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If you add facilities for the wrong reasons or without thoroughly understanding what you’re getting into, you may end up with multiple headaches instead of multiplied success.
When Dick Cossette decided to grow his business, Lehman’s Garage, Inc., from one shop to two, it wasn’t because of looming competition from consolidators, franchises or even the shop down the street. In fact, it wasn’t about competition at all.
Frankly, his shop was maxed out. He’d improved it to the limits of its performance, and that still wasn’t enough. "From my perspective, the reason Lehman’s [expanded] was almost strictly customer driven," says Cossette, owner of four collision repair shops in the south Minneapolis suburbs. "We started with one location and were so busy and turning customers away that we determined we needed to expand … so we got another shop. A few years later, we had the same situation, so then we expanded to a third and then a fourth shop."
For Cossette, expanding was a simple decision. He had no doubts that he needed to do so in order to serve his customers, and he was right. But the decision isn’t black and white for everyone. Growing your business is something that must be examined closely — starting with a close examination of your current business, along with a close examination of yourself.
In recent years, expanding with multiple locations has become more and more common. But why? "I think, more than anything, there are more business people looking at the collision repair industry vs. what I call shop owners," says Cossette. "Shop owners are people who started by being in a shop, wanting a shop, having a shop and wanting to grow. But business people look at it with their business training strictly as a business to generate profits. I think there are two different attitudes there.
"Business people look at this $24 billion a year industry as an opportunity to make some money."
Cossette says multiple-shop ownership is more appealing to shop owners these days, too, but, he says, "to be successful at it, a shop owner has to change to be more of a business person than a shop owner."
According to Cossette, the main reason multiple-shop ownership is becoming more prominent is because of the "bigger is better" attitude that permeates today’s collision repair industry.
"What’s happening today is the desire for everybody to do a bigger bulk of business, a bigger chunk," says Cossette. "They want to do $2, 4, 6 million. And that becomes pretty difficult in our community in one location, so then multiple becomes the driving force."
Pressure from insurance companies to cut costs may be another reason more shop owners are considering multiple locations, says Bob Juniper, owner of Three-C Body Shop, Inc., which started out in Columbus, Ohio, recently expanded with its fifth production facility and also has three sales locations.
"The margins are getting tighter and tighter and tighter all the time," says Juniper. "The downward pressure on profitability from insurers continues and intensifies every year, and what you gain in additional locations is some overlapping job descriptions. There are certain things you start saving money on because you don’t have duplication.
"Five different shops not owned by the same company clearly need at least five accounting people. But when the same person owns five shops and has a centrally located headquarters doing all the accounting, you might get by with two people — you save three salaries. So, there’s really some overlapping human-resource savings with multiple locations."
Should You or Shouldn’t You?
Reasons for expanding with more than one location vary. You may have improved your current shop to the limits of its performance, you may want increased market exposure, you may want increased profits, you may want to better service your customers, etc. "Because I’m in an area of the city that has several suburbs and people like doing business in their own community, I was better off going to their community to serve them than asking them to change communities," says Cossette.
But, no matter what your reasoning, before going multiple:
Determine if running multiple locations is something you really want to do. "A key issue is whether a shop owner has the commitment to manage a more complex business by having multiple locations," says Michael Giarrizzo Jr., owner of JSI Collision Centers, which has four locations in Northeastern Ohio. "To be successful, we believe a key part of this commitment is to develop and implement comprehensive management processes to effectively manage more than one location."
Besides the added complexity, a shop owner must also be prepared to change the business he’s in. "I tell people that I’m no longer in the car-repair business — I’m in the people business," says Juniper. "You’ve got to become more of a coach. Now my job is to coach people, to coach different managers.
"Your people are now doing the car-repair business but you, as the owner, are in the people business. That’s not for everybody."
You also need to determine if your current facility is operating at or near capacity — especially since its operational methods will likely be duplicated in your new facilities.
