Planning takes precedence when building, renovating a shop
Planning to build a new shop or remodel an existing facility? Before you approach contractors and start comparing bids, there are a host ot important factors to consider, many of which can make or break your business.
1. Decide between building and renovating
Don't decide between building a new shop and renovating an existing facility until you've considered the finished cost per square toot "when it's all said and done." cautions Larry Edwards, president of Edwards and Associates Consulting in Charlotte, N.C. For more than 12 years, Edwards has helped shop owners design or renovate more than 40 collision repair shops around the country. He also developed content for the Automotive Management Institute's "Uody Shop Facility Layout and Design" course.
Before soliciting bids from contractors on a new shop, Edwards recommends that shop owners calculate the value-depressant effect of a single-use facility. In other words, because auto repair shops are limited in use, they often take longer to sell-and fetch lower prices-than otherwise comparable multi-use facilities.
"Once you build that facility, you can't turn it into a retail space very easily," Edwards explains. "The value might be only 50 percent of the market area because it's only a body shop, but in some areas it could be 200 percent. If you're in a market area that restricts how many body shops there are and you have one, that increases the value of your shop."
2. Don't forget to factor in equipment costs.
One mistake shop owners frequently make is tailing to take into account all the factors that affect the cost ot a project. Before breaking ground, determine whether your new equipment is suited tor the new space and, it not, figure out the cost ot acquiring new equipment. Then figure out how you will finance the new equipment and what impact this additional cost will have on your fixed operating expenses.
"One of the problems is that when you buy that equipment, it's cash out, so you have to depreciate over several years," Edwards says. "Another thing is, the equipment you want to purchase - is it going to fit well in the new facility? I can't tell you how many people buy a paint booth or frame rack, and we go out and do a site study and it doesn't fit in the space."
3. Compare existing shop with proposed facility.
Edwards advises shop owners to do a thorough comparison study of the current facility versus the proposed one, factoring in every aspect of the business-including rent per square toot, number ot technicians and number of parking spaces-and assessing the strengths and weaknesses of the current facility. Don't make assumptions about the new facility."! know some people who have built new facilities and have discovered that they don't have any spaces for the employees to park," Edwards says.
4. Assess the potential market size and the potential of the facility to achieve market penetration.
According to Edwards, this is the most critical step in the planning process and one that's commonly overlooked by shop owners eager to expand their business."If we've got a shop that is currently penetrating, say, five percent of their market, and they want a facility that can penetrate twenty-five percent of the market, where are we going to find the twenty percent?" he asks.
Edwards uses the formula on page s5 to calculate market size and potential.
5. Secure funding.
Buy or lease? According to Edwards, there's no clear answer. The decision is highly dependant on the business owners personal financial situation. For a mature, stable business, the best option is to own the property and lease it back to the company. But if the business is still relatively young, then it's better to let the business own the property until it stabilizes. "The reality is that most small business owners can't get funding without personally putting it in their name anyway," he says.
"When it comes to financing," he adds, "what we find is that to get the best rates and to get the best deals, the more work you do up front-if you have market studies done and your comparables [comparison studies] and have your business plan prepared-you have a better chance of securing funding than someone just walking in and asking for a loan."
6. Look into local zoning requirements and site specifications.
The first thing to assess is how far the building is set back from the property line. "Sometimes it is just utterly ridiculous, but there are reasons for that," Edwards says. "The next thing is restroom size and the number of restrooms."
Cither factors to consider include number of handicap parking spaces and handicap accessibility of the building. Also, make sure you have adequate space tor traffic entrances and exits. "Every municipality has different rules about this," Edwards says. A new runoft" Line with a separate entrance and exit, not factored into the original estimate, could easily triple the cost of a property.
Also, check any local laws that apply specifically to auto repair shops."If the municipality doesn't want new places, compliance is going to cost a fortune," Edwards says. However, he adds, "that may not mean you don't want to do a project, but once you get in there, you have much more valuable property because the average person can't come in and build. But yon have to understand the ramifications before you get moving on it."
Local laws can even affect things like lighting, landscaping and exterior details-in some cases, towns may prohibit, or at least severely regulate, extenor signage.
