New shop ownerPosted by Wesley Guin on October 18, 2018 at 12:47 pm
first off I want to thank anyone that helps me out. I am in the planning stages of opening my own shop. I have always worked in large dealers so I am not sure what an independent shop would do. Currently I have calculated for the first year with 5 techs at 50% productivity for the first year. All shops in our area run from 125-135 an hour so I am estimating 120 an hour. This would put us at 52,000 a month in labor and guessing about 85% of labor in parts sales which would put us at 44,200 for a grand total 96,200 total sales. So if I figure 2/hrs per ro I come up with a 217 car count and 444 ARO. Basically what I’m looking for help with is validity of these numbers, am I too high? Too low? I will appreciate any suggestions or help!
MemberOctober 18, 2018 at 3:11 pm
Shooting from the hip…
You will need to do better than 50% productivity. Conservatively you could go with 75-80% with 1 or 2 less techs.
Figure your effective labor rate at 80-90% of your average billed rate. So, for $120 billed, figure you will collect $96 – $108.
The rest looks realistic. A lot has to do with demographics.
Consider one of the management trainers or 20 groups in the directory on the left side of the home page. Normally money well spent.
There is a lot of info on key numbers including those you mention in the Premium areas on this site. Three months access for $39.
MemberOctober 20, 2018 at 8:08 pm
Okay I’ve adjusted down to 4 techs and am assuming 60 cars a week at 2.2 hours per ro at an ELR of 102. I have attached my new P/L for first 3 years
MemberOctober 21, 2018 at 11:38 am
Complete the projection attached and post it back here.
MemberOctober 24, 2018 at 8:44 am
As a shop owner for over 30 years my observation is that you are trying to be too big too soon. It will take time to build clients. Just because you have 20k set aside for marketing does not mean you will have instant customers. You want to avoid marketing just to drag someone in with a cheap oil change because that is they type of clients you don’t want. You want to build relationships with people as they come in and manage their expectations not yours. The hardest part of running a business is not fixing the car it is Employee’s and their daily problems attitudes etc.
My advice is start slower with maybe only 2 technicians , check vehicles out completely each time. Present to your customers the reason something should be fixed now or in the future and cultivate a customer base based on trust and relationships not just marketing for cars.
It is easier to add techs as you need them then it is to lay one off because of lack of work. No matter how long you have been in business there is always a slow day or week due to something we have no control of.
The biggest thing to remember is the daily expenses are there every day whether you have work or not.
Have plenty of money saved to cover your self as you get yourself established
MemberOctober 24, 2018 at 11:55 am
Tom, that you for the budget sheet I am currently working on it now.
Roebigd, I was kinda figuring that my numbers might be high for the first year. Also to help drive new customers I have been intruding myself to the residents in the area getting feedback of what they would like to see from an automotive repair shop and asking them to follow us on Facebook for updates as we open up. As soon as I get my survey sheet completed I will post what I have , I think that getting to know residents will be a huge factor in early retention.
MemberOctober 27, 2018 at 3:01 pm
Are you taking over an existing business or starting? If you are alone you might have a 50 percent efficiency but with techs you need to achieve 70 to 80 percent. If you are starting new from scratch your rent is a major expense and you may be planning to big, too much overhead. It is difficult to predict a start up. I Suggest looking at a kindle book Auto Repair Shop First Aid by Lloyd Paulson. He does a good job of explaining numbers industry numbers and benchmarks. How to reverse engineer analysis of financials. It is full of a lot of practical useful information. Undercutting your competitors rates will not ensure success. It will bring you the wrong kind of clientele. Take my word on that. Plus the more kinds of services you decide to take on the more it tends to add to your overhead. If the other surrounding shops are always very busy you may have a chance. Or if you can offer a needed niche service that the others do not or don’t do efficiently you may be onto something.
Do your math. Can you survive with little personal income for a year or more? Do your projections work with your expenses based on 4 billable hours work for you and one other tech? Can you survive any length of time or cover expenses with just 2 hours billable ? And I am not suggesting it good but it may mean the difference of surviving if the projections don’t match. If you are looking at taking over an existing business does the math still work if the gross were to drop 20 to 30 percent ?
MemberOctober 27, 2018 at 4:04 pm
Your Parts to labour correlation is correct. If you are taking over an existing business you should perform similar but just do some survival calculations of a 30 percent drop of the gross and see if you can make that work. Use diligence to verify that all the info you see is correct.