To do this, you need to find out if your current facility is meeting operational productivity benchmarks (see "Hitting Your Mark" box on page 60). Why? Because, again, you don’t want to duplicate something that shouldn’t be duplicated. In fact, if your shop is way below productivity benchmarks, improving productivity may solve your problem and you may not need to expand. You may increase sales and meet production goals simply by making those improvements.
Next, ask yourself if your current facility is turning away work or making customers wait because of a backlog. For Cossette, this was the determining factor in his going multiple: "We were operating very close to maximum all the time and had a backlog even in the slow times of three to four weeks, which said we were asking customers to wait for us to fix their cars when really they could go someplace else and get it done right away."
Have you already considered expanding your current shop and found that it’s not feasible? Have you at least explored second or third shifts to relieve backlogs? Is your shop meeting your profit goals?
A lot of considerations go into expanding with multiple facilities. After all, you’re messing with your livelihood here. Which leads to another question: What effect will an additional location have on your current facility? You need to make sure that adding a location won’t detrimentally subtract from your existing facility’s repair volume.
"There are a lot of processes you need to go through [before opening another location]," says Cossette. "More studies are probably done today than what we did as we grew, but we were, again, reacting to our customers. But you still need to have some planning to make sure you can turn the volume onto that shop, be competitive in that shop and be profitable in that shop in a reasonable length of time."
So what are the pros of multiple locations? Increased market size and visibility are two of the benefits. "While people on the North side of Columbus might not drive 30 miles to get to my South side location, I can put a store on the North end of Columbus and open up a whole new market of people and increase my market share," says Juniper.
Other pros, the ability to satisfy customers and to shift excess volume to another facility. "We get permission from our customers to move [the vehicle] to the shop that’s least busy to expedite the repairs and bring it back and deliver it to them," Cossette says.
There are also the economies of scale in marketing, purchasing, recruiting, etc. that come with more than one location. As mentioned above, by opening a new location, you expand the market you serve and increase your potential customer base. You also increase your potential employee base. "There are only so many technicians available, so when you go into a new market, you open up a new human resource," says Juniper. "One of my reasons for going to additional markets is the new employee pool that’s there. Going 60 miles to a new town, you plug into a new employee base. They won’t travel 60 miles to work for you, but if you go to them …"
You also benefit from the economy of scale when it comes to marketing/advertising expenses. Going multiple also increases your buying power when it comes to purchasing materials and supplies (doubling or tripling your purchases usually motivates suppliers to give you better discounts) and, as Juniper mentioned, bookkeeping and administrative functions can often be performed at just one location — with the expense being shared among
Another pro: Multiple-shop operators often have an easier time developing direct-repair relationships with insurance companies (or relationships with dealerships) because they’ve already proven themselves. They’ve already worked with the insurer for years, so when they open a second, third or fourth location, the insurer isn’t taking much of a risk by working with them at the new facility. Also, with such a large shop base, multiple-shop operators offer insurers savings by accepting a single check paying for 15-20 repairs. And if it costs an insurer $30 per check, that saves an insurer hundreds of dollars.
On the down side, owning multiple locations is tricky — and it’s not for everyone. As Juniper mentioned, a shop owner who expands with more than one location goes from running a car-repair business to running a people business. "Most people got into the car-repair business because they like to fix cars," he says. "They take pride in their work and they like to see that finished product. But you never get a finished product with the people business. The people business isn’t as satisfying as the car-repair business. I’m an ex-technician, and when I fixed cars, I got tons of satisfaction out of producing a quality repair and being done. Well, working with a person, you never get to an end. There’s always something new. You never have a finished product.
"Multiple locations certainly aren’t for everyone."
Another potential problem of multiple locations is finding multiple staffs. While going into a new market does — technically — open up a new employee pool, who’s to say there’s anyone there you want? And, finding good people — especially qualified managers — becomes more and more important the more shops you have. Why? Because you can’t be at all the shops all the time. You can’t clone yourself so, therefore, you need managers you can trust with your business. This can be a problem too.
