How to Think Ahead for Your Business
Steve Guinn started his body shop, Hodges Collision Center in the Houston area, with one shop and has built the business into one with six locations through Texas.
Hodges Collision Centers has won the Woodlands Online Best Collision & Body Shop for the first time the category was offered this year. The shop was also named as Liberty Mutual Insurance’s “Shop of the Year” 2019 for the state of Texas.
While some of his peers were “high rolling” when they saw even a little profit, Guinn was saving and biding his time to make his repair business into one that would be recognized.
For several years, Guinn looked at acquisitions and planned his own financial acquisitions carefully. His first shop was only 5,000 square feet. Five years after opening the first shop, he opened his second repair facility in 2007.
Guinn opened his sixth location in 2016 and is the largest independent body shop in the Houston area today. His business produces roughly $14 million in annual revenue.
Guinn is one example of good business planning. He looks ahead and saves money every chance he can. In fact, Gerald Brown, president and senior appraiser for RSI & Associates, says that business owners should plan for financial goals beginning as soon as they open one body shop.
Owners might start a company but be so caught up in their dreams and the happiness surrounding the start, that they neglect planning for the future, he says. Neglecting this planning could cost the owners down the line.
“This is similar to when we think about buying stock,” he says. “We invest and we want the stock to increase in value over time.”
Roughly 60 percent of businesses in the U.S. are owned by baby boomers right now but the pool of potential buyers of those businesses is shallow because potential buyers come from the millennial generation. This generation is more likely to want to get paid, go to a 9-to-5 job and not invest in building a business from the ground-up, Brown says.
So, with a deep pool of sellers and a shallow pool of potential buyers, Brown recommends that shop owners start thinking about the end of the business, even in the beginning. Here is a guide on how to form an exit plan for your business.
No. 1: Start early.
Create an exit plan at least three to five years before you want to officially be done with the business in some way, Brown says.
The body shop owner needs to start early because it will take about a year to put the company on the market and at least one more year or more before it can be sold.
Time is vital so that not only can a leader plan for leaving his or her business, but he or she can take time to develop transferable assets.
No. 2: Choose a way to leave the business.
There are typically four choices for a small business leader to leave the business.
These four include selling it internally, selling it externally, close it and liquidate it, or manage the business for life, which means essentially keeping it forever.
Brown says that the shop owner should reflect on some questions, including whether or not, a family member has the skills to take over the business, what is the owner’s dream, what they want to do for the rest of their life, and how much money the owner owes other investors.
Here’s what those four choices look like:
- Selling Internally: If the owner sells internally, he or she will sell to existing employees to family members.
Selling Externally: The owner can sell to a financial buyer who is a separate entity and wants to invest or can sell to someone within the industry who is either the existing shop's competition, or wants access to the body shop’s market and customer base.
Closing and Liquidating: The shop owner can choose a planned liquidation or a forced liquidation. A planned liquidation means the owner has a set time he or she wants to sell the assets by and a forced liquidation means the owner will be forced to close and auction off items to repay loans or debt.
Managing for life: The owner can keep running the shop until he or she passes way or the owner can structure the company so that even if he or she does die, someone can take it over and the owner will be owner just in name.
No. 3: Structure the company so it is transferable.
Every owner should aim to have a “happy medium” between a culture that focuses on a close-knit team atmosphere and a culture that focuses on each role precisely as it is, with no personal connections. Employees go to work, they get paid, the boss is the boss and that is the end of their relationship.
While the business has to be set up so that anyone can come in and see it as an opportunity that they can run themselves, the business needs to maintain a unique identity, Brown says.
The body shop should set up operating procedures, and create standard operating procedures that could be followed by anyone.
No. 4: Look for outside assistance.
Find and hire or partner with someone who can help create an extensive legal exit plan document for your business.
The outside consultant will help put together a financial plan that outlines actionable steps that the owner can take along the way. One example would be to establish an up-to-date employee handbook or to establish standard operating procedures for the customer service/sales side of the body shop.
No. 5: Keep it under wraps.
Brown says it might be the inclination for business owners to divulge their plans to exit a business to their employees. They might feel guilty or feel like they’re obligated to tell the employees.
A body shop owner should not, however, tell his or her staff about any type of exit plan.
“Employees don’t think like owners,” Brown says. “Employees think like employees.”
Employees might react to news of a business closing by losing sleep, stressing and often, the body shop’s best employees leave and go to work for competitors.