A body shop can be a great investment, if you are the right kind of buyer. Who is the right buyer? Let’s discuss that in detail. Here is what we will cover in detail.
- What are those skills necessary to make to work a body shop?
- Are you willing to do the business actions necessary?
- Do you really want a body shop or is this just an idea?
- What kind of body shop would work best for you?
Do you have the skills necessary for buying an auto body Shop?
Most successful body shop owners come from inside the industry. They are occasionally a body and/or paint man who worked in the production area as a teenager or as a young adult. This education is extremely valuable and, if you are buying a shop doing less than $1,000,000 in sales per year, it is an absolute necessity.
Some owners learned the business doing adjusting or estimating for either a body shop or an insurance company. Insurance adjusters work out in the field, for an insurance company inspecting cars that have been damaged. The estimators work for the body shop figuring out how much the job is going to cost.
Another group of buyers have had no body shop experience at all, but they grew up around cars and love them. This buyer may be interested in the restoration area, and should only buy a shop where he has a family member or close friend with body shop experience, that will be working with him. The other option is if the seller can be made to agree to stay for at least one year in order to teach the buyer, every part of the business.
Most of the buyers of body shops come from buyers who currently own one or more shops, or used to own a shop and sold it to do something else. These buyers know exactly what they are getting into and know the risks and rewards. There are quite a few prior body shop owners who sold their shops and went into something else, only to find out that they made more money in the auto body business. They then go back into the industry working for someone else until they can buy another shop for themselves. No matter how much they hated the business they find that they want back in. It gets into your blood. These buyers are what every seller is looking for.
Another category of buyers includes auto mechanics and tow truck owners, who sometimes want to expand into doing body shop work on cars they are currently picking up and taking to other people’s body shops. These types of buyers have lot of knowledge and understanding about the business but they still need to buy a shop where the experienced staff will be remaining with the company.
The last group is composed of business people who figure they can run any kind of business. This type of buyer can make it, only if he has at least one family member with experience in the industry and the primary buyer is a very good sales person, who will go out and bring business into the shop.
Are you willing to do the business actions necessary to do the business?
In this section I would like to discuss which actions are absolutely necessary to be successful in running a body shop and if not done will guarantee failure.
The single most important action that must be taken by any new body shop owner is to bring in new business. This is required for two reasons:
- Everyone wants more volume, but some buyers bought the shop based on their belief that they can do more volume than the last owner.
- You must replace the volume that will be lost by the transfer to you the new owner.
You get this new volume from several sources:
- One of those sources is not from DRP Contracts. In fact, please DO NOT BUY A SHOP BASED ON THE BELIEF THAT YOU WILL GET DRP CONTRACTS AFTER THE PURCHASE UNLESS YOU HAVE AN AGREEMENT, BEFORE THE PURCHASE, THAT THEY WILL GIVE YOU THEIR BUSINESS.
Definition of Direct Repair Program or DRP; These are formal contracts with insurance companies to represent them within a specific zip code. They send you all of their business, in return for you giving them a predetermined discount, and if they are unhappy with you, you agree to kill yourself trying to please them. An insurance company can cancel a contract any time they become unhappy with you.
- Rental car companies. This business is relatively easy to get, but you do not want to rely on this business, over the long term. It is not profitable enough to cover all your fixed costs, even though it will contribute to covering the rent.
- New Car Dealerships. This is great business to get, partly because you get to charge full retail prices, but the dealership will expect you to buy their business by giving them a few thousands of dollars a month, under the table or some other indirect compensation. Remember, if you can steal the business from someone else, then someone else can steal the business from you.
- Used car dealers and auction cars. This is a good source of business with most of the money being made on buying and selling cars. This tends to be stable business if you like this kind of work.
- Referral business. These are national body shop groups that make national deals with Corporate America and for 10-15% of the gross income from each job you get from them, they will send you body work. This is a very expensive way to get business and in the end some find it not profitable.
- Corporation Accounts/Fleet Accounts. This is one of the two best ways to get business. Some companies do self-insurance, and others have insurance. Regardless, a salesman can get them to send you all their local business by offering good service or other remuneration (Compensation.) Corporate accounts are quite often at full price or some reasonable discount. Some body owners offer to drop the deductible or give some other kind of a discount to the corporation or its employees. .
- Off the street. This is the best business is the whole world, if you can get them in the door and keep them in the door. This is where location plays an important part in getting the business. Visiting all the businesses in the neighborhood and offering discounts to their employees or other employee benefit for coming to you can get this business. This type of business is what a good salesperson dreams of. Most established body shop owners tell me that they did this originally when they bought their shop; but they stopped going out and selling when they got busy. Funny isn’t it? The action that made them busy cannot be done any more because you are too busy with work. This is how you build a shop’s volume without DRP contracts.
Do I really want to buy a body shop?
If you are an adjustor and feel that your employer insurance company will give you a DRP contract, in a specific area, you might have a high motivation to buy a shop in that area, even if its current volume is low. If you are expecting the existing clients to stay with you, after the sale, you have to do some research on this. If the clients are from corporate accounts, car rental companies, or just off the street, you are probably correct. If the clients come from personal relationships with the seller, then forget it. People of like nationality and religion have a greater chance of taking over personal relationships.
If you are buying a shop that currently has DRP contracts, do not assume that you transfer them. In fact, you must assume you will loose them, the day escrow closes. Do not buy a shop that has DRP contracts unless you already have a relationship with those same insurance companies, at another shop location, you currently own. If you are reading my article, I can safely assume you are not a multiple shop owner, currently. Multiple shop owners know everything in this article already. There are a few, little known ways, that I have personally developed, to buy a DRP shop and not loose the contracts, but I cannot publish this information, in as much as if they read this, the insurance companies will prevent my approach from working, on future deals..
The body shop business can be a very profitable business for the man who doesn’t mind getting out and selling, while making friends with lots and lots of people. If you do not want to do marketing and selling, then do not buy a body shop. PERIOD!
What kind of shop would works best for you?
Of course you want to determine what volume of activity you plan on doing in order to decide what size shop you need. If you expect the volume to remain the same as what is there currently, then you figure the rent and profit based on the sellers current numbers. If you know you can bring in corporate accounts, dealerships and other business then you can use a bigger shop. If you expect to only have what new business that you yourself bring in then a smaller shop may work perfectly.
If you get too big a shop the rent will kill you. If you get too small you will limit your possible volume unless you put in a second shift and keep an eye on that 2nd shift. There are larger capacity shops doing small volume that can be bought very cheap or reasonably.
There are smaller, very inexpensive shops available to use as a first time shop. Then after you learn the business and prove you can bring in volume, you can buy a bigger shop and sell off the smaller one. The best guarantee of success is to start small and grow bigger. What you do not want is to buy a large shop that you cannot fill, thereby working for the landlord.
Keeping all of the above in mind and to not take on more than you can chew. Buy a shop that fits your personality and ability and then move up to the bigger shop when you have proven to yourself that you have done it and can do it again. If I can be of any assistance, I am here to help.