Maintaining Your Million-Dollar Baby

May 19, 2022

Hitting the $1 million mark in annual revenue is exciting, but building on that success is where the real work begins.

For most body shop owners, a key measuring stick on how well their business is doing comes down to one number: $1 million. Getting to that seven-figure mark in yearly revenue isn’t an easy task, and with so many independent shops competing for customers against much larger competition, sometimes that figure can seem like a mountain too tall to climb.

    In fact, some industry analysts say the new “magic number” is now closer to $2 million, as inflation, labor costs and low insurance reimbursement rates have combined to eat into an owner’s bottom line. 

If you have reached that magic million mark, however, take a moment and enjoy your achievement, but be aware that maintaining and growing your shop’s financial health has just begun.

 According to the Small Business Administration, 30 percent of small businesses fail within the first year, 50 percent within five years, and a staggering 66 percent at the 10-year mark. If that last number takes you by surprise, it shouldn’t. Factors such as retirements, consolidations and most important, outdated business practices prompt many shops to close their doors for good far sooner than intended.

Once you’ve hit the $1 million mark, Classic Collision’s Alaska Regional Director and FenderBender columnist Ryan Cropper says that while you are allowed to take a moment to celebrate the milestone, the last thing you want creeping into your shop is complacency.

“The feeling that you can now take it easy, sit back and let your business run itself is a dangerous and often fatal flaw for many shop owners,” he says.

So what steps can you take now to ensure your business continues to thrive for years to come? Depending on who you ask, the answer comes in many forms. There are certain areas of your business, however, that all agree need the most attention to ensure continued success.  

Maintain a Steady Cash Flow

Many owners will tell you this sounds much easier than it is, but Cropper notes cash flow shortages are the number one reason nearly all businesses fail, not just auto body shops. 

“If your business continues to grow, keep in mind that your expenses will climb as well,” Cropper says. “When your cash flow is tight, it’s tempting to reduce expenses by using your receivables from the previous month. But you can’t keep that practice up forever, because eventually it will catch up to you.” 

He adds that if you’re not already, you should be utilizing cash flow forecasting and management accounting so that any financial decisions you make are proactive.

    Michael Lawrence, recently retired owner of Texas-based Coastal Auto Body, says that was a major struggle for him, as he found himself spinning his wheels financially because he’d use money from the previous month’s receivables to cover his current expenses.

    “Going that direction was a lose-lose situation for my shop,” he says. “If you have a solid revenue flow, it’s easy to fall into the trap of assuming you’re going to continue experiencing exponential growth. But I quickly learned that growth comes in phases, and you can’t just count on your month-to-month revenue to constantly make up the difference.”

Cropper adds that it’s vital to adjust the way you manage your revenue, how your business operates and constantly search for new opportunities to reach whatever you want your next milestone to be.

“If you’re smart early on and can create a healthy profit margin, then you have free cash flow that can be used to continue to grow your business however you want,” he says. 

Depending on your business goals this can mean paying money out to investors, creating an emergency fund, or investing in areas like marketing and customer service. And if your ultimate goal is to continue to expand your business, upgrading technology, expanding inventory or hiring additional workers are also smart choices.

Focus on Customer Retention and Acquisition

To get to this point you’ve done a great job of creating a solid customer foundation, but as Brian Fassler, owner of Sommers Collision can tell you from experience, dropping the ball on growing a solid customer service and marketing team will trip you up in no time.

“Early on I was stubborn when it came to putting extra time and money into properly training my CSRs when it came to staying in contact with our current customers, and ensuring (the customers) were kept in the loop throughout the repair process,” he says. “And on the back end, we were inconsistent when it came to ensuring our customers were completely satisfied with the repair job and had all their questions answered before handing them the keys to their car. 

Fassler adds that for your shop to really see solid growth, it needs to retain its existing customers, plain and simple. If your team is doing their jobs correctly from front to back, you’ll often gain a customer for life. On the flip side, however, if you just go through the motions with them during the process, it’s likely they’ll seek out a different shop the next time they have a vehicle repair.

Fassler also says he didn’t pay close enough attention to how few leads were actually being converted into new customers. That all changed when he sat down one day and realized how much money he was losing with every lost lead. 

“For a while our lead conversions took a big nosedive, and after running the numbers on my cost of conversion, I knew I had to immediately create new protocols to not only ensure we were turning those leads into customers, but upping my marketing budget to create a steady supply of new lead generations,” he says. “I quickly realized the value of using tools like digital marketing programs to gain the attention of potential customers. I wish I’d invested more time in my marketing strategies sooner, because I know I lost out on a lot of potential business that I’ll never get back.”

Fassler says it pays to look hard at your numbers to understand the total price you pay to convert a lead into a sale, including the cost of research, lead generation and sales personnel. Do you know what your company spends per each customer acquisition or how much revenue you gain from each customer acquired? If not, he says it’s crucial to crunch the numbers so you know exactly where you stand. 

