The shop has been pretty crazy during the last year and a half or so, hasn’t it? You’re booked out for three weeks and just can’t get another vehicle onto your schedule due to the limited size of your shop. Like a lobster shedding its shell because it’s too small, you realize that you’ve reached the capacity of your current location. Then you have a brilliant idea: you’ll expand your shop!
In order to make a well-thought-out decision, lets consider as many factors as possible.
The options
Rent a bigger facility: You’re renting now and almost finished with your lease, so it makes sense to find a bigger place to rent. Why rent? It could be that you don’t have the funds for a down payment or the real estate market is crazy, and it doesn’t make sense financially for you to purchase anything right now. All your profit would be going toward the mortgage payment. The pros to renting a bigger facility are it will have a lower investment than buying and it’s move-in ready. The cons are you need to find a properly zoned property that isn’t too far away from your current location. You could lose upward of 25 percent of your client base, depending on how far away you move.
Buy a bigger facility: You currently own your shop but it’s just too small. You’ve ruled out adding on to your current building, so now you’re on the hunt for a bigger one. The pros of buying a bigger building are you don’t have to deal with a landlord, and it’s easier to make improvements. Just like renting, the cons are finding a properly zoned property that isn’t too far from your current location.
Build an addition: You love where your shop is and you have the room to add onto the building. The pros to an addition are you’re staying at your current location, so you won’t lose any of your clients. You can also build your addition to your specifications, keeping everyone in the shop happy. The cons are you must deal with your municipality for zoning and permits. We’re seeing building costs running between $80 and $400 per square foot. You also must put up with the project taking longer than quoted and the price being much higher due to unforeseen circumstances.
Build a new building: For some reason, an addition isn’t an option. The pros to building your own building are you can build it to meet your needs and specifications. And just like building an addition, the cons are you must deal with your municipality for zoning and permits. You also must put up with the project taking longer than quoted and the price is much higher due to unforeseen circumstances.
Add a second shift: Finally, you really don’t want to go through the expense and inevitable hassles that moving or building entails, so you’ve made the decision to add a second shift to the business. The pros to adding a second shift are you won’t have to move, and your expenses will stay relatively the same. The cons are getting the help to make up the second shift, dealing with parts availability after hours, and storing the extra toolboxes, due to two technicians working in the same bays.
Now that all your options are out in the open, let’s talk about some issues you need to deal with before moving forward.
The issues
Decision: What’s driving your decision to expand? Are you stressed out and overwhelmed? Is the drive to get a bigger facility coming from your emotions? It’s important to realize that emotional decisions are always reactions and dangerous. Instead, step out of your emotions and look at your situation logically. Have you maximized your technicians’ output? If you’re only getting three to five hours billed per tech per day, your energy should be directed toward increasing the productivity and efficiency of your team. If you are not efficient with the space you have, more space won't translate to higher revenue. By improving the output of your team, you could double your business without increasing staffing or the facility.
Cost: If you’re renting, you’ll need the first month’s and last month’s rent and security deposit set aside. Then there’s the price increase in the rent you’ll be paying. A good rule of thumb for what your rent (plus your advertising budget) should cost is eight to 10 percent of your target sales. The reason I include advertising in this calculation is that you’ll pay more for rent or the purchase of a building on a major road and you won’t need to advertise as much. However, choosing a location off the beaten path will be cheaper and you’ll need to advertise more. If you’d like a calculator that will show you how much more in sales you must increase to cover the monthly rent or mortgage, go to www.180biz.com/expand and download the Excel spreadsheet.
Local ordinances: As we all know, dealing with the local government bodies for zoning and other issues can be very trying. I know you’ve heard of at least one nightmare story of another shop owner dealing with it. If you’re in the process of creating your own story, remember to expect the best, don your patience hat, and stay pleasant. You will catch far more flies with sugar than with vinegar.
Profitability: One of the most dangerous things you can ever do with your business is trying to grow to profitability. This is where you’re overstaffed and typically have a facility that’s bigger than you need. Your mindset is that you’ll grow to profitability. Please hear me! You need to be profitable all the time. Growth does not equal profit. Maximize your profit and then grow.
Help: The last issue I want to bring to your attention is finding and acquiring the proper help to round out your team in the new facility. It doesn’t do you any good to expand your facility if you don’t have the people who can help you take advantage of the extra space. Line up the help you’re going to need to man the new facility before moving forward with the move. When the facility is complete, you will have a team that’s trained and ready to make a difference.
Growing the size of your facility can be a very exciting time. Not only will your shop grow, but so will you! Just be sure that the proposed expansion is never a reaction to what you’re not getting. That’s a recipe for disaster. Instead, first maximize what your team is producing and then look for expansion due to an overabundance of work available for you.
