want to be with a fat wallet. Its a trick to actually pull it off, I certainly don't.

 

This is the reason most 1 or 2 bay shops close after a few years. Economy of scale is very important.

 

 

I agree with alfredauto here. A 1-2 bay shop needs to cranking out serious work in my neck of the woods to survive due to the high cost of living and expenses. Rent here is ridiculous. I have however read up on several small footprint shops with 1-3 bays that absolutely KILL it. They have the staff, the customers and the systems and processes to be ultra efficient. If I find some of the articles I'll post them up. Really makes you think if these guys can do it then you can to.

[Shopcat]

Nick, all these guys make great points. Another way to look at it is to figure what you want to make for yourself, then add in all of your fixed expenses, rent, insurance, utilities, etc. Figure what it will take to make it happen in total sales dollars (with good profit margins) for a year. Divide it into work days to see how much you will need in daily sales. Take that number and figure .80 parts to 1.00 labor , or about 50/50 for an estimate. Lets say you need $ 2000.00 in sales per day, that's about $ 1000.00 in billable labor. Divide that by your labor rate, lets say $ 80.00. You will need to produce 12.5 hours of billable labor per work day. There is a number you can work with as a starting point. From there you can figure you will need about 4 cars per day at 3.0 hours each. This will also let you see what kind of staff you might need. I hope this helps, and good luck!

[davine4real]

Start small on the expenses. Get what you need and save up for the rest. Only finance equipment if you can't live without it. Bank loan not needed, but helps take the sting off but creates more stress because just another bill to pay monthly. Biggest investment may be your help. This is because you won't necessarily see the return on investment right away. Decide if you want to be in the shop first or on the phone and then hire someone to do the opposite. If you're set on turning the wrenches, then hire a service writer. You will think that you can't afford it at first, but you can't afford not to get help. I learned this way to late and have gotten burned out trying to do everything alone. Keep in mind if you work alone...you have a j.O.b. If you have help you're on your way to having a business!

[Dino1]

20-30% net profit is the golden standard. Tire shops will hit 15%. Well run import shops will hit 30%.

This is the area with which I struggle most--wondering if we're doing "ok" compared to the industry.

 

I am a part-owner (60/40) of a 2-man, 2-bay shop currently in our 2nd calendar year of existance. 1 fairly amazing tech (albeit with some personal life pecidillos that I KNOW are costing us money) and myself, running the front as SA, CEO, CFO, COO, et al. For last fiscal (calendar) year, we had a gross income of right at $204,000.00, Cost of Goods Sold (inventory, parts purchased, sublet expenses) of about $61,600.00, for a Gross Profit of about $142,400.00, total other expenses (rent, utilities, advertising, hourly payroll, etc., etc.) of $71,400.00 for a Net Profit of $71,000.00 which we split 60/40, more or less. According to my math, this is about 34% of Gross Income, or almost 50% of Gross Profit. If the "20-30% Gold Standard" quoted is on Gross Income, we seem to be doing pretty well, if it's based on Gross Profit, we're doing amazingly well. Most recently, I come from the background of the manager (Glorified SA) of a major multi-national franchisee which I took from a best year of about $730,000 to over $1million in my first year. I was earning about 7% of Gross or about $7k/month--more money than I knew with what to do to just about $3k/month now, but with a LOT LESS hassle, stress and fewer hours. I feel like we could have a better bottom line, I've spent lots of money on advertising and other "schemes" to try to get new business to our start-up--for the most part, money that I just as well have run through my schredder and taken and thrown out into the street. Upon leaving my previous employer, about 1,000 of HIS/MY??? customers followed me to my new shop because they like & trust me. Most of our new business has come from word-of-mouth. I have 25 years experience as an SA, but I can sell more work in 30 minutes than my partner-tech can complete in 3 days (he's a little lackadasical in his punctuality and staying on-the-job, but otherwise good as a tech & fair as a diagnostician).

 

Bottom like, according to the figures quoted, it seems like we're doing ok, even if it doesn't seem like it. Thoughts, comments, questions...???

[Dino1]

20-30% net profit is the golden standard. Tire shops will hit 15%. Well run import shops will hit 30%.

