Making the Leap: How to Know You’re Ready for a 2nd Location
SHOP STATS: West Point Auto Works Location: Greensburg & Monroeville, Penn. Owner: Jesse Brocious Staff Size: 6 Shop Size: 3,200 square feet (combined) Number of Lifts/Bays: 7 bays, 6 lifts (combined) Average Monthly Car Count: 280 ARO: $275 Annual Revenue: $900,000
Bruce Caruthers has envisioned his shop’s expansion for many years. The way it finally happened was nothing like he had planned.
With a plan to close on a second location in fall 2021, Caruthers and his wife, Brooke, planned a month-long vacation in July, anticipating the long hours that would accompany an expansion.
Seems like a sound plan, right?
It was, until an offer on a closed Midas location popped up in early July that was too good to be true. Suddenly the timeline accelerated.
Caruthers jumped on the opportunity, despite the vacation landing in the middle of closing on the second location of Washington-based Daltons Midway Service. They’d figure it out, he reasoned.
But COVID had other plans. After testing positive, Caruthers and Brooke were forced to quarantine for an extra two weeks in a foreign country, leaving the rest of his team to carry out the expansion plans while Caruthers was thousands of miles away.
Still, the company met its scheduled opening date of October 1. How? Advanced planning.
“The past six years we’ve developed policies and procedures,” Caruthers says, “and our team did a great job executing when we needed them.”
According to the 2021 Ratchet+Wrench Industry Survey, 25 percent of single-shop owners are planning to add one or more locations in the near future. It’s a jump many in the industry try to make, but it’s one of the hardest, says Brian Bowersock, Elite coach and owner of a four-store operation, West Automotive Group.
“Adding a second store will make or break people,” he says.
So how do single shop owners know when they are prepared to take the leap? Ratchet+Wrench spoke with Caruthers, Bowersock and several other multi-shop owners on the most important boxes to check before expanding.
Nothing Starts Until You Leave
Bowersock has seen a multitude of mistakes that have caused single-shop owners to fail when they expand to a second location. None is more detrimental than expanding when the owner is still heavily relied upon with the day-to-day operations of its first location.
According to the 2021 Ratchet+Wrench Industry Survey, roughly 43 percent of single-shop owners employ direct involvement leadership, describing their role as someone who gets their “hands dirty on the shop floor.”
In taking on a second location, that has to change, Bowersock says. The shop owner can’t be a service writer, a technician or even a store manager.
“I just don’t see it. You're going to be pulled in so many different directions,” Bowersock says.
That makes it step one. The business must be able to function without the shop owner there. Without that, the rest won’t matter. There are rare cases in which the shop owner hires a CEO to be the head of the company and manage the expansion, Bowersock says, however that almost never happens.
Removing yourself from the business may mean hiring a new tech or a store manager. That needs to happen before any expansion, because for the first six months or so, the shop owner should help the new business get off the ground. If issues occur in the first location, that pulls the shop owner away, thus hurting the long-term viability of the second location.
Michael Williams, co-owner of six Tuffy Tire and Auto Service locations across North Carolina and Florida, agrees. Williams was the sole operator when he had just one location. It wasn’t until he partnered with another Tuffy owner, Alan Russell, that he felt comfortable expanding. And even though he had a partner to help split the duties, he still put a manager in place at the first store and every store after that was capable of running without Williams involved at all.
“Your shops have to be secure enough to stand on their own two feet,” Williams says. “I think that’s one of the biggest steps people miss.”
If that’s not currently how the shop operates, slowly work toward it. Hire or promote someone as the shop manager. Actively leave the physical store and don’t get pulled into day-to-day tasks.
“Take a month-long vacation,” says Caruthers, jokingly, “but seriously, the expansion is going to be like a vacation from your current shop… you need to be ready for that.”
Identify Your “Why”
If not getting out of the day-to-day operations is the most common issue Bowersock sees in failed expansions, the lack of a “why” is a close second.
Too many shop owners get enamored with the idea of owning a second store, Bowersock says. He’s seen this scenario play out multiple times. An otherwise successful single-shop operation gets presented with an opportunity to acquire a new shop. Without doing research on some of the most basic, common-sense elements such as location, market share and financials, they jump on it. It becomes an emotional decision, one based on a desire to expand and grow rather than one rooted in research and planning.
“Don’t fall in love with an idea because you see something and you think it’s great,” he says. “Make sure it will work for you. Do your research and don’t make an emotional decision.”
For Caruthers, the acquisition of his second shop had a clear motive. He wanted to buy the property of his first location, but he couldn’t qualify for a loan to do so. That was his “why.” He had spent months racking his brain, trying to figure out how to make it happen. He could’ve tried to bring in a new partner or crowd-source enough money from family and friends, but neither of those options were appealing, he says.
Expansion was the next likely outcome. The next shop, if successful, would increase the company’s capital and allow Caruthers to buy out the first property. Then, with full control of the first location, it would be much easier to buy the land of the second location, giving him full control of both businesses.
