rpllib

I really believe the new flexibility act passage will negate most concerns with being able to use the funds correctly, and/or using all the funds.

The best advice i have heard today, is to use all the funds for payroll over the new 24 week period(or as long as it lasts), to make the forgiveness end of this a no brainer for the lending institution. The actual quote is:

"We recommend trying to spend 100% of the loan amount on payroll over the 24 weeks. That will make the application process much easier since you will only need to provide payroll reports to support your forgiveness application. " 

and 

"Although utilities, health insurance, SUTA, and other small costs are still eligible, they become less important. Rather than worry about tracking small receipts, focus on big items that are easy to provide to the lender—payroll primarily, and rent. This should make the forgiveness application process quick and easy."

It sounds like we won't even be applying for forgiveness until 2021 since they extended the "rehire clause" to 12/31,  and the no interest clause from 6 months to 10 months after the end of the  end of the covered period. 

This quote is worth watching and strongly considering for your 2020 tax planing. I suspect in many cases, profitable shops will have a tax bill in the 20-30% of the PPP funded amount against year end taxes:

"At this time items paid with PPP funds are not deductible expenses. There was previously talk that Congress would revise it so the items would be deductible. However, given the favorable changes to the program passed here, there may be less motivation to do so."

Every way I look at it, this is one hell of a GIFT.

I also saw using the funds as a challenge, and worried about getting to the end and being surprised by the results. I created a whatif spreadsheet that compares the current week to their average hourly wage for 2019(all the dollars earned in 2019 divided by all the hours worked, and then then that 2019 "hourly average" times current week hours worked. ex:

$60,000 earned in 2019

2234 hours worked in 2019

$26.85 paid for every hour worked in 2019

If my guy worked 45 hours in week one of the eight week expense period, and earned 1042.50(using his standard pay and/or productivity based pay plan), but would have been paid $1208.25 using his last year average (26.85 x 45), then we are paying a bonus to make up the difference. In this example, an additional 165.75. 

The spreadsheet then projects that out over the eight week period and gives us a total to compare against our total funded amount, to met the 75% requirement, so we can make adjustments along the way. We just completed week 3 and are on track to use most of the funded amount. 

It has really helped us see the end result. We used 2019 wages to determine the amount of the ppp loan, it makes sense to me, to pay them based on no less then their 2019 average, regardless of what their typical pay plan would net them, under the current less then ideal circumstances.

You might consider using the 2019 numbers to check current earnings against. 

Randy

PPP-Loan-Forgiveness-Calculator w example.xlsx

John

Nicely done! Many take away's from your success. If can happen for many more shop owners. Plan often and plan early.

I have been know to say "if I had concentrated more on how I wanted to leave my business, i might have taken better care of it along the way"

That said, we are also closing an LOI with our manager this year, and fully expect that to culminate in a sale. Between proceeds and ongoing lease, the funds will provide for us nicely for the rest of our lives. We accomplished this in a 500 square mile county with two traffic stop lights in the county. I truly believe this can happen for more auto repair shop owners. 

We did it by following  a formula similar to what you lay out above.
 

Thank You for your willingness to share your experience over the years, and best possible wishes for your next stage in life. . .

Randy

Yesterday I had a conversation with an investigator for the sales tax division in my state. I ask her the following questions:

If I stop charging a mark up on parts and roll all the charges into my labor rate, would I be flagged for an audit by the sale tax division, because my overall sales would remain the same but the sales tax that I report would be cut in half. She did not think so and she had been asked the question before by other owners. Labor is not taxable in Michigan.

I then asked her "what if" I stopped charging markup on parts and started charging a "shop rate" (in lieu of a markup on parts), and that "shop rate" was a variable of (and based on) the cost of the parts used on the invoice.  She wasn't so sure how that would be received by sales tax division, by she would ask a compliance officer and report back to me. 

Personally, I would rather just have a shop rate that covers all controllable costs to the customer. Unfortunately in Michigan we are mandated to have parts & labor charges, plus billed hours, clearly called out on our estimates. It is unlikely, in my opinion, that the BAR would allow a "shop rate" other than as an additional charge on top of parts and labor, which is no less confusing to the consumer than our current scenario of marking up parts. I am currently in the middle of a friendly audit by the BAR and I will ask the compliance officer his thoughts on this. 

Maybe the first thing we need to agree on is that our true charge to any and every customer(consumer), by every and any automotive service facility, is typically:

"Our normal charge for the job minus our cost on the parts "   We control all other charges on the job, except parts cost. Regardless of what quality of part we use, there will be a parts charge and we did not set that cost.

