New shop rent expense

New guy here, looking into opening a new repair shop. Been in the industry for 15 years as a tech/manager.

I am looking into a new building/ piece of land to have a shop built on at hard signaled corner with 50K per day traffic count in an affluent neighborhood, over 40K households in a 3 mile radius with average income of $125K per year. Not any high end modern repair shops a 5 mile radius other than a few standard dealerships. Location is really great, or so it seems.

I am pricing out rent/mortgage to be between $36 and $50/sq ft for this shop. Proposed to be 7500 to 10,000 sq ft. The shop/brand we be marketed as an alternative to the luxury dealership, higher end with modern amenities compared to the normal 30 year old never updated repair shop and cater to the performance car community as well.

Plan is to have 4-6 techs with 1-2 writers. I have run numbers through a P&L statement and if the techs produce 8-10 hours per day the numbers work to pay the bills and make a 15-20% net profit.

My question is, is my rent too much? Depending on my labor rate and hours billed, my rent expense is between 15% and 20% of gross revenue. I know I have read and heard that auto repair should be closer to 5-10% but I know that location can affect this greatly along with many other factors.  I know that the number work in my spreadsheet but I want some real world opinions if possible. Maybe someone is in a location or situation like mine and it is working great or maybe it isn't.

Let me have it!

I will add about the location that there is a Starbucks and a Mcdonalds within a block of the proposed location. They both have drive thru's and are busy all day everyday. I know they did their homework about these locations.

The auto repair shops that are in the 3 mile radius are two gas station service stations and 2 older general auto repair shops. The general area is expanding and expanding fast with new town homes, high end luxury homes and luxury apartments, so the area is becoming more expensive and growing fast.

Any insight or help would be appreciated! Thanks

Startups are hard.  We're in a trust business and it'll take a while to build volume.   Your rent will start on day 1, whether or not you are selling hours.    I thought I had more than enough cash to make it and it was dicey for a while. At the end of year 3, is when I went from wondering about success to wondering how to handle increased volume with reasonable turn-around time.  Ignoring mortgage, I broke even in 6 months on operations only, but was managing staffing levels and inventory and tools purchases closely.    I'd say, don't focus on profit.... focus on survival.  Assume the worst and plan for even worse.   Goal #1 is to survive.   Goal #2 is profit.   They say cash-flow is king and they are right.   

I'm on prime property... a very busy intersection in a Neighborhood Market Walmart anchored shopping center (still waiting on it to be built).   This delay killed expected traffic and thus car count.  (BTW, sadly, I didn't plan for this).  In one sense, the increased visibility born by increased building cost is a marketing expense.  Personally, I think it has tremendous value, but....   It helps, but you'd be surprised to know that I have people drive thru my firelane to reach the Walgreens next door and 2-3 years later, they finally realize that I'm here.   We're often invisible until needed.   Maybe when they drive thru my other fire lane to reach the Walmart, they will see me then.... or not.     I too don't see many businesses, etc while I'm driving, but dang, they should take notice of MY business when they are driving, shouldn't they?

I'm also in a wealthy community.   Too much wealth is bad as they can either fix this car or just go buy a new one.    But, on the flip side, everyone in the family has a car or 2. 

And let me finish with a note about my ProForma projections.   They were wildly optimistic.   Yet, I planned them as a pessimist.  As it turns out, I was a lousy pessimist.  I made some bad assumptions.  I missed many big expenses, such as city mandated inspections, fire, water.   But I had to live with the hand I was dealt.   Hope this helps some.

5 hours ago, bantar said:

Startups are hard.  We're in a trust business and it'll take a while to build volume.   Your rent will start on day 1, whether or not you are selling hours.    I thought I had more than enough cash to make it and it was dicey for a while. At the end of year 3, is when I went from wondering about success to wondering how to handle increased volume with reasonable turn-around time.  Ignoring mortgage, I broke even in 6 months on operations only, but was managing staffing levels and inventory and tools purchases closely.    I'd say, don't focus on profit.... focus on survival.  Assume the worst and plan for even worse.   Goal #1 is to survive.   Goal #2 is profit.   They say cash-flow is king and they are right.   

I'm on prime property... a very busy intersection in a Neighborhood Market Walmart anchored shopping center (still waiting on it to be built).   This delay killed expected traffic and thus car count.  (BTW, sadly, I didn't plan for this).  In one sense, the increased visibility born by increased building cost is a marketing expense.  Personally, I think it has tremendous value, but....   It helps, but you'd be surprised to know that I have people drive thru my firelane to reach the Walgreens next door and 2-3 years later, they finally realize that I'm here.   We're often invisible until needed.   Maybe when they drive thru my other fire lane to reach the Walmart, they will see me then.... or not.     I too don't see many businesses, etc while I'm driving, but dang, they should take notice of MY business when they are driving, shouldn't they?