“You need to understand the goals of a second shop. Are you doing it just to do it? Or are there real financial goals?” Caruthers says.
Caruthers' grand plan is to have five or six sources of income. That would allow him to comfortably retire (while still earning a residual income) and provide health insurance for him and his wife. With the ownership of the businesses and buildings, that gives him four income sources. Somewhere down the line, Caruthers expects he’ll add a third store, the total to which he aspires.
But it also was about creating some career advancement opportunities for his employees and allowing them to take on additional responsibilities. His managers know that Caruthers will eventually step away from the business, giving them the opportunity to be “the owner in all but the name.” Caruthers identified those “whys” long before he added the second location or even began looking.
Processes Must Be Documented
As a single-store owner, especially one who is still heavily involved in day-to-day operations, it can be easy to go without a set of written-down processes and procedures because the shop owner fulfills those roles. He or she brings in new hires, trains everyone and answers any and all questions that employees may have.
If the shop expands, suddenly the owner isn’t there every day but those questions still need to be answered. New workers need to be trained by someone else, and it needs to be consistent. And at the new shop, those same procedures need to be put in place.
This is another area that shop owners need to “check themselves.” Bowersock recommends written processes and procedures for any shop, not just a multi-store operation or a shop looking to expand. But for a shop looking to expand, it’s a must.
There should be a central location that any employee can go to see basic procedures, ideally a handbook, whether that’s online or a physical copy, Bowersock says. It should include everything from how to answer the phone to a list of all equipment and tools the shop owns. It should include contact information for shop managers and owners and key vendors and stakeholders. Anything a shop employee may need to know should be documented, Bowersock says.
For Williams, much of those processes and procedures are documented in the company’s shop management system, Tekmetric. The connectivity that any shop management system possesses allows a shop owner to help diagnose issues happening at a shop without having to be there. Williams is able to help solve any issues that one of his six shops’ is having remotely. While he has no plans to do so, Williams would feel comfortable opening a store in a state as far away as California, because of the processes he’s put in place.
Evaluate your Financial Position
There is no magic number that a shop needs to have in the bank to pursue a second location. There are too many factors that will influence it. Are you renting or buying the property? Is it a new build? Is it an acquisition of a previous repair shop? Is the business going to use its own capital or take out a loan?
Jesse Brocious’s day job is in real estate banking. But Brocious also owns an auto repair business, West Point Auto Works, which recently added its second location.
Brocious had a keen sense of his business’ financials, and, because of his financial acumen, was able to identify a business opportunity that made sense while avoiding large loans. However, for most expanding shops, taking out a loan is going to be a likely path. Brocious recommends having a strong connection with a local bank and an accountant if numbers aren’t the strong suit of a business owner.
Whether a shop opts for a loan or not, Brocious also recommends making a three-year financial plan. The bank will likely require it to approve a loan, and it’s a good thing to create regardless. Map out what can be spent and the financial goals that you have for both shops.
As for initial finances to get the second shop off the ground, Brocious advises that shops should expect a six-month ramp up period to get back to breakeven. Depending on the situation it could be more or less, but six months is about average.
Caruthers made sure to have cash to cover existing payroll for three months. He also had a line of credit with the bank just in case he needed it.
“I’m a big proponent about never passing up an opportunity,” says Brocious, “align your finances so you’re ready to take on that opportunity when the time comes.”
Understand your Personal Situation
According to the 2021 Ratchet+Wrench Industry Survey, roughly 83 percent of shop owners work more than 40 hours per week, with 46 percent clocking 50 or more hours per week.
Adding in a second location, especially for the first six to 12 months, only adds to that time constraint.
So while everything else could be in order—processes are documented, the shop is self-sustainable, plans and goals are in place—it could all still fail if the shop owner doesn’t recognize his or her own situation.
Bowersock, a single parent since his child was two years old, waited until his child reached adulthood before he expanded from one shop to two. Everything else was in place years prior to that, but he knew he couldn’t invest the time needed to make it successful with his parental responsibilities.
After adding their second location, Caruthers and Brooke spent the first month at the next shop. Seven days a week, all day.
“You have to be ready to go all in,” Caruthers says.
When Williams expanded his operation into Florida, he was at the shop for its opening two weeks. Then he went home for two weeks, allowed his team to make mistakes, and came back for another two weeks to help solve all the issues.
For Brocious, his full-time job has always meant he can’t commit this type of time. That’s why he made his first shop’s manager, Rob, into the company’s general manager. During the transition, Rob was the de facto “owner,” putting in the long hours needed to make sure the shop thrived. Not every business will have its “Rob,” and even if they do, Bowersock advises new two-shop owners to be constantly available.
“I don’t care if you think you found a manager,” he says. “You need to be able to make sure you have the time that you can handle anything that needs to be handled. Anything.”