This whole mess became much clearer to me, when I figured out that the price we charge a customer that wants to supply their own parts, is as follows:

Our charge when a customer wants to supply their own parts is whatever our normal everyday charge for the job is, less our cost on the parts required.

Once we agree that is exactly what we charge our very best customers, in every shop model, we will be one step closer to a solution, Imo. 

I started looking at exit plans almost a decade ago. I approached my 15 year manager with a 15/20 year "manage to own" plan. It was better structured then some, but still woefully lacking in key ingredients. It did not speak to his needs, only mine. After all, if i am going to give him the "business" (no real estate), why should i have to worry about his needs? Right? Not right...   He declined and made it clear that he was not interested in ownership. 

I did not give up and brought a much stronger plan back, a few years later, designed to use with potential candidates from outside my organization. That offer culminated in a 10 year plan that allowed a candidate the ability to own the business and the real estate with a 10 year commitment. It basically involved paying the rent(we own the real estate outright), minimal salaries for myself/my wife, and health insurance for myself and my wife.  It also involved strict guidelines for financial viability of the business and a 30% "bank letter of credit" as collateral.  That one peaked some interest, but in the end, we could find no one with enough confidence in the location and/or their ability. 

Unlike Larry, we have 2000 cars a day driving by our shop. The main highway one block away(which we do not face) has 10,000 cars a day. The county has 2 traffic stop lights and several caution lights. We have a 10k sq ft building which includes 8 service bays, a two bay quicklube and two tire bays. We are general generalists. We work on most things that don't eat us. We have done 1.3-1.4 million in sales for the last several years. We have generated an average of 180k in discretionary cash flow a year, for the last 4 years.

A few years ago I had multiple good fortune opportunities. First i hired a 30 year old as a quick lube manager, who is hungry and anxious to be a business owner. Second, I meet a gentleman whose passion is assisting small business owners in transitioning their business to the next generation, usually by working with individuals from within the organization. 

We will be signing a legal Letter of Intent" on a several year plan shortly after the new year, 2020. 

I am seldom impressed. I am exceptionally impressed by the process and the documentation that Bob Ward from Perpetual Business ( https://www.wardden.com/#/home ). The letter of intent is exceptionally well done, his preparation of the mindsets of the buyer and the seller has been key to the success of this  transaction, and he is sincerely consumed by the success of the transactions he works on, for the life of the agreement.

This post is not about being a testimonial for Bob.

It is a testimonial for the possibility of exit opportunities for profitable automotive service shop owners. Like everything with our business's, it doesn't happen by itself . It starts with you.

Well said on all points

Traffic patterns are woefully underestimated in their importance, Imo. They become glaringly clear once you spend 50k (and more) on direct mail and then do a "sales by carrier route" evaluation. Once you overlay "carrier route spends" on a radius map, a lot of what is obvious is common sense. Are there geographical or road/highway barriers between your location and those "high value" neighborhoods? Is work, shopping, medical, ect.  primarily in a different direction from those neighborhoods, that puts your store outside their normal travel routes? If they don't have another reason to stop in your area, then you will likely be a second choice. Only time and consistently delivering a higher value service overcomes this to any degree, but normal traffic patterns is still more important, Imo.

I do not believe we can buy any report that demonstrates the likelihood of traffic passing your store actually being inclined to pull in. If there was, I would love to hear about it.

I believe our original poster for this thread has gotten a clearer picture of our industry. As I have seen time and time again, their old job starts to look a whole lot easier then what we do everyday

Thank You 

This is still great advice. I am not planning on telling my techs that we have discovered that we get zero free calls a month. 

Can you tell me what program you are affiliated with that gets you 2 free calls and $37 after that. We are at 155 a month, no free calls and 39 per call. 

Thank You

Randy

Might be worth reviewing this two resources:

https://www.industryessentials.net/copy-of-results    best $30 bucks i have spent in a while

https://www.dol.gov/whd/overtime2019/index.htm    more to consider, if you believe your staff can meet the "Duties Test" for "exempt from overtime" salary positions

ABS

My world is somewhat different then others in this industry and on this forum. What you are describing is a very common event in the franchise automotive service world. The typical new automotive service franchisee has spent most of their career in the corporate world, in some capacity. They, much like you seem, are highly intelligent and analytical and believe they are strong leaders in their perspective fields, and likely so, in what ever that world was. I get to work with these folks(new franchisee's) a few times a year. 

A few beliefs/lessons (my beliefs) come immediately to mind:

About a third of new franchisee's are out of business or sold at a substantial loss, in the first three-five years. This come from the SBA numbers combined with my experience. 

