Turn the odds in your favor.
Owning and operating a business isn’t easy. In fact, only about 50 percent of all new companies make it past the five-year mark, according to the U.S. Bureau of Labor Statistics.
• Location: Denver
• Size: 15,699 square feet, plus 1.5 acres of land
• Number of lifts: Two
• Services: Mechanical and paint/body
• Staff: 17
• Average monthly count: 188
• Annual revenue: $3.6 million
So, how do you find yourself on the winning end of that 50-50 coin flip?
Hard work, perseverance and intellect will take you far, but challenging obstacles can snowball and overwhelm you. Suddenly, you’re dealing with simultaneous stresses from sales, receivables, payables, cash flow, personnel, taxes, insurance, payroll and more.
Not everyone can navigate through these landmines. However, the ones who do join an elite community known as successful business owners.
I can proudly say that I belong to that group. Dennis Poirier and I have owned Sawaya for 27 years. More importantly, we operate without debt.
I’ve learned a lot about ownership and operations since my tenure with Sawaya began. Here are some do’s and don’ts for running a debt-free business:
1. Track the numbers.
Make it easy to compare where you are to where you’ve been, or where you want to go. We track our revenue growth, gross profit percentage, parts profit, labor profit and outside repair profit. If we are not up to previous years’ gross profit, we are able to dial in and find out where we are off. Over the last 27 years, we have averaged a 21.2 percent increase in revenue annually. Of course, some years have been better than others, but we track our mechanics’ billed hours each week. If they bill out above the minimum 40 hours, there is an increase in hourly wage. We also have a full-time salesperson, who is paid only on the revenue generated monthly. His incentive is to bring in business and new customers.
2. Breakdown the product lines.
Simplify your shop’s records by getting organized. We breakdown our two product lines—mechanical and paint/body—separately. We compare the current year’s profit and performance with previous ones. If our revenue has significantly improved, we expect the bottom line to increase in the same proportion. Gross profit should be similar. If it isn’t, we find out why and make adjustments. We also set a revenue goal for both mechanical and paint/body work. Those numbers include a 20 percent profit that is above all of our expenses. If the managers meet or exceed the goal, they then participate in a healthy bonus.
3. Buy and pay off your property.
In 1989, we purchased approximately 1 acre of land, about a 16,000-square-foot building and an eroding business for $400,000. Sawaya was established in 1952, but the previous owner had the land, building and three employees generating just $150,000 in annual revenue. It became our priority to build and grow the business, and renting was not part of the equation. We financed our mortgage to start. We also submitted duplicate principal payments in order to increase net worth.
4. Acquire more property, if possible.
If you have the means, increase your land holdings. It provides more opportunities to develop your business and generate additional revenue. We refinanced about 10 years in because we acquired an adjacent piece of raw property for $100,000 from the city. The extra land expanded our parking significantly and added value to the property because of the increase in square footage. Later on, we refinanced again when we remodeled the office and purchased a state-of-the-art, 60-foot downdraft paint booth for $100,000 from the United States Postal Service. The heated booth ensures consistent temperatures, which eliminates guesswork and results in first-rate paint jobs. Eventually, we were able to pay off all of the debt from accumulated money in one lump sum.
5. Keep building and land titles separate.
Separating your business from your land and building is a good way to go. For example, our company is Sawaya Fleet Services Inc., and our land and building is Poirier Klepper LLC. If you have separate entities, you create more options for yourself. With this structure, you could sell the land and building but keep the business or vice versa. If the building and land weren’t separate, you would have to sell all of it.
When we successfully paid our mortgage and became debt free, it was a momentous occasion in our business history.
6. Establish a line of credit at your bank.
Having a line of credit in advance allows you to take advantage of that once-in-a-lifetime opportunity. Our chance came in the form of acquiring 35 trailers. We worked with the bank to purchase the trailers and then quickly doubled our investment. You never know when an opportunity may present itself. It doesn’t happen often, so recognize it and be prepared to take advantage when it does.
7. Take care of your employees.
One of the biggest assets of your business is your employees. Take good care of them and pay them well. We have incentive programs where everyone—the mechanics, service writers and paint shop managers—can make great money if the company does well. When employees are rewarded financially for their efforts, it changes the game. They become excited about working and more focused on doing a good job, which increases customer satisfaction and business profit. For special occasions like the holidays, we pass out turkeys and hams. We also have an annual party for employees—and their spouses—to recognize them for exceptional performance.
8. Develop strong working relationships.
It’s important to have solid business connections. When it comes to your customers, give them the best possible service to keep them coming back. If they have a legitimate complaint, work it out and make sound, long-term decisions. To show appreciation, we pass out baseball tickets, take customers to lunches, deliver donuts to businesses and give holiday gifts. (For additional low-cost customer appreciation tips, click here). We also have an annual barbecue where we invite customers, bankers, vendors and anyone else we would like to thank. By getting to know people, you’ll create win-win relationships.
1. Don’t choose a location that’s difficult to navigate.
When looking at possible property purchases, make sure the area is easily accessible. If you don’t have highway exposure, you can deter visits. And, if there is any difficulty getting in and out, you will burden people. You want to be visible and reachable for any and all customers.
Safety compliance helps keep your business running and prevents unexpected expenses.
2. Don’t ignore the safety studies.
Do your due diligence. Safety compliance helps keep your business running and prevents unexpected expenses. You’ll want to have a Phase I Environmental Site Assessment of the area to make sure there are no issues, such as oil spills or chemical leaks. If more environmental tests are necessary, don’t hesitate to do them.
3. Don’t make it hard on yourself to grow.
Don’t purchase a property where development is difficult or impossible. Moving from one location to another is expensive and stressful at best. You’ll want to invest in a place that gives you enough space to grow. Limiting yourself too early can be detrimental to your business in the future.
4. Don’t overlook third-party recommendations.
Third-party recommendations help inform and attract customers. We have photos and testimonials highlighted on our website, which also features videos where customers talk about their positive relationship with our company. Becoming a member of the Better Business Bureau can benefit your shop as well. We haven’t had one complaint since we joined in 2005, which helps give customers a reason to do business with our company.
5. Don’t miss out on savings.
It’s easy to overlook the details. But when you do, you might miss an area where you can save more money. When it comes to liability insurance, we choose to pay one annual premium. This ends up saving our company 10 percent, since it’s paid in advance.
When we successfully paid off our mortgage and became debt free, it was a momentous occasion in our business history. We learned a lot along the way, and made sure we adjusted to the times, market and our customers.
While these aren’t the end-all, be-all of business dos and don’ts, they did help us become one of the premier fleet service companies in Denver. Currently, we earn about $200,000 in mechanical work and $100,000 in paint/body per month, bringing in $3.6 million per year. Our operations are more efficient and effective than ever.