7. Find out if the proposed site is in a flood plain.
That may seem like a minor detail better left to your insurance provider, but it could derail an otherwise well-thought-out project. Edwards tells the following cautionary tale: "We had a client in Alabama that bought a beautiful piece of property. He started building and had an inspector come in and say, 'You need to build a six-foot diameter pipe 180 feet long.'You could drive a truck through the pipe, this thing was so big.There was a little ditch in the property, and they thought a onefoot pipe would do it. But because it was in the flood plain, it had to be able to expand from one foot of water passing through it to six feet of water. It ended up killing the entire project after the owner had invested several thousand dollars of his own money."
8. Calculate the 'true' cost of the project.
There's no hard-and-fast rule for calculating the cost of building or renovating because it varies so much from state to state and shop to shop. "The reality is that there are hundreds, if not thousands of variables," Edwards says. "The problem we run into is getting people to slow down long enough to plan theprocess in the beginning-and then getting them to stick to the budget once the process has begun. It's not unusual for building to begin and [the owners to] realize they went over budget by 50 percent because they didn't plan it in the beginning."
Edwards has worked on projects with costs ranging from less than $20 per square foot-one instance in which the local municipality donated the property to the shop to encourage new business-to more than $200 per square toot in areas of hiuh land costs.
The key is to remember that this is a 20- or 30-year investment, if not more. "You have to spend time up front doing as much planning as possible because you don't want to move in and find yourself uncomfortable for the next 25 years," he notes.
case Study #1 - Building Renovation
Suttle Auto Body
Newport News, Va.
Underwent 20,000-sq.-ft. expansion
An established shop with 21 years of service in the local market expanded from 22,000 square feet to 44,000 square feet, doubling its capacity and increasing its market penetration.The original building was long and rectangular, witli the paint shop at one end and the metal shop at the other. The expansion added a new, state-of-the-art paint shop and transformed the original space into a new, expanded metal shop. The renovation also allowed for the addition of downdraft-heated paint booths with double prep stations.
Part of an established General Motors dealership, Suttle Auto Body was better off expanding its current site than moving to a new location. "The Suttle family that I work for-they've been in the business since 1902-have quite a solid reputation," says Shop Manager (leorge Hawes."They had the property right at the main facility. If you build another body shop down the road, you have to have a whole new staff. It's a whole new business, almost. With this shop, we kind of grew the business over the years."
"In order to take something to my owners, I did the number adds Hawes, who worked closely with Edwards during every stage of the renovation process. "Each stall in our dealership is worth so much money. Here s what we're doing now. Here's what we could do if we had more room."
A leading paint manufacturer also helped with the cost of the expansion. "In essence they agreed to give us guarantees on profitability ... that no matter what would happen, if there was a shortfall, that we were guaranteed so much profit per job even it they had to give us some money back," Hawes says. "And they also gave us some money for rent."
So far the expansion has had a significant impact on business.The $1.2-million investment has increased annual revenue from less than S3 million per year to more than $8 million. Suttle Auto Body now takes in more than $700,000 per month, and Hawes expects business to increase another 20 percent to 25 percent before the facility reaches capacity. "It was quite a large investment, but if you do it right, it pays off," Hawes says.
Case Study #2 - New Construction
Mackins Auto Body
Vancouver, Wash.
Built new 17,000-sq.-ft. facility
When Larry and Suzanne Mackin purchased property adjoining an office development for their new Mackins Auto Body facility, the development's owner worried about how the body shop would affect his business. He expressed his concerns to his builder, Ron Frederiksen. president of Vancouver, Wash.,
-based RSV Construction Services, Inc, who also happened to be signed on to design the new body shop. "He told me,'We have a huge investment here, and I want to make sure this is compatible.'"
Frederiksens solution was to use a range of construction methods to complement the ? nice environment while providing a durable, cost-effective solution for the Mackins.This meant selecting pre-engineered steel for the shop portion of the facility-with structural brick for the side walls and glass from the eaves down-and wood frame foi .1, wo-story office portion of the development. "We had the challenge of integrating structures," says Frederiksen,"and this was the most cost-effective way to do it."
Another cost-saving measure involved installing a Simple Saver Insulation System-a reflective white vinyl barrier that fastens to light-gauge steel roof mounts.The barrier helps keep the shop cool in summer and warm in winter and also cuts down on lighting costs.The best part, says Frederiksen, is that it also prevents shop dust and debris from accumulating on the roof joints-and then falling onto the shop floor when a plane flies overhead.