The next third wonder what the hell they got their selves into, but fight on, in sometimes very difficult circumstances. Personal fortitude and courage, along with how many "wins" they get (mostly stuff only minimally within their control, i.e. "Good Fortune") verses losses , will likely determine their ultimate fate. 

A third do quite well, mostly because the did their due diligence early on, made the right choices from a business/market perspective and had the right skill set to be successful.

Others here have made mention of the difficulty of finding qualified staff. I suggest you consider this from a different angle. I suggest you consider that you simply WILL NOT be able to find qualified staff in any timely fashion(especially as a new "untested" business). This is your Due Diligence #1 step. I realize that their may be time constraints on a purchase, so I would not delay this step. Post ads, use head hunters, job boards, ect and see what kind of response you receive for the area you are in. Blind ads are out their all the time, so you don't actually have to be in business to run ads. I suggest actually scheduling and performing interviews. Even with established business's, no shows for interviews and for "day 1" are increasing greatly.  In the franchise side of this industry(probably most of the industry), finding and retaining qualified staff is single greatest threat to growth and CAGR. I am personally aware of shops performing at 1/2 their "simple" potential, primarily because they can't find staff to do the work and the franchisee's are not qualified or desire to do the work of "auto repair". 

On average, specialty shops are much more profitable then generalists. Some specialty services, like diesel, come with monster companies as competitors, with very deep pockets and extensive resources to sweep the cream of the crop right off the top of the new candidate pool, before you ever get a chance to seek them out. 

Less than a third of all service shops are actually profitable, with less then 10-20% (10% or less?) actually having annual adjusted cash flow in the 20-30% range. 

Suggestions:

Actually try to find qualified help and seek out someone that can assist you in determining "qualified". Do not underestimate how much you will depend on others, for the success of your automotive service business. 

Review Carm Capriotto's Remarkable Results podcast episode list and start listening. You will find qualified help there.

I have also attached an excel sheet I use to evaluate the raw market potential of automotive service markets. There are a couple hundred markets evaluated in their. Many are shops that have been written up in industry journals for one reason or another. Others are their because they became of interest to me for any number of reasons. The store in the very last column is "New Shop NJ". It looked like a market similar to what you described, but of course it is not the parcel you are considering, but maybe similar. I populate the sheet from data pulled from a website called Easi Demographics, using their Easi Site Analysis feature. This is strictly a hobby, so please don't use it to make business decisions. The raw market score is based on primarily, housing density, household income and household education levels. The formulas are all their to assist in dissecting the score.  

You have also received many great thoughts from experienced industry professionals. I would advise giving some weight to those suggestions/advice. 

shopdemographicsmisc2.xlsx

This is truly great advice!!! Thank You for sharing. We have wasted our free calls for far to long, which means we have wasted hundreds of training opportunities. We are introducing a new practice in our store where we will be using our free calls every month and encourging techs and service writers to use the paid service whenever they feel it prudent. $37 is incredibly cheap for technical assistance. 

Thank you for the insight.

This should be a post under it's own heading. 

Randy

I suspect there is no less than 100 different automotive service coaching organizations in existence today. Only a handful are referenced in the following information. You will probably have more than one during your time in this industry. A good start to learn specific information would be any industry or trade groups in your area. This link may help with that:

https://www.automotivemanagementnetwork.com/automotive-service-association/

Below are a couple resources designed to help you make a good decision when it comes to hiring a "good fit", that may be helpful:

https://www.ratchetandwrench.com/articles/3211-coach

We also spent our share of years chasing money, and really sucking at collecting. We do not have a tow truck, although if i would have thought of it, I would have been more than willing to threaten a tow. It did eventually sink in that i am not a bank, so i should let the professionals handle deciding who to give out credit to. We started with Synchrony a couple decades or more ago with 90 days same as cash and now 6 months same as cash. I decided that the extra .5% for the discount rate was worth it and if they couldn't get approved, there was a good chance that I shouldn't approve them either. Historically we see a about a 50% approval rate with more being approved then not in the last year or so. We get access to the program as part of our certified service center program with Auto Value/Bumper to Bumper. We also have available the CFNA program through another program we are part of. The backend advantage besides getting paid, is that it makes future transactions much easier with the same customer. Today I have a call with a representative from West Creek Financial for a program that will approve 20-30% of those that Synchrony or CFNA won't approve. We are big believers in having financing programs available. 

