Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Sat Dec 08, 2007 8:55 am Post subject: How Should Bob Proceed?
Bob has an auto service shop. Business is brisk, the bays are full everyday and have been for years. He decides he would like to expand. Looking at his present situation:
He has two techs and Bob is the one service writer.
He has four bays and he owns the shop.
There is room to expand the shop to eight bays.
Bob has excellent credit and enough cash to add-on if he wishes.
He is currently doing about $600,000 per year in sales.
Net profit is about 25%.
He would like to expand the shop to about $1M in sales.
There are several things that could be done, each with other implications. If you were Bob, how would you proceed?
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Sun Dec 09, 2007 12:04 pm Post subject:
Louis,
Bob's numbers look good but, how many hours a week are he and his techs working to achieve them. If that number is known then we can make better recommendations for the next step.
Thanks,
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Sun Dec 09, 2007 1:33 pm Post subject:
Hi Dave,
Dave wrote:
Louis,
Bob's numbers look good but, how many hours a week are he and his techs working to achieve them. If that number is known then we can make better recommendations for the next step.
Thanks,
That's a great question. Remember, there are no right or wrong answers, just options. There are any number of ways Bob could expand and as stated, each has ramifications. Bob could open more hours and/or more days. The downside of course is he would either have to trade quality of life or pay for additional personnel to do his job. Both options, and both with ramifications.
Let's say Bob now works 45 hours and five days a week.
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Sun Dec 09, 2007 4:58 pm Post subject:
louis wrote:
Let's say Bob now works 45 hours and five days a week.
If you had said they worked 80 hours a week, my answer would have been different.
Basically he has a good operation. Doing these numbers in a 45 hour week show that there are still some areas in the shop that can be improved. First we need to start planning, then making changes.
1) What area’s in the current operation can be improved to bring the efficiency and effectiveness up to as close to 100% as we can get it. Lets get the present shop running as well as we can.
2) How far in advance are his days scheduled full? Increase marketing and advertising so there is a 3 - 5 day wait before someone can get in with an appointment.
3) I like the idea of two bays per tech. I am afraid that adding an additional tech to his current shop space would hurt more than help. I would want to add on 4 more bays. He needs to do some planning about size, design, etc. After he has a basic idea of what he wants, then he needs to find a project manager. This person would be in charge of turning his concept into reality. I would want Bob to concentrate on being a service manager, not a construction forman.
4) I would start to spread the word, to existing and new clients, that business is good. The shop is expanding. We are also looking for a new tech and a service writer. Start interviewing people for both positions.
[Steps 1 to 4 could take about a year.]
5) A few months before construction starts hire a person to train as a service manager / receptionist. The goal is for this person to become a service manager. During the construction phase they can help take the load off Bob.
[I want to try to get two things to happen at about the same time. The completion of the new addition and a 5 day back log of appointments.]
6) When the addition is up, the equipment is installed and the place ready to work in, put the new tech to work.
With the improved efficiency Bob should be able to make $1M a year. Why quit here though? Everything is in place to easily make $1.2 to 1.3M. Keep building the clientele and hire that fourth tech.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Dec 13, 2007 7:32 pm Post subject:
MattFMN wrote:
Would Bob have to double in size if he is to expand at all? Could he start by expanding to 6 bays first? Thanks! Later, Matt.
Hi Matt,
Good question. Clearly more space cost more money, to construct and to maintain. While he would not need eight bays immediately, my thoughts would be these.
Adding two bays would normally cost far more than half the cost of adding four. Each bay cost less, largely because there are several shared services and cost. Adding four bays may only cost 30-40% more than building two.
Contrast this with the much higher cost to add two more at a later date. My thought is, when building, build as big as practical, you can always rent the additional space for extra income, until needed.
Others may feel differently and I invite their opinions. Thanks Matt, I appreciate your reply.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Dec 13, 2007 7:51 pm Post subject:
Hi Dave,
Those are great thoughts and advice. I would figure two-weeks vacation and five holidays is about average. Bob's shop likely works 49 weeks a year. At 45 hours/week and two techs that's 4410 hours a year.
If his labor rate is about average, say $75.00 an hour, labor sales would come to $330,750 a year. Parts might be about the same, so Bob is pretty close to 100% efficiency.
Another tech doing the same would bring the total to $992,250 or pretty darn close to his goal. Looks like your numbers work pretty well.
The only thing I might question is bringing in another service writer with so few techs? It seems that would greatly increase overhead, though it would make Bob's job easier. Construction should only take three to four months, and if scheduled in the off peak season, I think ole Bob could make it okay.
I also like the idea of going for the eight bays, even if he rents two until needed. No reason to stop at $1M, in my opinion. Thanks Dave, I appreciate your thoughts.
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Sun Dec 16, 2007 5:34 pm Post subject:
Louis wrote:
The only thing I might question is bringing in another service writer with so few techs? It seems that would greatly increase overhead, though it would make Bob's job easier. Construction should only take three to four months, and if scheduled in the off peak season, I think ole Bob could make it okay.
I debated that some too. My thoughts were that Bob will be stretched thin before, during, and after the construction. Rather than making mistakes in the service writing end of the business, while he is trying to build the business, it would be better to have someone help out. If Bob has not found a tech by the time the new addition is completed, he could go back to working as a tech. In addition he now has someone trained to write service if he is gone for any reason.
Like you said to start with, there are many paths he could go down, each with its pros and cons.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
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