Whether you’re thinking of building a new car-care
center or renovating an existing one, your first thought is probably
what a wonderful facility you will have—how modern it will be,
what efficient and courteous service the staff will provide and what
up-to-the-minute features it will have.
But your second thought ought to be about money—how
to finance the project, how to get the most for your money and what
mistakes you need to avoid. Even if you own a dozen car-care centers,
you should still think in detail about money. Fine-tuning your approach
to financing can mean higher profits now and more money for future
expansion. That said, let’s look separately at the financial
considerations involved in construction and renovation.
Construction financing
Construction costs are only part of the financial outlay
for a new facility. The other side of the equation is the cost of
repairs. Whenever an owner chooses to lower the initial cost of construction
by using less-expensive materials and techniques, there is a corresponding
rise in repair costs at the other end. Sometimes, in fact, the repair
expense is out of proportion to the initial savings. For example,
the decision not to use a sealant on new concrete can allow water
to seep in and crack the structure as the freeze-thaw cycle progresses.
Each owner must make an individual decision on how to balance the
equation for his best advantage.
The business plan
Before you look for financing, you need to develop
a business plan for the new facility. A business plan is a road map
that charts your course to profitability in specific, concrete terms
that demonstrate your commitment to making a success of the project.
The plan will typically address startup costs, sales projections,
demographic studies and expenses for such variables as utilities,
labor and supplies. It will also address the mix of those variable
expenses and fixed expenses (e.g. debt service) and your sources and
uses of funds for the project. Appendices will detail such things
as the market research you conducted before you decided to move forward
or regulatory considerations in the area. The lending officers at
most financial institutions will want to see a business plan. Sometimes
a business plan is a requirement. The more detailed and factual the
plan, the better your chances of getting the loan you want.
Don’t pay cash
There are two reasons why it is better to seek financing
than to pay for a new facility in cash. First, if you pay in cash,
you’re depleting the cash reserves you may need until your projected
revenue stream kicks in. Second, if you finance your purchase, the
interest and finance charges you incur may be tax-deductible business
expenses that will reduce your tax liability.
Start early
Obtain financing early. Don’t believe TV ads about
how quickly you can get a response to your loan request. Those ads
are for residential mortgages and personal loans. When it comes to
business loans, banks can take as long as three months to reach a
decision. Other business lenders should be able to provide an answer
in four to six weeks, but those can still be very stressful weeks
if you have already made commitments to a landowner and a construction
company.
When you seek financing, be sure to look beyond banks
and the U.S. Small Business Administration. There are a number of
independent non-bank lenders that are highly successful in serving
small and mid-size firms. These companies should have loan officers
with a thorough knowledge of your field. They will also have flexible
terms and loans that are structured to take your circumstances into
account in such matters as seasonal profitability or the need for
deferred or lowered payments until cash flow begins.
Get organized
In creating a new facility, you will need to deal with
many specialists—an architect, a contractor, an equipment manufacturer,
representatives of skilled trades and perhaps others as well. There
is also a type of firm that handles everything from producing initial
architectural renderings and reconciling zoning issues all the way
to serving as project liaison and merchandising consultant. Dealing
with one vendor can save time and perhaps money. But if the vendor
you choose is not as good as you had thought, finding a replacement
or moving to a group of different experts may be quite difficult.
Assuming that you decide to work with a group of specialists
of your own choosing, you not only need people who are fully qualified
in their fields, you also need people who can work together as a team.
Although it may look like a cost savings at first glance, it is seldom
a good idea to create the team piecemeal, bringing people on board
only when they are needed. Assemble the whole team in the beginning
so that everyone can get used to working together. This can help you
avoid or minimize the false starts that waste energy and cut down
on the inevitable changes.
Zone in
It’s never too early to build a rapport with zoning
officials and other civil servants (e.g. fire marshals) whose permission
you must secure before your facility can be built and open for operation.
If you are an experienced operator with a staff that includes an expert
on these matters, you will automatically turn to him. In other cases,
you would be well advised to hire an outside expert (usually an attorney)
rather than try doing it yourself.
The technical details of local building codes and permit
and zoning laws are complicated and time-consuming to learn. And if
mistakes are made, you may not find out until a key permit is denied
after the feature in question has been built. Your construction expenses
can rise drastically, and your opening may be delayed. In essence,
municipal officials are the ones who have the final say on design
and building issues, not the architect or the owner.
Financing renovations
1. Determine what renovations your carcare center needs
to increase its profitability, and find out what your competitors
are doing and what your customers say they want. A renovation that
will make a facility more attractive and more visible from the road
can lead to higher profits. You may want to bring in a consultant
for expert advice that is keyed to your specific situation.
2. Once you’ve made a list of what you need, make
another list of additional items you want. Worthwhile new offerings
are always coming into the market. Right now, for example, machines
that accept credit cards instead of cash are hot items because they
counter customers’ bad experiences with casheating machines.
Your wish list should include items that will help you draw ahead
of your competitors, not just keep pace with them.
3. Rank your needs and wants in order of importance,
ranging from “must have” to “nice, but just a frill.”
Attach a dollar amount to each item and then calculate your costs
and your expected return on investment on each. At the end of this
exercise, you will have an accurate idea of what you can afford.
4. If you plan major renovations such as adding a bay
or upgrading the existing bays, you should finance rather than pay
cash. The suggestions offered in the construction section of this
article will apply to you, too. If some or all of the improvements
you plan are relatively inexpensive, you should consider financing
as well. When you pay cash, you are using your after-tax money. In
theory, paying cash can double your costs.
5. Few renovations require shutting down completely
for more than a few days. This means you need to find contractors
who will work on your “down hours” or in your off season.
Since the workers will be around at times when you have customers,
it helps to have a contractor whose employees are courteous and friendly.
And, of course, you should check references and get competitive bids.
A final word
Building a new facility or making major renovations
to an existing one is a major commitment, and even a very experienced
owner can have butterflies. But if you’ve done your market research
and taken a realistic look at your financial situation, you have an
excellent chance of succeeding.
Shirah Kellman is account manager in the Car Care
Division at the Hunt Valley, Md.- based Butler Capital Corporation,
a national equipment financing and leasing firm that specializes in
the car-care industry. She can be e-mailed at skellman@butlercapital.com
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By
Shirah Kellman