We are also in a small rural community, not necessarily smaller than yours by population, but our percentage of households with 75k or more in household income is about 1/2 of yours and our percentage of households with at least one 4 year degree in the household is about 1/2 of yours as well( Holton). In any case, we are both in small rural communities. I find the visual of  "number of traffic stoplights in the COUNTY" helps folks understand what my definition of rural is. We have two traffic stoplights in the county and three blinking caution lights.  I suspect yours is similar(Jackson). I relate this information for the benefit of other readers. For some subjects relating to automotive service, it can be somewhat different, doing business in communities our size. 

I would encourage looking into having the ability of offering at least one of these type programs available in your store.  I clearly remember the transition from in house financing to Synchrony and how much easier it was to let folks know that although we do not have in house financing, we do have an option for them. I am equally looking forward to having an option for those that tell you right up front that they won't get approved. I am hopeful that Westcreek is an answer for those folks. 

Today, I came across the following screencast that I made earlier this year for my staff and my suppliers.

It seems like it fits into this conversation somewhere. Click on link to view

https://1drv.ms/u/s!Ap7ibKYluQae7VhVMw958evEYhzW

Randy

I hope others learn to look forward to paying taxes before they spend an entire career wishing they had enough profits to worry about having to pay taxes. How many times have i heard "it's a write off". Most of those times I had no need for any more "write off's"

"Cash reserve", what an incredible feeling. "75% of profits in the bank", Good.  25% to Uncle Sam, well that's good too. Pretty cheap for everything we have to be thankful for.

None of it is possible without profit.

Going on thirty eight years and still learning everyday.

Thanks Joe, great tip

I too appreciate the conversation. My numbers are a little different for how much I would have to increase my effective labor rate to achieve the same gross profit dollars from the work performed year to date. I suspect most shops will have some degree of variance based on sales mix and focus. I used the following formula

 

Parts gross profit dollars generated for the year/ divided by/labor hours billed for the same time period. I would then add that number to my current effective labor rate to find my new effective labor rate goal, if i was going to use this straight up approach. My numbers would require a $70 increase in effective labor rate, give or take. This would involve doubling my "door rate". I would likely have to split my three profit centers (oil, tires and service) and come with something different for each. Still not all that hard. 

 

I used before tax numbers, so the tax savings to the consumer would be $22,000 ($3.14 per work order on average) in my case and we would still owe $24,000 on parts at cost. We are a "tax on parts"only state. 

 

I suspect the more likely formula for us is more like the fleet discussion earlier is this thread, where we would have a low flat parts margin of 15% or so. This would reduce our required effective labor rate increase to closer to $60. Still pretty easy to manage and 15% margin can easily be applied to everything we sell including tires and dealer parts. How simple would that be, 1 matrix table for all. 

 

The modern consumer is more and more like a fleet manager. They have easy access to lower cost parts and supplies(of the same quality, if they chose), just like fleet managers have had for years. 

 

There will still be challenges for early adopters. Some current jobs with low parts gross profit dollars associated will increase significantly. National fleet and extended warranty companies will require some education. We will be need to be very good "educators" for sure.

 

We will have been in business 38 years May 1

 

Thanks for the conversation.

 

Randy Lucyk

Midas Kalkaska

Your experience has obviously been different then mine. We are not an econo line shop in any way shape or form and it would be a fair statement that we never use the cheapest part available. We also don't tend to use the very most expensive part available. We have used this methodology for many years with success. . It is my contention that far too many parts that you might labeled as "premium" (which are the majority of parts we use) are nothing of the sort and that it is our suppliers that make the determination of what quality of parts we have available. Many premium lines have far too many instances of early failures. If you are a European or import specialists, you may not be seeing the level of issues we see as general repair shops. My whole point is that we (shop owners)need to demand better quality from our suppliers and stop being most concerned with price. I suspect most experienced shop owners would tell you that it costs you gross profit dollars to use cheap parts. That is just the nature of matrix's. In the meantime, while we wait for quality to reverse direction, this new warranty program seemed like a suitable stop gap. 

Thanks for the reply and another opportunity to clarify my intentions

I believe one of the challenges we have in this industry is that there is a metric/kpi  that we do not embrace. If we spent some time tracking gross profit dollars per hour of tech/shop/equipment time, we might figure out quickly that we simply can't afford to install customer supplied parts at any of the old/average methods we have used in the past. In my shop we need to produce $140 in gross profit dollars for every hour the shop/tech/equipment is in production. That's to just start being happy/profitable. Even a tire tech in my store will produce $140 in gross profit dollars an hour of tech/shop/equipment time, mounting and balancing a new set of tires. Yet, in many cases when this subject come up, we are talking about tying up a seasoned technician on much higher skilled work, for substantially less gross profit dollars per hour. 