"You have to depend on people a lot more to maintain quality standards and to maintain customer service," says Juniper. "You’re not right there, sitting in the next office hearing the conversation between your manager and the customer. You could be 60 miles away, so you have to rely more on people to deliver.
"And sometimes it falls down. You kind of just have to adapt to that and try to pick it back up when it does fall down."
Giarrizzo adds, "You risk losing the personal touch — the attention to customers as well as employees."
To help ensure managers are doing what’s in the best interest of the shops, Juniper has in place financial controls and also uses a customer satisfaction service. He also addresses a problem as soon as he sees one by talking to the employee. The key, he says, is to be diplomatic.
Another problem of multiples: It’s often difficult for the owner to relinquish some control of his business to his management team. But he has to in order for them to do their jobs. If they’re powerless, decisions won’t get made and things won’t get done. You simply have to accept that you can’t be everywhere all the time.
Along those same lines, when you own just one facility, you can be there nearly all the time and it’s easy to make quick decisions because, well … you’re there. With multiple locations, you’re often miles from one of your shops. "I have friends who have large single shops that are doing very well," says Cossette. "And they have the ability to manage their shop and walk through their shop all at once to make sure everything is going the way they want it to in that one facility. I have to drive to my shops."
The New Location
OK, let’s say you’ve analyzed yourself, your facility, and the pros and cons of multiple-shop ownership and you’ve decided to expand with another location. Now the question is, how do you decide where the new location should be and if you should build new or acquire an existing facility? For Cossette, both decisions came fairly easy. "We reacted to our customer base," says Cossette. "We looked at our customer base by zip code or community. There are several small suburbs close to us, so we went to a suburb that we had a fairly large block of business in by zip code. That was our determining factor, along with the fact that we also visited with our insurance-company allies to find out if that was a good location for all of us."
What Cossette did, basically, was conduct a geographic analysis of his current business by asking:
- Who are my customers?
- Where do they live?
- Where do they work?
- What do my referral sources think about my choice for a new location?
Cossette, however, moved into an area where a lot of his customers lived. While he did penetrate a new market, his main purpose was to make his shop more convenient for his existing customers by moving closer to them. Could this have hurt his existing business, considering he was stealing business from it to help fill his new shop? It could have, except that Cossette’s existing shop was so backlogged that he could afford to lose some business. In fact, his backlog was probably already causing him to lose some business.
But for most people conducting a geographic analysis of their business, the key is to find an area where they don’t have a lot of business coming from — and then to identify why they don’t. Is the facility simply too far away to service those vehicle owners? Is there a quality shop in that area that has most of that market? Determine why so little business comes from those areas and then if you should proceed.
You can also look at areas outside your typical customer radius (areas further away). Take a drive. What kind of cars do people in that area drive? What does the area in general look like?
"There are two approaches [to deciding where to open another shop]," says Juniper. "There’s the analytical approach, which I don’t know anything about — that’s where you assess the market, assess the demographics, do all your studying. I do it by gut feel. I drive around the market and look at the construction and the growth, what’s happening in the city, how nice the city is, how well maintained it is, the traffic, and of the traffic, how many are new cars. I went to Springfield, Ohio, because we were considering that market. You know what? There were vacant buildings downtown, every car I saw, if it was wrecked, it would have been totaled because it was an older car. I didn’t see any new cars running around. So we didn’t go into that market."
With the area decided upon, the next step is to decide if you want to build or acquire an existing facility. "My growth has always been with an existing shop — primarily because if there’s been a shop there for a while, even if I change the name and expand it and fix it up, it’s still a shop that people have known and been in in that community," Cossette says. "The other thing is, so many communities plain don’t want a body shop, so if I can find an existing one and fix it up, usually it’s a transition that can happen fairly smoothly and usually for less cost than doing a start up."
