Sept. 1, 2010

The decision to expand rarely comes easily, and no matter how you go about it—whether building a new facility or buying someone else’s—there are myriad factors to take into account. FenderBender talked to Symphony Advisors Managing Director Matthew Ohrnstein, who helped develop 68 new shop locations during his tenure with Caliber Collision Centers. He outlines why due diligence is essential for good growth.

Start with a strategic plan. Shop operators should step back from day-to-day operations, and analyze all aspects of their business. Think through the rationale for adding another location and identify the benefits of doing it.

Research your target market. Look at the population of the target area, the number of households within a five-mile radius, the median household income, the number of automobiles per household and the number of accidents per year. A general rule of thumb: There’s $100 per capita of collision repair spent in the United States. So a target area with 80,000 people has a possible collision repair market of about $8 million per year.

Identify the market’s DRP distribution. If you have a business model dependent on direct repair programs, understand where the DRPs are within the target market. Talk to your insurance partners to see if they would benefit from you moving into that market.

Analyze how much space you need. You want to target a certain percentage of the market—20 percent is a realistic goal. Let’s say you target a $15 million market. To attain 20 percent of it, you want to build a $3 million business. Generally, a traditional (non-lean), single-shift shop can fix cars at a rate of $20 per month per square foot—$240 per square foot per year. To attain $3 million in revenue, you need to have a shop that’s 12,500 square feet.

Analyze your overall management depth. You need leaders, estimators and technicians who can set the pace for the new shop. Identify employees who have your business processes down, who could be moved to the new location. Think about the work force and your ability to hire good technicians in the new market.

Do your own due diligence on the seller and the business if you choose to buy an existing facility. Review historical financial performance and look through the contracts the target shop has. Talk to insurance companies about staying on their DRP. Walk through the facility, review the equipment condition and evaluate whether you need to upgrade anything. Learn everything you can about each existing employee—job descriptions, pay, benefits, vacations. Sit down with each employee the day you close the deal, and let them know where they stand. If employees feel at risk of not being retained, they might quit after the deal is made.

Do an environmental study on the property you buy. Survey how that property has been used for the past 50 years. Help manage your risk by assessing whether there’s pollution in the dirt from past high-risk usage. You don’t want to assume that liability if any cleanup is required.

Work with your lawyers and accountants once you decide what type of facility to open to get the documentation and agreements prepared. Find lawyers who handle transactions and purchase and sale agreements.

A growth plan is critical. This business is about managing and performing. Managing remote operations has been the downfall of many a multiple location operator. Given the high degree of competition in this performance-based environment, it’s crucial to have a detailed plan in place for a successful expansion.

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