The Status Quo or is it Time to Expand

Jan. 1, 2020
An important consideration for many shop owners who survive those first five years is when or if we should look to expand.

One of the greatest and most obvious ways that the “American Dream” manifests itself is for some courageous man or woman to cast caution to the wind, go out on their own and start a new business. Never mind that after five years in most industries, half of these brave souls are out of business, the fact remains that the other half are surviving and maybe even thriving, contributing to the U.S. economy and employing millions upon millions of U.S. workers.

Small business truly is the engine that drives the U.S. economy and the automotive repair industry can be very proud of their contribution to this. An important consideration for many shop owners who survive those first five years is when or if we should look to expand.

The answer to that question is very complex. Certainly if your current shop is thriving and those key performance indicators like sales, sales growth, profitability, production, retention and car count trends are strong and moving in the right direction, expansion is something I would definitely consider. And just as obviously, if those indicators are not where they should be or are trending in directions other than where they should be, I would not consider expansion, or at least not until we have our first house in order.

Owning and running a business can be very rewarding, but it also can be a huge challenge. Not all, but a very large majority of the shop owners I have known and worked with over the years tend to work in their business not on it and spend little or no time developing business plans. They tend to show up to work early, work late and spend little or no time planning their next moves or monitoring and managing their business performance. They are embedded in the day to day running of their business and most typically do not have the time (or inclination) to take care of the business of the business. I only mention this because as challenging and complex as running one shop is, running two or more shops is infinitely more complex. If you have thoughts of expansion, you need to remember this.

I have a great former client who owns and operates a premier multi store tire and automotive repair business centered around Charlotte, N.C. This company is first class in everything they do and somehow operates a dozen or so beautiful, modern, high-end facilities while retaining a genuine family owned business atmosphere. They are a very visible fixture in the community. Expansion for them is a science, with a time-tested strategy that relies on an intense market survey, precise planning and flawless execution. There are no half cocked, ego driven decisions being made here, they go at expansion with their eyes wide open and very aware of market potential long before they break ground.

Expansion for them is nothing more or less than their corporate evolution, having started out on this journey back in the early 1960s. Each of their stores is a profit center in and of itself and as they have grown and prospered, they have developed a process toward expansion that allows them to go into a market with reasonable expectations for a return on investment. They have a very structured and disciplined approach to expansion, backed up by 50 plus years of experience, that has seen them go from being a very small fish in a very big pond to being a very big fish in a pond that is seeming to shrink. I have no doubt that as long as this incredible business owner would choose to grow and expand; he will do so successfully and very much to the benefit of his customers, his would be customers and his many staff members.

I have another former client and friend who operates a high end European shop in Spokane, Wash. I would tell you honestly that this is the best run stand-alone shop I have ever seen or been associated with, enjoying high sales, high profitability and strong reliable car count week after week, month after month and year after year. Their secret, in this very tough sector of the automotive repair market, is providing their customers with incredible customer service every time they are in.

This is a shop that could reasonably look at expansion, with great prospects for success, but who have instead put major effort into making their existing shop as good as it can possibly be and not seriously looked at expansion. They have explored opening an oil service facility across the street and even opened a detail shop as an extension and enhancement to their existing business but expansion just has not been a priority. I have no doubt that if this incredible owner decided to branch out and expand beyond his one existing facility, he would be successful but there is a lot to be said for making your existing operation as good as it can be. Certainly his customers have benefited from his efforts along these lines, as have his staff and community. Thirty-five years of practice has made them nearly perfect. 

Both of these friends and former clients are successful, both are dedicated to their customers and both are very profitable. One has designed his business with expansion in mind and is very structured and methodical in those efforts. The other works very hard to make his one shop as good as it could possibly be, with continuing and ongoing efforts to perfect every aspect of the business. His net operating profit, productivity, customer satisfaction and retention all underscore the quality of his effort. For one, expansion is part of the game plan. For the other, it is certainly a possibility, just not yet. 

Over the years I have seen and worked with any number of shop owners who wanted to expand. Every one of these owners had their own reasons for wanting to expand; some very sound business reasons, some little more than ego but in every case you start with where we are today with our existing operation and explore the risks and opportunities presented by expansion. If we are profit starved now, there is little reason to believe that adding a second or third location will alleviate that strain. If we have trouble staffing our existing shop or suffer unacceptably low car count in our current operation, why would there be a different expectation in our new shop? By the very same token, if we are both busy, productive, profitable and have a great staff in our existing operation, wouldn't it be reasonable to expect we could achieve similar things in a new operation? Maybe, maybe not.

According to University of Tennessee research, as of 2012, the top three reasons for start-up business failure were incompetence, unbalanced experience or lack of management experience, and a lack of experience in lines of goods and services sold. These accounted for 87 percent of start-up failures. The same research showed that the leading management mistakes were going into business for the wrong reasons, poor advice from family and friends, being in the wrong place at the wrong time, getting worn-out and/or underestimating the time requirements, family pressure on time and money commitments, pride, lack of market awareness, falling in love with the product/business (lost objectivity), a lack of financial responsibility and awareness and a lack of a clear focus.

The specific pitfalls in these many failures were emotional pricing (way too low or way too high), living too high for the business, nonpayment of taxes, no knowledge of pricing, lack of planning (duh!), no knowledge of financing, no experience in record-keeping, poor credit granting practices, expansion too rapid, inadequate borrowing practices, carrying inadequate inventory, no knowledge of suppliers and a final big one, a wasted advertising budget. None of these goes away or is diminished by expansion, and if anything, they are magnified. You do not want to be one of these statistics.

A great many automotive repair shops survive and even prosper because the owner is there and focused on the details of the day to day, but, with expansion comes the need to delegate and rely on others to get the job done. If you were to expand, who would be the new you?

Several important considerations before committing to expansion:

• What are the current and mid-term economic trends in your market area

• What is the state of business in your current shop (sales, profits, productivity, staffing)?

• Who will be the new you when we add that second or third location?

• Why now?

• What are the driving reasons behind your expansion?

• What is a reasonable return on your investment in time, energy and money expended?

• What is the benefit of expansion?

• What are the risks associated with expansion?

• Are you gambling everything (your current shop, your future livelihood) on expansion?

You need to consider all of this before you think about expansion, but if you have the answers and account for them in your planning, expansion might be the right decision. Don't let your ego skew your answers to these important questions.  

America's promise is in the opportunity that is out there for all of us. Expansion can be a huge opportunity and it can also be a huge risk.

I would also tell you to take an honest and critical look before you take that leap and to have a plan and a road map for your journey. You are likely to make a misstep from time to time and get lost from time to time, but a plan and a road map will keep you on task and keep you on course.

Make your American reality even be better than your American dream! Expansion might be a path worth exploring.

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