By Cecil Bullard
You have thought about it long and hard and decided it may be time to open a second shop. Here are some things to consider: 97% of all new businesses fail within the first five years. There are two primary reasons that these businesses fail: Under Capitalization and Poor Management.
If you are seriously considering opening a second shop, take the time to answer the following questions.
• Are you opening the second shop because you want more profits?
• Is your current business running at 95% consistently?
• Do you have all your systems and processes firmly in place?
• Who will you send to the new shop and how will it affect the current one?
• What will be the consequence if you pull some of your best people from your current location?
• How will you control the expenses and income of the new location?
• What about your current location would you change?
• What is your definition of an “A” customer?
• Where is the densest population of your best potential customers?
• How will you market the second shop to get the right customers in?
• How far is too far and how close is too close?
• Where should you place your new location?
• Can you purchase the property?
• Do you have a written business plan for your existing business and for the new business?
• What is the budget? How will you finance it?
• What is your plan B and plan C?
• Where will you come up with the money to do the marketing you need?
• Do you have the ability to properly capitalize the second location?
If you are opening a second shop because you aren’t making enough money in your current shop, is it because the size of the shop is too small for the amount of business you have, or because it just doesn’t run efficiently?
If you are doing it because your shop isn’t making you enough money, not because the physical size is too small, then you should reconsider.
Until your existing business is running at 95% capacity for several months without any major problems, and you have all your business systems and processes in place, you shouldn’t even consider an additional location. Adding a second location at this point will increase your problems exponentially, probably decrease your profits and can cost you everything you have worked so hard for.
I have had the personal experience of opening shops before I was ready and losing it all (see the sidebar on page 29 for details).
My story is not unique. I know of many stories just like it. So, if you are opening a second location because your current business isn’t providing the income you desire, please consider putting your time, energy and money into your first business to get it running perfectly and producing the results you desire.
The Golden Goose
OK, enough of the gloom and doom talk. Let’s assume that you are smarter than I was and that your existing business is running at 95% capacity (or higher), you have all your systems and processes in place, you have a very consistent business with a great staff and you just want to open that second shop because it is the next logical step.
First, create a business and marketing plan and a budget for the second facility. It should stand on its own and not in any way financially drain the first location. Your first shop is the golden goose so you have to protect it.
Once you know where you will get the cash to run the business for the first 12 to 18 months (without a profit, if necessary), start your search for a great location.
If the business is within five to nine miles of the first shop (in most cases), it will draw some business away from your first shop. If your original shop is overcrowded, then it might not be a bad idea to draw some of the business off to the new location.
Remember, shop #1 is the golden goose and you have to do everything in your power to protect it.
Stay tuned for next month’s issue where we will answer some more of the questions posed earlier and go looking for the perfect second shop.
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.