I'm also in a wealthy community.   Too much wealth is bad as they can either fix this car or just go buy a new one.    But, on the flip side, everyone in the family has a car or 2. 

And let me finish with a note about my ProForma projections.   They were wildly optimistic.   Yet, I planned them as a pessimist.  As it turns out, I was a lousy pessimist.  I made some bad assumptions.  I missed many big expenses, such as city mandated inspections, fire, water.   But I had to live with the hand I was dealt.   Hope this helps some.

This is great information. 

I completely understand that this is about trust and getting people in the door will be the biggest challenge, great location or not. Survival is key, that is a good #1 to focus on in the beginning. 

If you don't mind me asking, how many months of expense did you have in the bank and how many did you end up needing? 

I have been quite pessimistic with my projections for my first year and I will take a second look with even more pessimism and see where I come out at. I know if I cut my techs produced hours hours in half to 6 hours per tech, it looks like we would break even. Proposed first 3 months would be rent free but maybe I can negotiate more.

In your prime location, did you see double digit growth when you first opened or was it slow and steady?

My main concern with this start up is:

#1 Getting cars in and as many as I can as fast as I can. Obviously I will need to spend a lot of my time marketing to get our name out in the community. I do plan on spending time in community events to have the business be part of the community(I also live in this community as well)

#2 Making sure my expenses like rent are in line with the industry and if they are not how to do that or make them work.

Did you have other surprise expenses besides the ones you mentioned? I have exhausted my ideas of things I may need to pay for but I am still searching for more hidden ones as I plan.

Thank you for your reply and insight, I really appreciate your honesty and your openness about your business.

We started with 1 Tech, then hired another after 6 months, but not because we were so busy, but more to cover more shop open hours, bursts of work and illnesses and vacations, etc.   Now mind you, during this time, we're not selling 100% of our hours, but my techs were being paid for 100% of their time.  This was a conscious investment.   Didn't hire the 3rd until the 4th year.    Each hire was an exercise in waiting for sufficient pain before hiring, followed by panic of whether the timing was right.

While we were growing, beginning of 2nd year, I had a copycat competitor open up 1 mile away.   They were heavily-capitalized.   7-8 months later, they shut down and then it reopened 7-8 months after that under a new name.   They ran heavy staffing and had way less business than we did.   But high expenses wear down big balances fast.   Again, I was in a panic, because I didn't know how they would affect my business while I'm just trying to survive.    I kept service levels up, expenses down and outlived them.

On rent and landlords, this is not my expertise.   I know a little from my friend that owns and leases shopping centers, office buildings...   Free rent is calculated as such....  He want's 100K in free rent.  I want 8% return on my money and want it back in 3 years.   Calculate the needed return, increase the base rent.... forever.   Next question, what are his odds of survival and how much can I collect if I have to sue him later for unpaid rent?   This is factored in too, with less free, or higher rent or both.    Make sure you find out about TripleNet, or whatever the lease terms are.  What building expenses are you responsible for?   Your rent might or might not include property taxes...  My annual tax bill is huge.  It can devastate your cash balance.  Tax man doesn't care if you are making money or not.     I'd say the tax payments were my biggest panic moments.   Letting go of so much cash felt uncomfortable.

You are looking at rent between $30K to $45K monthly.  These are big numbers needing big sales.   How many of months of cash do you need in the bank?    There's no right answer.    It depends on how fast you can grow to cover it.  

So far, I've followed each plateau in earnings with an increase (investment) in expenses... new people, raises, benefits, equipment.    We're still growing and I don't expect to level off for another 2-5 years.

See the theme?  Startup = Panic.  At least for me.   How do you know if any decision is right?   I'm still in startup mode, but I've managed to replace PANIC with worry.  

Here's an interesting story.   A car wash opened up next door to me and I talk with the owner monthly at least.   During his first 3 years, he lived in a constant state of Depression and Anger over the challenges of getting his business up and running.   It never rains here in the summer and yet he opened up to a 2 week monsoon... which meant he was closed during his grand opening.   I talked with him a few days ago and the depression is gone, but anger remains.   He's starting to get close to his revenue goals, and about 2 months ago, a sign went up for a new car wash about 1 mile away.   He told me that they will just go broke... there's no way to make any money here!    Who knows....   but he too had to carry this business for quite a while before breaking even.  Although, I'm not sure that he's done that yet.