Keep Your Business Processes Updated

Business complacency comes in many forms, but Cropper says the worst mistake is to maintain old standard operating procedures, even when your business has clearly surpassed business processes you created when you first started your shop.

“Especially now when this industry is dealing with not only a technician shortage, but a significant supply chain shortage issue, old processes that used to be effective for you and your employees are likely now outdated and need to be revisited,” he said. 

    Cropper says it’s likely you remember a time when fighting for every customer was standard, but now with so many shops being overwhelmed by a daily influx of new cars, you likely have to be more selective on which jobs to take on, and which to turn away.

    “Again, that goes back to your SOPs,” he said. “There are shop owners out there that now only take vehicles they are OEM certified in, or will refuse to take in any cars from overseas manufacturers. Again, it comes down to knowing exactly what you and your staff can handle, while at the same time ensuring that the quality of your processes don’t suffer because you’re taking in more cars than you know you’ll be able to turn around in a reasonable time.”

    Specific processes that should be updated include how much inventory you should have on hand, expanding your vendor base to find new ways of securing highly sought after parts, and ensuring you can keep your lot full, but not to the point of overload. It’s also important to include all members of your team when rewriting your SOPs, so each employee is aware of any new policies and exactly what their role is in the process.

Understand the Value of Your Employees

As your shop grows, you’ll quickly realize that your employees cost your company more than their wages in terms of revenue. Factoring in their downtime on the job, vacation and sick leave, insurance, taxes, healthcare costs, training costs, turnover expenses and even minor items like holiday parties and break room essentials need to be accounted for before deciding to take on a new employee.

“I view my employees as my biggest asset, but at the same time when I put together my budget I make sure to account for everything that I’ll likely spend to ensure my workers are well paid, trained to do their job and know that I care about them more than just as a boss,” Fassler said. “Every employee has different needs and values, and I’ve learned that you can put a monetary value on those things so they don’t come back to bite you when you’re reviewing your finances.”

Fassler adds that by investing early on in a strong bookkeeping and accounting department, however, you can determine exactly how much your employees cost and how much each generates. As your business expands, he adds, make sure you’ve accounted for any potential financial barriers that might prevent you from hiring a group of new employees.

 “You need to be certain your shop will benefit from added workers, he says, “and I know it sounds cold to think of them in terms of dollars and cents, as an owner looking to grow you do need to understand that it’s a necessary part of the budgeting process.”  

Learn to Delegate

Although it’s always going to be tempting to be on the shop floor working on vehicles or assisting employees, as your business grows you have to understand that your focus needs to lean more toward management, which means spending more time in your office and less time in the shop. 

First Class Collision’s Lawrence knows first-hand how difficult that transition can be, as your natural tendency is to want to ensure everything in the shop is running like you want it to. 

It definitely leaves you with less time to wear multiple hats,” he says. “As the owner, your most important role is to provide solid leadership. If you’ve trained your employees correctly and you’ve built a mutual trust, in time you’ll learn it’s OK to lessen your grip on the day-to-day operations.”

It’s likely that when you first opened your shop,  you probably handled almost everything. But if you don’t hire and train your employees to do their jobs as well, if not better than you, then your company’s growth is bound to take a hit.

 “Give your employees that freedom to take over some of the responsibilities you once managed alone,” Lawrence says. “Your goal should always be to hire like-minded people you find, and then train them to think like you. If you do that properly, you’ll be pleasantly surprised at how smoothly your shop can operate without you feeling the need to be in there all the time as a quality-control supervisor.” 

Lawrence adds that the best way to make that transition to full-time manager is to start thinking about which jobs only you know you can do, and after that don’t be afraid to delegate or outsource the rest. If you’ve hired and trained your employees with that goal in mind, then your business should be able to operate efficiently even when you’re not on-site.

Small Changes Can Make Big Impacts

As your business grows, what once might have been a minor hit to your shop’s finances can transform into major issues. Seemingly minor cost fluctuations, like a wage increase or a rise in supply costs, for example, can wreak havoc on your profit margins. In the collision repair industry, losing a technician, estimator or front office employee can have major impacts on your bottom line when the U.S. is facing a massive labor shortage. 

“The loss of that one employee reverberates across your entire shop, because now there is extra pressure on your employees to pick up that slack until you can hire someone new,” Cropper says. “We’re currently in the middle of an era of overcapacity, and while in the past it might have been smart to keep only one or two extra bumpers on hand, for example, but ordering 20 when you know they might sit on the shelf and gain dust while you wait for other parts to come in can leave you with a ton of extra inventory that will only eat into your bottom line.”

    Cropper adds that as you grow, always keep in the back of your head the fact that every change you make will have an impact in some fashion. The key, he says, is to always look ahead and understand who or what that change will affect, and to stay in front of it. 

Like every major transition in your business, achieving substantial growth will require you to adjust the way you manage, the way your business operates and how you search for new opportunities to reach the next milestone.

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