Here’s what to avoid when opening a second shop location
Last month, I shared a list of strategies that I’ve used in the past to successfully open new locations. That list of “do’s” was developed based on what worked best for me when I was in the midst of my expansions.
This month, I’d like to delve into the flip side of the coin – the things to avoid when you’re opening a new location. In my view, the “don’ts” are just as important, because it’s tempting to think that if you’ve had success with one shop, you can easily achieve that same outcome in a new location. So, without further ado, here are the “don’ts” to keep in mind when opening a new shop.
• Don’t open a new location without a financial cushion. Your first shop might be a sales machine, but don’t use that original location to help subsidize a second shop. Instead, have a separate reserve that can you can rely on to support your expansion. Ideally, you’d have $50,000 on hand, but you can go as low as $25,000. Keep in mind, that’s the sum you’ll need after funding the start-up costs of your new location.
• Don’t open the second shop in a worse location than your first shop. In fact, you probably want your second location to be better than your first, since we’re assuming that your original shop is self-sustaining at this point. If you’re unsure about what makes a good location, I always consider three key characteristics: convenience, accessibility and visibility. You need at least two of those three traits to make a new shop work. For example, one site could be right off a highway and easily accessed, but buried within an industrial park, so it offers little visibility. On the other hand, you could have a location that is on a major thoroughfare and near a highway, but plagued by lots of traffic, which make it less convenient. Demographics also play a part. Generally, I avoid areas that don’t have a median income level of at least $60,000.
• Don’t open a second shop in a new line of business. Stick with what you know. If you have a general repair shop, don’t open a transmission or tire shop in your next location. When you open a second location, your entire company doubles overnight. Having to educate yourself about a new segment of the industry will only add to your workload. You need to execute well right out of the gate and remove as much risk as possible.
• Don’t skimp on advertising. Just because you build it, there’s no guarantee they will come. You need to get the word out because your new shop won’t necessarily survive off the established reputation of your original store. I recommend running radio advertisements, sending out direct mail flyers, using email blasts and other forms of digital advertising very heavily for a short window of time – the same way movie studios promote their new releases. It’s also wise to host a grand opening event with giveaways. Of course, this type of promotion doesn’t come cheap. In the past, I’ve spent $25,000 to $40,000 45 days before a new store opening.
• Don’t keep a lot of inventory on hand. There’s simply no reason to keep a lot of inventory in stock. The just-in-time model makes more financial sense because you can always get factory parts shipped overnight. Spending money on parts you’re not using is a waste of resources.
• Don’t devote all your time to the new shop. You still need to split your time 50-50. If you give 80 percent of your time to the new shop and 20 percent to the old, you won’t have time to think strategically about your original store and you won’t be able to solve problems effectively.
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A nearly 20-year veteran of the automotive repair industry, Aaron Stokes grew his business from a one-car garage to a six-shop operation that includes a car rental agency. He is the founder of Shop Fix Academy, an innovative management coaching and training company offering AMi-accredited programs. In addition, Aaron hosts a weekly radio show on auto repair. Contact him at Aaron@ShopFixAcademy.com