Still, Cossette needed to find the right shop to acquire. To do this, "we found a shop that was available and wasn’t busy," says Cossette. "A shop that we could, as I call it, ‘Lehman-ize it.’ "
To Lehman-ize it, Cossette more or less makes the new shop a clone of his others — something McDonald’s has done successfully with its stores for years. Cossette’s computer systems are all the same, the estimating systems are the same, and so are the paint products, the paint procedures, etc. "We literally want to be able to move a person into any position from one shop to the other and have him walk in and have everything as close to the same as
Giarrizzo, on the other hand, takes a different approach when expanding with another location. He doesn’t acquire existing, operating facilities. His expansions are either new facilities or existing building conversions.
The Employee Issue
When you buy an existing facility, you’re faced with the difficult decision of what to do with the shop’s current employees. Should they stay or should they go? And if they’re going, where are you going to get more?
For Cossette, he tries to retain some of the shop’s employees, but he also has management trainees in place in his other shops so when he acquires a new facility, his trainees can be brought in immediately — and these trainees bring with them Lehman’s systems and ideas for running a business.
Why not keep the current shop management? "We’ve always promoted from within," says Cossette. "If we knew we were in an acquisition mode, then we’d load up our facilities with [trainees]. In fact, at one of the shops I bought, by the way the shop was run and the product they were turning out, I knew going in I probably didn’t want anybody who was there.
"When we were in negotiations with the owner … he gave the employees an opportunity to stay, but we had, in the process, added extra technicians and extra management to our other locations so that when the acquisition was complete, we moved our team in there. We wanted to run it as Lehman’s and with the Lehman’s methodology, and it was obvious in visiting this other shop that they didn’t think the way we did."
Juniper also believes in promoting from within, and to do this, he relies on an in-house training program. "You always have to have backup," he says. "It’s like in football. There are 75 players on the football team, but only 22 guys get on the field because they have three guys play each position. They have them all backed up. If one guy blows his knee out, they put another man right in there.
"When you have multiple locations, you have to have a backup for everybody. If someone leaves, gets hurt, is out because his wife is having a baby or the competition steals him, you’ve got to have someone to insert into his position immediately.
"The easy answer is, you need to have a big training program going on. The hard part is, you need to have a big training program going on, which is very difficult to accomplish and extremely expensive. But you don’t want
to do multiple shops on a shoestring."
Part of Juniper’s training program includes cross training. Not only does it give employees a better understanding of other employees’ jobs, but some employees find out they’d rather be in a different position. "I love cross training," says Juniper. "We love to bring a metal technician in the office and let him be a manager for six months. You know what, you put him back in the shop and he never complains again. It gives him empathy. On the other hand, you take a manager and put him in the shop to do a little metal work, and when he comes back in the office, he never complains again. And, sometimes, he’ll say, ‘Hey, I love it out there, can I transfer out there permanently?’
"By letting employees try something new, we’ve found that people who weren’t great managers became great technicians and some technicians who were maybe borderline technicians have become pretty good management people."
Maybe you’re thinking that an in-house training program isn’t something you even want to consider. If that’s the case, then you might want to reconsider opening multiple locations. As Juniper says, once you open multiple locations, finding people to staff them becomes a new job. You also have to figure out how you’re going to develop those people for all your different locations — along with developing backup managers and technicians.
Multiple-shop ownership may look appealing, especially if you’ve got competition breathing down your neck, but it’s a move to be made only after careful thought and consideration. You need to know what you’re trying to accomplish.
Granted, as the industry changes, multiple-shop ownership will be a survival strategy for some shop owners — but not for all. Why? Because not everybody needs to go multiple to survive.
The industry may be evolving and moving into a "big business" phase, but some things about collision repair never change. "You can complete no matter what if you just service your customers," says Cossette. "In the 30 years I’ve been in business, we’ve seen a lot of changes, but I still believe in the basics. If you take good care of your customer, service him well, give him a good product and treat your employees fairly, you don’t have anything to worry about. It doesn’t matter what the rest of the world does."
Writer Georgina Kajganic is editor of BodyShop Business.