The new building was a resounding success. Completed in 2003, Mackins Auto Body of won the Building Association of Southwest Washington Award for "The Best Commercial Building Under $3 Million."
Frederiksen also managed to allay the tenants' tears. With a boardroom overlooking the Mackins site, employees at RS Medical were worried about exhaust fans and roof-mounted equipment ruining their view. "We actually went and figured out the height of the building as it was designed, and we went into the conference room and said the wall would screen the roof-mounted equipment," says Frederiksen. "The office building client said, 'I'm satisfied,' and the Mackins said, 'I like it, too.'"
When construction \v.is complete, Frederiksen went back to the boardroom tor a peek. Sure enough, the root-mounted equipment wasn't visible-but the tape still was.The RS Medical tenants had left the tape on the wall to test Frederiksen's promise.
[Sidebar]
STEP 1
Find the number of registered vehicles in the market area. (V)
Estimate that 8 percent of vehicles are involved in accidents each year.
Take the number of units (V) and multiply that by 8 percent.
Then multiply that by the average national cost of repair per accident ($1,950).
That gives you the market potential (MP).
(V � 8% � $1,950 = MP)
STEP 2
Do a survey of the shops in the area to determine the total number of technicians in the area. (T)
Take the number of techs (T) and multiply that by the average amount of revenue they produce each year from parts and labor ($200,000).
The resulting number is the Actual Market Performance (AMP)
(T � $200,000 = AMP)
STEP 3
Compare MP and AMP to see how close the area is to achieving market potential.
Divide your annual revenue by MP and AMP to determine your potential share of trie market and your actual market penetration.
If the expanded facility has the capacity to bring on 10 new technicians, you could increase your shop's revenue by $2 million per year, but only if that amount in untapped in the market.
[Sidebar]
Don't forget to take equipment costs into account prior to expansion or new construction.
[Sidebar]
(Top) Suttle Collision in Virginia expanding from 22,000 sq. ft. to 44,000 sq. ft., doubling its capacity and increasing its market penetration. (Middle) The move included a major front office change and more room in the bays (Bottom) to keep production flowing.
SET GOALS
Consultant Larry Edwards recommends that business owners set the following goals tor their new shop before embarking on a project to build or renovate a facility:
* A low rent factor (as low as possible for the area)
* A highly proficient facility
* An economically sound business plan
* A site that is appealing to the eye (factoring in layout, building configuration, etc.)
* A site plan that allows room for future growth
The $1.2-million renovation of Suttle Auto Body increased annual revenue from less than $3 million per year to more than $8 million. Suttle now takes in more than $700,000 per month and expects business to increase another 20 percent to 25 percent before reaching capacity.
[Sidebar]
In 2003 Mackins Auto Body won the Building Association of Southwest Washington Award for "The Best Commercial Building Under $3 Million."
[Sidebar]
CHECKLIST - BUILD OR RENOVATE?
Before investing in an expensive -and potentially unsuccessful -project, it's important to develop a clear plan that takes into account your specific business needs as well as your growth projections. Before breaking ground or even hiring a contractor, ask yourself the following questions:
Preliminary questions-
* How much space do I really need?
* How much land? How large of a footprint (square footage) for the building?
* How can I better utilize the property or facility I have?
* Do I need to invest in a new facility?
* If so, where should I locate?
Building plan-
* Which workstations should be located next to each other?
* Which technicians need to share equipment or workspace?
* How much space does each person need io perform his job effectively?
* What's the optimal workflow for the site?
* What special requirements, if any, does my business have?
Zoning and construction-
* How much of my property can I build on?
* Where will the new building be located on my property?
* How many driveways can I build? How many am I required (by local zoning laws) to build?
* Are there any specific materials I have to usesuch as brick, stone or glass?
* How long will construction take?
* Will the construction process have a negative impact on my business?
* Can I operate my business during construction? To what level of activity?
Funding-
* How will I pay for the project?
* Is operating capital sufficient to cover the cost of construction?
* If not, can I obtain a bank loan?
* Can I obtain a loan from a small business administration or local government agency?
* Are there any other untapped funding sources I've overlooked?
Final considerations-
* Have I taken into account the projected growth of my business?
* Will the new building be adequate five years from now? Twenty years from now?
* When will I see a return on my initial investment?
* If my business fails to meet my new goals, can I still afford the new property?
[Author Affiliation]
BY HEIDI MOORE, Contributing Editor
