Becoming an MSO for the Right Reasons
When things are going well at a single-location body shop, the urge to add another store can be great.
Mike Anderson, founder of CollisionAdvice.com, knows of shop owners who have followed that urge too quickly, without thinking about why they need to grow, or planning sufficiently.
“If you’re going to open up another location, make sure you do it for the right reasons,” Anderson says. “A lot of people open for wrong reason: pride.”
It takes more than a successful first business to make a second shop work, Anderson says. Here are a few tips he offers to shop owners looking to become multi-shop operators (MSOs):
Evaluate customer traffic. An overly busy shop could be a reason to expand, but opening another shop, especially if it’s not nearby, is not necessarily a solution to the problem. Anderson says to look at where customers are coming from. If you’re drawing work from a different market, maybe a new shop in that area is a good idea.
Don’t count on DRPs. Shop owners should not assume DRP relationships will follow them to a new shop, even if insurers say they will, Anderson says. Shop owners have to do their own market research to find out whether there’s a strong enough customer base to draw from. Making a large investment, then counting on an insurer to bring in traffic could lead to big problems.
Calculate your break-even point. Many shop owners are not fully in tune with their financials, Anderson says, which can cause big problems when opening a second facility. He says shop owners can generally take all the expenses at their current business and use those to figure out how much sales volume they’ll need to break even at another shop. It’s good to have a cash reserve to draw from, rather than expecting to be profitable immediately, Anderson says.
Get a second opinion. Find someone, or a group of people, you trust to give you an honest opinion about expansion, Anderson says. The person or group should be honest and be able to hold you accountable. Paint companies are often a good resource.
Look at building options. Revamping an existing building or building new can make a big difference in cost and permitting. Anderson says if shops buy an existing business, they should not expect any certifications it may have to carry over. It’s also a good idea to make nice with potential neighbors, who could influence local leaders.
Make sure your first shop is self-sufficient. “You need to get your first [shop] running so that it runs without you before opening second,” Anderson says. He says it’s important to have strong standard operating procedures (SOPs) that you can carry over to the second business.
Anderson says he doesn’t think shops need to become MSOs to survive in today’s competitive market, but a second facility can allow for load leveling, employee crossover, larger profit margins and many other benefits when done correctly.
Whether you’re running one shop or more, he says it all comes down to this:
“You want to make sure that whatever you’re going to do is sustainable.”