Hitting Your Mark
Just what are these benchmarks? Like most things in life, it depends on whom you ask. Different people will give you different benchmarks but, for the sake of your sanity, we’re only going to provide you benchmarks from one person: Bob Juniper, owner of Three-C Body Shop, Inc., with eight locations in the Columbus, Ohio, area.
Juniper suggests using four benchmarks to gauge your facility:
$ Sales per square foot;
$ Gross profit per employee;
$ Gross profit; and
$ Percentage of estimates sold.
• Sales per square foot — Juniper has heard that shops should be getting $25 per square foot in sales, but he disagrees with that figure. "I don’t use that," he says. "I’ve got 40,000 square feet at this facility, times $25. Supposedly, my facility here should do $1 million a month. The most I’ve ever gotten out of this facility in one month is $700,000. I don’t know who’s doing $25 a square foot out of their facilities, but they’re really, really good."
Juniper uses $15 to $18 per square foot instead. "I think $18 per square foot is doing a really good job," he says.
• Gross profit per employee — Juniper looks for about $4,000 per month gross profit per employee. And that includes all employees — production and non-production.
Juniper says a lot of shop owners get sidetracked by how many production employees they have vs. non-production employees. He says shop owners often refer to non-production employees as non-productive employees because they’re not fixing cars and sometimes don’t see the value in having them. "If you look at the number of gross profit per employee, across all employees, the reason that’s a good number to look at is because you might add two people who do parts work and if that makes your shop more efficient and you’re getting more cars done because you’re getting parts faster, then even though they’re not fixing cars, there’s a big benefit to hiring those people."
Other benchmarks, says Juniper, use your ratio between production people and non-production people, but Juniper doesn’t think that makes a bit of difference. For him, it all comes down to gross profit per employee.
"Let’s say I want a super parts department so I go out and hire 10 new people. You know what? If every part was every place it was supposed to be right on time and you blow more cars out of the shop with all these parts people than ever before, that equates to more dollars gross profit per employee at the end of the month. So it was worth getting them."
• Gross profit — Juniper says DRP shops are running about 37 to 38 percent gross profit and non-DRP shops should be running 44 to 45 percent gross profit. "The argument here is that DRP shops don’t have to spend any marketing money so they’re taking less gross profit," says Juniper. "They’re doing the deal a little cheaper for the insurer because they don’t have any marketing expense. And if they’re not having to spend 6, 7, 8 percent of sales for marketing, then maybe 38 percent is sufficient. I’ve chosen not to go that direction, but it might work."
Why doesn’t Juniper use net profit as a benchmark too? "It’s a hard number to pin down," he says. "If the owner is taking a huge salary out of the company, he might show zero profit. … I never really pay much attention to the net, but you do have to watch your gross and then you always have to control your expenses."
• Percentage of estimates sold — A closing ratio of 60 percent is a good goal, says Juniper, whose facilities usually run in the mid-50s, sometimes hitting 60 percent. "Sixty percent is a good benchmark," he says. "Supposedly, you should be trying to close 80 percent of your estimates. This is another one of those deals where I don’t know how they’re getting $25 per square foot in sales and I don’t know how they’re closing 80 percent of the people who walk through their doors. What would you do, get their arm behind their back and say, ‘You’re leaving this car’? "
Hitting the Mark
"Some of those unrealistic benchmarks are set so high that if a shop owner hears that, he’s going to think, ‘Wow, I gotta be closing 85 percent. I shouldn’t even consider doing more operations.’ He’s never going to get there," says Juniper. "He’s just never going to feel like he can do it.
"Mine are more realistic benchmarks. If you can achieve them, you can run multiple locations."
Is Your Facility Performing Like It Should Be?
|1. Total sales divided by square footage =||$15 to $18|
|2. Gross profit divided by # of employees =||$4,000|
|3. Total gross profit as a % of sales =||(DRP) 37 to 38%
(Non-DRP) 44 to 45%
|4. Percentage of estimates closed =||60%|