This is the area with which I struggle most--wondering if we're doing "ok" compared to the industry.

 

I am a part-owner (60/40) of a 2-man, 2-bay shop currently in our 2nd calendar year of existance. 1 fairly amazing tech (albeit with some personal life pecidillos that I KNOW are costing us money) and myself, running the front as SA, CEO, CFO, COO, et al. For last fiscal (calendar) year, we had a gross income of right at $204,000.00, Cost of Goods Sold (inventory, parts purchased, sublet expenses) of about $61,600.00, for a Gross Profit of about $142,400.00, total other expenses (rent, utilities, advertising, hourly payroll, etc., etc.) of $71,400.00 for a Net Profit of $71,000.00 which we split 60/40, more or less. According to my math, this is about 34% of Gross Income, or almost 50% of Gross Profit. If the "20-30% Gold Standard" quoted is on Gross Income, we seem to be doing pretty well, if it's based on Gross Profit, we're doing amazingly well. Most recently, I come from the background of the manager (Glorified SA) of a major multi-national franchisee which I took from a best year of about $730,000 to over $1million in my first year. I was earning about 7% of Gross or about $7k/month--more money than I knew with what to do to just about $3k/month now, but with a LOT LESS hassle, stress and fewer hours. I feel like we could have a better bottom line, I've spent lots of money on advertising and other "schemes" to try to get new business to our start-up--for the most part, money that I just as well have run through my schredder and taken and thrown out into the street. Upon leaving my previous employer, about 1,000 of HIS/MY??? customers followed me to my new shop because they like & trust me. Most of our new business has come from word-of-mouth. I have 25 years experience as an SA, but I can sell more work in 30 minutes than my partner-tech can complete in 3 days (he's a little lackadasical in his punctuality and staying on-the-job, but otherwise good as a tech & fair as a diagnostician).

 

Bottom like, according to the figures quoted, it seems like we're doing ok, even if it doesn't seem like it. Thoughts, comments, questions...???

[Dino1]

20-30% net profit is the golden standard. Tire shops will hit 15%. Well run import shops will hit 30%.

This is the area with which I struggle most--wondering if we're doing "ok" compared to the industry.

 

I am a part-owner (60/40) of a 2-man, 2-bay shop currently in our 2nd calendar year of existance. 1 fairly amazing tech (albeit with some personal life pecidillos that I KNOW are costing us money) and myself, running the front as SA, CEO, CFO, COO, et al. For last fiscal (calendar) year, we had a gross income of right at $204,000.00, Cost of Goods Sold (inventory, parts purchased, sublet expenses) of about $61,600.00, for a Gross Profit of about $142,400.00, total other expenses (rent, utilities, advertising, hourly payroll, etc., etc.) of $71,400.00 for a Net Profit of $71,000.00 which we split 60/40, more or less. According to my math, this is about 34% of Gross Income, or almost 50% of Gross Profit. If the "20-30% Gold Standard" quoted is on Gross Income, we seem to be doing pretty well, if it's based on Gross Profit, we're doing amazingly well. Most recently, I come from the background of the manager (Glorified SA) of a major multi-national franchisee which I took from a best year of about $730,000 to over $1million in my first year. I was earning about 7% of Gross or about $7k/month--more money than I knew with what to do to just about $3k/month now, but with a LOT LESS hassle, stress and fewer hours. I feel like we could have a better bottom line, I've spent lots of money on advertising and other "schemes" to try to get new business to our start-up--for the most part, money that I just as well have run through my schredder and taken and thrown out into the street. Upon leaving my previous employer, about 1,000 of HIS/MY??? customers followed me to my new shop because they like & trust me. Most of our new business has come from word-of-mouth. I have 25 years experience as an SA, but I can sell more work in 30 minutes than my partner-tech can complete in 3 days (he's a little lackadasical in his punctuality and staying on-the-job, but otherwise good as a tech & fair as a diagnostician).

 

Bottom like, according to the figures quoted, it seems like we're doing ok, even if it doesn't seem like it. Thoughts, comments, questions...???

[ajnealey]

That 20-30% figure is AFTER you pay yourself and is what the business generates on net.

