By Cecil Bullard
If you talk with my wife or my clients, you would quickly learn that I have issues regarding control. I want to have control of my life and my future, and knowing the individuals who run automotive service businesses as I do, I know that control of your life, control of your destiny and control of your property is very important to you as well.
I believe that given the choice between putting your money into a fund or stock that outperforms the investment in your property, the value of controlling your property would outweigh the additional money earned in almost every case. I would bet the farm that for most shop owners the control they gain by owning their property is much more attractive to them and will trump any additional money they might make in the market.
I know shop owners and I know that they are individuals who like to control their destiny. They don’t call them “independent” business owners for nothing.
I’ve seen several automotive service businesses close due to circumstances beyond the owners’ control, so I always recommend that you buy your property if you can.
One of my best clients has a shop in a suburb of Salt Lake City. The family has been in business for more than 31 years, most of those years at this location. The business employs the father, three of his sons, and supports more than eight families as well as the needs of the local community.
The owner is the nicest guy who you will ever meet and the landlord is just as nice. They have an agreement that if the landlord ever sells the property, the business owner will have the first option to purchase it. The business owner has been so sure that he will have the chance to buy the property and so comfortable with the landlord that he has spent more than $100,000 on improvements to make the property more useful to him. Last year, he spent more than $20,000 removing old gas tanks, resurfacing the drive, replacing the monument sign and repainting the building.
The property sits on a busy corner in a great neighborhood. Most of the rest of the block is taken up by a high school that is in the early stages of being rebuilt. The local school board has decided that they must have the property to build the biggest and best high school in all of Utah. The owner of the property and his family do not want to sell the property because it has been in the family for many generations.
If the school board really wants the property, it is unlikely that the owner of the property or the owner of the business will stop them from getting it, as it is apparent that they have the power of “Eminent Domain” and are willing to use it to get what they want. The owner of the property may come out with a decent payout, but the owner of the business has virtually no rights and will likely come out with little more than the worth of his lease.
If he owned the property, he might still be moving, but he would have a whole lot more money in his pocket to do so. Even if he walks away with the value of his lease and some additional monies for his investment, he is likely out of business if he cannot find a suitable piece of property within a three- to five-mile radius of the existing shop.
If the shop owner finds a suitable piece of property, he will incur remodeling and moving expenses that may be out of his reach and cause him to go far into debt at a time in his life where he should be retiring.
On the other hand, if he finds another great location that is within a few miles from his current location (unlikely) and the building is perfect (virtually impossible) and the move goes smoothly, he will lose 10% to 20% of his business because of the move and have to spend money (he may not have) to inform his existing clients where he now is located. He will also need to spend additional money on advertising to replace the clients that he will inevitably lose.
I know that this is an unusual case, but I have seen shop owners lose their lease and close because the landlord passed away and the property came under control of his/her heirs, and was sold out from under the business owner because the promises that were made by the landlord were not written into a contract and, therefore, were not binding on the heirs.
I have seen business owners lose their lease and close down because they could not find a piece of property within five to seven miles that the city would allow them to do business on, that fit their needs or that they could afford.
I have seen business owners lose their lease because of changes in the local property values where the value of the property as an auto service business could not compete with the real value of the real estate.
In researching this article and reviewing my experience with clients, it has become apparent to me that I would always want to own the property, even if the upfront costs and initial ongoing costs are higher. I guess I just like the control. I guess I just want to be the one who decides when I am done with my business and not some landlord or set of random circumstances.
I would like to leave you with a positive story about an automotive service business in Palm Desert, CA. A grandfather or great uncle acquired the property many years ago and started a small automotive repair shop. When the property was originally purchased it was on the outskirts of town and there was very little around it. As the town grew, the property became more and more valuable and now is in the middle of one of the most expensive shopping areas in Southern California.
City officials, in their infinite wisdom, have relocated all other auto service businesses to an industrial park several miles away. The city would love to relocate this business, but can’t because it is grandfathered into its location. Although the space is limited, the location is priceless.
This business succeeds in part because it has great technicians, a good owner and wonderful service, but it excels because it is in the right place. This owner has control over his property and his future. If his grandfather or great uncle had leased this property, his business would be sitting in the industrial park like most of the other automotive service businesses in Palm Desert. And, like many of the automotive service businesses in Palm Desert, it would be struggling to survive.
Moral of the story — if you want to have control, buy your property.
Stay tuned for Part 4 of this series, “How Do I Expand Without Killing the Golden Goose,” in the March/April issue of Shop Owner.
Cecil Bullard is a 31-year automotive service industry veteran and a third generation technician and owner. An industry teacher, author and past board member of the Automotive Service Councils of California, Cecil is the CEO of AutobizU.com in Ogden, UT ([email protected]), where his mission is to help automotive service businesses create and implement a plan for their success.