Same amount of tech/shop/equipment time is necessary, regardless of who supplies the parts or tires. All we really have ever sold is shop/tech/equipment time. Parts margin as a contribution towards the total shop charge, was decided on long, long ago. Likely because shop owners did not have the courage to charge enough "labor". 

It's yet to be seen, what if any factor of labor, will produce the same gross profit dollars. I haven't figured it out. The variables of sales mix and individual productivity  make it a moving target for sure. 

We may find that taking two minutes educating customers on the "why" of customer supplied parts, will help us as an industry, in the long run. We educate them to the fact that it saves very little (very little if any!) as shifts to a "shop rate", which is substantially higher than the labor rate by itself.  We frequently see a glimmer of understanding, when we explain that what we ultimately charge for, is the amount of time that our shop/techs and equipment are tied up.  

This industry has always been a test of our courage and educational skills.... 

Bob

Lots of good advice in these reply's. I have attended 3 of their one day work shops and they are always worth while in my opinion, as long as you apply some of the filters outlined in the other reply's. Your store would not be a typical ATI client, yet everything they (as well as most management training organizations) work with you on, will show you benefit to the degree your market and your engagement will allow. Just to be clear, I did not say it wouldn't work in your market, i said it would work to the degree your market and level of engagement with the process, will allow. Having a connection to most management trainers, will make you a better shop. You just may not see the kinda of benefit, others in stronger markets might see. The reply from Smart Automotive demonstrates that to a point. I have seen other cases where shops in low potential markets take a hit when first signing up with a management training organization. That hit, is kind of a right of passage, in my opinion. 

Attached is an informal market analysis of your market, plus both the old and the new  Smart Automotive locations, as well as various other market locations throughout the country. About 100 or so. 

Your automotive retail market potential score puts you in the very low end of the markets compared there. That does not mean you can't be successful. It may mean that you don't have the luxury of making a lot of mistakes when it comes to how and where you spend your training dollars. 

Randy

misc2.xlsx

Just as a quick update. I was not looking for another AVC27 but came across the one pictured on ebay, while looking for an image to include in my original post. After thinking about it, I bought the tool pictured above for $400 the next day. We did not necessarily need another one, but the fact that image showed that this unit had a new "barrel" convinced me it would be a good purchase, as that is essentially the only wear item on the tool.  Works like a charm. Good purchase.

Use and modify as you please. Glad it will help

We have embraced technology in our shop at perhaps a higher degree than many, not as much as some. Technology (including the www and all of the digital platforms and resources) that we have had widely available for the last 20 years, is the number one tool in our store and it has given us a definite competitive advantage, especially in the earlier days.

So, technology is our number one tool but it is not what I want to call attention to in regards to your question.

The tool that stands out, hands down above most others is our usage of the Ingersoll Rand AVC series of air hammers. 

Some might think, Whatttt??? (hack?, get a bigger hammer?, beat the hell of of it?) But you don't have to beat the hell out of it or damage parts, if you are using the right tool in experienced hands.

We are in northern Michigan and we believe in heavy doses of salt on our roads 6 months of the year. The byproduct of that is "things that don't move". The Ingersoll Rand AVC series hammers have been second to none, from my first experience with an AVC13 40 years ago, to our current tool of choice the AVC27, at getting things to move. This is a highly controllable tool with a trigger that allows experienced hands to run it from 60 hard hits per minute (that's minute, not second) to more than enough to move most things that you might need to, where vibration and force is the appropriate choice. 

I am convinced that we have no other tool in the shop that has delivered a higher ROI, other than technology.

Image attached. The large flat mushroom bits are the most used.

We recently switched to the attached. The explanation to my staff is also attached. As it says somewhere, this is not a good thing. 

The real eye opener for me was when i looked at the cost of paying a technician to perform warranty work (minimal) compared to the lost gross profit dollars per billable hour`(substantial), while they are tied up on parts failure related warranty labor.

We are not the "economy" parts kind of shop, and most in our little town would tell you that their is nothing economy about the service we provide. We will no longer be fooling ourselves into believing that a part line is acceptable just because it is the best that any of my suppliers stock. I believe is offering my customers choices, but it is time we share the risks as well. 

We will still be taking care of customers like we always have, but sure hope to minimize the number of third warranties in a 24 month period. 

Service and Parts Warranty July 2018 dist.docx

New warranty terms as of july 1 2018.docx

Great story, thanks for sharing. i have had a few aha moments in my career. Never regretted any of them.