[ATLAuto]

That 20-30% figure is AFTER you pay yourself and is what the business generates on net.

Agreed. I think you are confusing gross and net profit...

 

Gross Profit = Total Revenue - Parts Cost - Labor Cost

 

Net Profit = Total Revenue - Parts Cost - Labor Cost - Overhead

[ATLAuto]

To add to that...

 

Gross Profit should be above 60%.

 

Net Profit should be above 20%.

[ScottyP]

Start small on the expenses. Get what you need and save up for the rest. Only finance equipment if you can't live without it. Bank loan not needed, but helps take the sting off but creates more stress because just another bill to pay monthly. Biggest investment may be your help. This is because you won't necessarily see the return on investment right away. Decide if you want to be in the shop first or on the phone and then hire someone to do the opposite. If you're set on turning the wrenches, then hire a service writer. You will think that you can't afford it at first, but you can't afford not to get help. I learned this way to late and have gotten burned out trying to do everything alone. Keep in mind if you work alone...you have a j.O.b. If you have help you're on your way to having a business!

This is good advice. Stay out of debt as much as possible imo. I started small, still am small, but my start was in my home garage which is actually nicer than my current shop, well except for the lobby. Anyways I worked out of my home shop for 3 years part time, completely legal too with all licensing, zoning etc, until I had a good customer base and felt it was the right time to move. Rented a nice 2 stall shop in one of the best locations in my whole area and moved in 1 1/2 years ago. Was busy from the start but the first winter was tight. Make sure you have some cash reserves cause you will need it.

 

My first year was profitable, I did well, very well. My second year is already way ahead of the first and I learned some valuable lessons along the way. My jobs are more profitable and ARO's are much larger. Honestly on a daily basis my car count is no more than last year, maybe even less but my tickets are bigger and I'm charging what I should be getting paid, and people are happy to pay for good work and service. I learned a lot about scheduling, last summer I was way too tight and it almost killed me. Now I give myself some breathing room. I shoot for 3 job days as I call them, and I can average $1000+ per day, remember it's just me and I still have to do everything else involved. Yes right now it is a job, I'm paying my dues so to speak to build this business.

 

My monthly expenses are still very low, rent, utilities, ins etc only cost me $1500/mo and I have no payroll. I do have a cousin who helps me in the summer and I don't have to go through all the payroll stuff but that day is coming soon when I will have to bite the bullet and hire help. Right now I'm booking out 2 weeks and losing some work just because I can't get them in. We'll see. Good luck, it's hard work but rewarding.

[Marksas]

Nick,

Do yourself a favor and find some local or online training for Excel or any other spreadsheet program as well as quickbooks training. I took classes in the evening and on weekends offered by one of the local colleges. I also had a membership to a New Horizons Training and I took all kinds of training before I ever went into business. I just purchased a yearly membership and could take as many classes as I wanted for the fee. This was in the early 90's and it was the best training I did. Along the way I learned some database training and SQL which I used extensively. I even wrote a management system for another automotive business I sold in the late 90's and they still use the application today. I would also say start using a management system to have a good grasp on your numbers. Also understand your training never stops, it is continual if you want to stay on top. I started my current shop in 2001 and built a new 7500 Square ft shop doing nothing but Collision Repair and then began doing General Automotive Service a couple of years later. We currently do both Automotive Service and Collision Repair out of the same building. We are in the process of building a new 7000 sq ft General Service Shop down the street. (Currently in the city approval phase). We do $2.5M+ in sales with about a 16% net. There is no doubt I can do better on the net but I chose to be a little fat in the office because I don't want to work that hard. I am currently evaluating all expenses and when we split our shop I will address those issues. When you grow it's easy to not pay attention to all of your expenses and to let them get out of hand. I do a yearly budget as well as sales projections and staff knows exactly where we need to be each and every day. I can tell you how much I plan to spend on toilet paper, ink, electricity advertising and everything else. I budget a reasonable salary for myself as an employee. My budgets are pretty detailed. We offer medical benefits paid 75% by the company, Life insurance, LTD, uniforms, training, and ASE certifications all 100% company paid. We have a SEP Retirement paid with a dollar for dollar match up to 3%. as well as the associated vacations and paid days off and EOY bonuses. If a tech attends training in the evening they are paid a flat fee to attend. They also receive efficiency bonuses if the shop hits certain milestones each pay period. These are all things you have to think about as you grow because you want to retain and attract good people. The hard part is staying on plan when you have little or no accountability.

