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Case Study | It’s never too late for a turnaround

CUSTOMER

Established for just over 20 years, this motor vehicle service and repair centre is located on the NSW Central Coast. It is a husband and wife partnership, the wife looking after the office, parts, customer service etc. and the husband doing everything in the workshop.

The husband is not just a mechanic, but a race and mechanical engineer with a history filled working in domestic and international racing. He retired from the racing scene many years ago to focus on being a father to his young children.

The business provides servicing, repairs, engine building, race preparation, engineering and custom fabrication as well as restoration services.

The building is owned by the husband and wife and filled with current work as well as many short and long term projects.

With his children grown, the husband has been lured back to international racing and the demand for his race preparation work has grown.

INDUSTRY CATEGORY

Motor Mechanic

EXECUTIVE SUMMARY

In 20 years of operation the owners have never needed to advertise, they have always had work booked in. They work hard and long hours and only make a simple wage from the business and have managed to accumulate a $170,000 business overdraft. There has been $150,000 invested into equipment and tools, the building is worth another $250,000 so a simple wage is a terrible return on investment (ROI).

While the business has some insurances, they don’t have key man insurance and that’s a great concern to me. What would happen if work suddenly stopped in the workshop because the husband got sick and was unable to work. The owners have no cash reserves, nothing put away for superannuation. The husband is in his late 60’s and his wife is 10 years younger. Their son has recently started in the business, and it looks like the assets will be handed over to him, so I can’t see any retirement funding coming from the business. Providing them with a stable financial future is a high priority to me.

The business relies on a profit and loss report to monitor the business operations and as you know a P&L is at least one month in arrears. There is no cash flow or business forecasts. I asked the owners if they understood what their break-even was and they didn’t have any idea. I asked if they know how many hours needed to be booked out each day and week and, again, they didn’t know.

The husband is a realist and understands that he will need to work for the rest of his life, but the wife is in denial about their dire financial future, believing everything will be ok.

All money received through the business is banked correctly meaning there is no pocketing of cash. Sales are put into MYOB and rarely were customer details captured. The wife’s logic was only repeat customers details are kept, but further investigation identified the business had no worthwhile database on its customers.

SOLUTION

The first thing we did was look at financials and identify the break even and set a budget of hours to be booked out per week. We then looked at what part of the business was the most profitable, which was general servicing and repairs, and agreed it should be the focus of the business. But with all not completed by the owner, but rather employ more staff, a junior and a part time tradesman.

Discounting was almost not existent which was good, however the owner would sometimes work on long term projects on a daily rate that was barely break even. Changes were made, and all work was billed on an hourly rate. Revenues were now increasing.

The owners perceived they were charging a very high rate for their labour, but research showed it was well below their competition and well below what you would expect to pay for such a highly experienced engineer. So labour prices were put up by 10%, we looked at parts supply and were offered a good deal to stock tyres from an international supplier, so that added to services that would bring in customers. We found savings of around 8% from a different parts supplier.

Things have started to change for this business. The overdraft has been paid down just a few thousand dollars; take home wages for the owners have increased.

I believe there is so much opportunity for this business but getting them to implement all of the changes necessary can be a challenge.

We have begun using social media to showcase rare and exotic machines that pass through the workshop as well as taking you live to racing events with international names piloting vehicles built and maintained by the husband.

OUTCOME

The most important benefit is the business is now profitable and no longer a financial burden.

Revenue is up, gross and net profits are up. Social media is bringing in new customers wanting to spend large money on race preparation. The bread and butter income from servicing has increased as well as the add-on work that can be gained from tyres, brakes etc. I don’t necessarily recommend every business of this type to carry tyres, but here there is clearly a demand.

This case study demonstrates the value Business Success Partners Australia can bring to small businesses. Business owners are rarely skilled both in the ways of business and in their trade or skill of passion. It makes sense to have a business professional guiding your way to a solid and secure future.

 

Craig Hallam
Craig Hallam
A trained business professional, Craig holds over 20 years’ experience in leadership, business development, marketing, management, project management and learning and development. Craig loves empowering others to achieve both their own goals and positive community outcomes, and is enthusiastic about equipping clients with the knowledge and tools to succeed in these areas.

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