What's your exit strategy?

May 29, 2014
Instead of suffering that 11th-hour shock, my strong suggestion would be to start running your business with an end (like retirement) in mind. 

Unless your literal intention is to be taken out horizontally and to pass from this world while at work in your shop with a ratchet clutched in your hand, the sooner you begin planning for whatever it is that comes next, the better.

It is a fact that most shops in the U.S. are not as profitable as they need to be, with net operating profit numbers in the low single digits — or about a quarter or more of where they need to be to assure the viability of the business.

Too many shop owners have hired or inherited the wrong type of service manager or technicians. Rather than doing what is right for the business, they put up with these poor performers, hopeful that they will come around over time.

In the same way, rather than assuring a great service experience for our customers and thereby developing a strong customer base over the years, far too many owners go to market striving to be the cheapest guy in town — and discover far too late that it is hard to be profitable when there is no profit. It is just as hard or harder to retire.

Instead of suffering that 11th-hour shock, my strong suggestion would be to start running your business with an end (like retirement) in mind. Whether you would sell it outright or develop a succession plan that transferred ownership of your shop to your service manager or other party through a buy-out mechanism, work out those details and get that plan in place as soon as is possible.

First things first
Even before that, however, I would have you work very hard to hire the right people. I can promise that you will not want to turn your business over to a lazy slacker, with your retirement dependent upon the business being profitable. The very same would apply to your techs and other staff. If they are not up to snuff, then they are a threat to that end date — and you do not have the luxury of waiting for them to come around.

Remember, if they are not contributing to the success of your shop, they are a liability. Do yourself a favor and find the right people to plan your retirement around.

Another important step would be in giving your people incentives toward performance. No matter whether you are selling the business or a long-term buy-out, performance at the counter and in the bays will pay the bills and finance your retirement. Pay for that performance.

A final, but very important step in all of this is getting with your accountant or financial advisor and putting that plan on paper ASAP. Peace of mind has value, and having a great and well thought out plan is worth the time and effort.

It would seem like common sense, but in taking on a financial advisor, it is extraordinarily important not only to find someone who is ethical and competent, but also is somebody you are comfortable with and can talk to. It's not quite a spouse, but choosing your financial advisor can and should be a serious exercise.

He or she is not an hourly employee paid by you to shut up and do what you say. On the contrary, this is an expert whose job it is to advise you on your financial status and make recommendations that will take your existing operation and make it better. We are not talking about a bookkeeper here, whose job it is to balance your books at the end of the day, the end of the week and the end of the month. We are talking about a financial professional who can give you in-depth and far-reaching advice on everything from profit models to cash flow, corporate law and succession planning. His or her job is not to accept your bad habits and misbehaviors, but to take them into account in developing a plan to achieve your financial goals.

I know this is something new for many of you, but having a financial advisor almost insists that you have financial goals and a long-term financial plan to deliver on those goals. That you might actually end up with money in the bank and be able to retire someday are genuine risks to my efforts here, but that would seem to be the price of admission.

We of the automotive repair and tire worlds can take great pride in our ability to take on extraordinarily complex repair and service challenges en route to taking care of our customers on a regular basis. We also can take pride in our commitment to excellence and in our tenacity in overcoming huge challenges such as technician shortages and government regulation. That the average shop and shop owner in the U.S. in generating less than 6 percent net operating profit (NOP) would make it very clear that despite the many things we do well, financial planning is not one of them. Just as our customers look to us for our expertise, we need to look to an expert to help us get our financial house in some kind of order. We need to have a financial plan.

I could not tell you who would be the best financial advisor for you, because you and your business are unique, with your own strengths and weaknesses and your own goals. I would caution you against hiring somebody just because you liked him or her, but also warn you against hiring based on the diploma and resume alone. This professional will certainly need to have a track record, but he or she also needs to be somebody you can be comfortable with and willing to engage. This is a very intimate, important and far-reaching relationship you are trying to establish; it’s nothing like hiring that B-tech you have been looking for.

In finding that perfect match, I would tell you to take your time and hire tough. Remember that if the advisor is successful, you are successful. If he or she is not successful — well, you know where that is leading.

If you do not have a financial goal, you are adrift on a stormy sea without a compass. If you have a goal, you need a plan toward accomplishment or you are just dreaming.

It is not about what your labor margin should be or what you should charge on parts. It is about quality of life, making your business into an asset and being able to retire sometime before your 83rd birthday. It really is about cash being king and having a plan.

Someday, many years from now, you will decide you have had enough and you will think seriously about retirement. Beginning to plan for that day now will allow you to approach that day with confidence. Failing to plan will have that day out there as a big question mark.

What your retirement will look like is entirely dependent on how you run your business today and on how well you plan for those tomorrows. My strong suggestion is you start that process now.

It’s eight o’clock: Do you know where your service manager is? Maybe you had better find out! 

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