 

As for business plans, write it yourself. Lenders know what a professional written plan looks like. I wrote my plans in word and Excel and presented it to 5 different banks. I tailored each introduction letter to the specific bank. I ended up going with a smaller local bank with strong community ties. I am still with them today and they have been able to do whatever I have asked. I also shop them for every loan or refinance as rates have come down. I pay cash for any equipment purchases and only use the bank for land and buildings now. I don't use the SBA because I don't want to deal with the red tape and have heard to many horror stories. I might try them on my new building but at the first obstacle I will most likely drop them. My banker wants me to try because he says once your in, it's easy to get new money down the road with a track record. My banker always comments on my paperwork and the neatness and condition of my financials. I have used some local NAPA financing on some larger ($10k+) equipment purchases only because it was a 6 month financing with no interest, no paperwork and they just added it to my parts statement each month. I had the cash but if I could use theirs for 6 months for free then I did.

 

I would also recommend reading The E-myth book.

http://www.amazon.com/The-E-Myth-Revisited-Small-Businesses/dp/0887307280

 

 

This is also a very good book "Small Business - Big Pressure"

http://www.amazon.com/Small-Business-Big-Pressure-Entrepreneur-ebook/dp/B00RPCWJTQ/ref=sr_1_1?s=books&ie=UTF8&qid=1428333771&sr=1-1&keywords=small+business+big+pressure

 

Another good resource you can listen to and gain valuable knowledge is Dave Ramsey's Entreleadership Podcasts on I-tunes. They have about 2 45 min podcast per month related to business. I listen to them as I drive, walk or run throughout the week. I also read/listen to several books per month. I know when I was in the shop actually working on cars I would listen on average a book per day. When everyone else is listening to music I was learning something.

 

I am currently reading/listening to "Customer CEO" by Chuck Wall

http://www.amazon.com/Customer-CEO-Profit-Power-Customers/dp/1937134377

 

As for start-up funding I have done several things in the past. I have written $10K promissory notes with interest only and principal and interest at 5Yrs. I presented these to various people I knew and had $50K in about a week. I paid everybody back within 2 years. In my current business my wife and I had 401K's that we rolled into a new plan set up by my new company which has to be a "C" corporation and had borrowing rights. My wife and I each borrowed $50K from our plans and paid it back on a 5yr term. We paid the funds back to our plans early. This is not a good plan because if you default the fines can be steep but it was a risk we were willing to take. We also made personal loans to the corporation at 10% interest only per year, which we rolled the interest back into the principle for the 1st 3 yrs. This way we still received a return on our money. As the business grew we paid back all the principle. One of the biggest mistake new businesses make is once the make a little money they began buying toys and spending the money. I didn't buy anything for about 7 years and then I didn't buy much. I like having a cash cushion and 6 months operating expenses in the bank. It makes it easier to sleep at night.

 

Hope this wasn't too lengthy and good luck in your endeavor. Just remember whatever challenge you are dealing with, somebody else has been down that road and can offer advice if you just ask. Never be afraid to ask. Stay humble and eager to learn.

[mspecperformance]

EXCELLENT POST. Wow. I am truly impressed!!

[MINI4U]

We used SBA and they were great. They helped us write out a business plan and supported us in getting established. It did take a couple years because the shop we wanted to buy did not show much profit (the guy was taking a lot of cash sales and pocketing it) and a lot of banks wanted us to have a huge wad to put down.

 

We did not have a ton of money saved but we had good credit, not a lot of debt (no car payments. credit cards payed off monthly etc). Finally our SBA guy suggested another bank to try by then (2 yrs) we had given up on the shop we wanted to buy and were looking at leasing a place. The banker took the time to get to know us and said we would be better off buying than leasing. She made it happen with an extra 30k to keep us afloat as we started to get established.

 

Long story short we still have the 30k in savings and we own the shop. We did find out that we needed some business classes after a couple years to get more profit into the shop.