If you are starting from scratch it takes at least three years to establish a business. You may not even make an acceptable wage the first year. Depending on location and demographics. So if your projections are from starting from scratch they are way too high for year one. Plus its unwise to make such projections of hiring several techs. You need to calculate a shop that you can afford if it were just you alone with enough space to accommodate 2 techs if busy. With ample parking. That is what I would personally recommend.
Email if you want to chat about it.
But that is what I would recommend for the record.
MemberNovember 8, 2018 at 10:54 am
All great replies so far. Listen to them for sure! My two cents after 18 years in business starting from scratch, unless you’ve a chunk of change to live on personally, pay your bills, cover some payrolls, and take care of your vendors on time, start small and grow slowly. It doesn’t take long to build distrust with your suppliers if you’re late on payments. It makes for a tough run when you need grace, help with a price, delivery options, etc. The long-term payoff is worth it. Ditto on the 20 groups.
MemberNovember 8, 2018 at 11:02 am
Thank you all for the replies. I have put a lot of thought into this and I definitely do not have enough capital to put a down payment on a loan and float all my bills for a year at this time. However I have thought about another avenue that would be less money involved and a good start. I was thinking of hiring mobile techs as contractors and paying them $70 a flag hour. They supply their van and tools and i supply the sales, parts, marketing, scheduling and customer relations. This would also let me lease a smaller shop that we could do bigger repairs in that cannot be done in field. So basically I set my rate at 120 I get 50 they get 70. What issues do you all see with this model that I am not ?
MemberNovember 8, 2018 at 6:22 pm
I admire your tenacity, wanting to go big and think out of the box. Have a great team of lawyers to go through a non-compete clause, have lots of interviews with insurance companies that have insured that sort of venture, and make sure you can swing getting your guys bonded as well. Have you thought about how you might market to qualified techs with their own tools and vehicles to go out and do mobile work for less than the full boat? Most techs I know that are reliable and driven enough to work unsupervised are out doing their own thing. The others want a job they can come to and leave to go home with a steady paycheck or the ability to burn flatrate. Another thought that may or may not apply to you, here in Washington state, every locality you do business in has to have it’s own city/county license as well as collect its’ own sales tax rate and report each one individually. It’s an accounting nightmare. We have, I believe 76 different tax rates plus local business and occupation taxes in some areas that all must be reported. Lastly, its illegal for me to contract blue collar workers which automotive repair falls under. I don’t recall the exact terminology for it, but I know shops here can get in some pretty hot water for trying to subcontract out techs. They fall under the minimum wage, L&I and worker’s comp. laws.
Any thought as to how you might market your services? Who is your demographic? How will you handle the acquisition of parts as a mobile enterprise? How might your suppliers offer you parts and labor warranty coverage if you’re not in a fixed location? Just a couple more questions.
Not to discourage you, but have you built yourself a reputation among your community as a stand up guy, fair businessman, and rockstar technician? That’s probably the most important thing to do. Sometimes we all take a Field of Dreams approach with “Build it and they will come” which just doesn’t work out most of the time. Hate to see motivated guys get burned. Answer the aforementioned questions and you’ll be off to a fair start. Might I suggest joining a 20 group as was mentioned before? That is going to put you front and center with some of the best shops in your area, better equipped than most of us here to answer your questions regarding local legality and profitability.
All the best.
MemberNovember 8, 2018 at 6:56 pm
Thank you for the reply. This was simply an idea I just had yesterday. I have done tons of market research in the areas I want to open a shop but I just do not have enough capital for that at the moment. I have not checked into the legality or requirements of taxes quite yet. I do know however that there are a handful of mobile techs in the area and the only reason I know them is from selling parts to them in the past and they all fizzle out usually due to not being able to be seen. Also most techs I have worked with do not have the customer mindset, I was only a technician for a short period of time because I excelled in sales and customer service so I have been in parts sales and most recently a service advisor for the last 7 years combined. Where I would come in is marketing learning our demographic and targeting them as well as supplying them the work and managing all of the money and finices of it. I know plenty of amazing technicians that would enjoy leaving a dealership for their “own” venture but don’t know how to manage money or how to approach customers. I have started to look into the requirements behind this model to see if it is even plausible.
MemberDecember 9, 2018 at 5:58 pm
I have attached how I am getting my sales numbers and a cash flow. Also I filled out the spreadsheet Tom wanted to see. I appreciate all the help I have received and i feel like I have some solid numbers
MemberDecember 9, 2018 at 5:59 pm