Repair shop business plan

Doing business in the US
Autumn 2011
Business plan

1
Iván Cuevas Doing business in the US

Index
Mission
Vision
Objectives
Model outline and strategy
Market research
The market
The evolution during the last years
Location selection
Population growth since 1960
Median household income growth
Median household income
Median age
Conclusion
Glendale
Competition
Alhambra
Competition
El Monte
Competition
Assessing the potential market
The ideal repair shop
The staff
The building
Marketing
Our client
Client segments
Business processes focus on target clients
Brand image
Operations
Financials
Profit and loss forecast
Cash flow
Measurement
Legal considerations
Entity type
Considerations for buying a business
Research for buying a business
Determining the value of a business
Sales agreement
Bibliography, resources

2

Mission

Provide to Los Angeles area drivers with the after sales services needed to maintain
their vehicles operative.

Vision

Develop a professional repair shops network around the city of LA, with excellent
service and high client retention, which can be easily integrated in a franchise or automobile
makers´ network.

Objectives

Own 5 repair shops around LA City in 7 years. Increase their profitability up to 35%,
improving their operations and client loyalty. Each repair shop should be part of a franchise or
automobile makers´ network after three years of being bought.

Model outline and strategy

The development of the network is going to be based in the acquisition of running
repair shops on sale. The main points to be considered in the acquisition of these repair shops
will be:

Location: around or in the city of LA. The interesting areas are defined by
population, population growth rate, income per capita, and income growth.
Other factors to be considered are total number of vehicles, vehicles per
person, competition and style of life.
Installations: the repair shops should meet the general franchises and
automobile makers’ standards.
General function: owner and managers with technical skills, not focus on
customer satisfaction and loyalty. Poor use of marketing tools and low
managerial knowledge
Profitability: low operational profitability but maintained during the last years.
The lack of operational control and client monitoring are the main causes for
this low profitability.

Under the new management 3 areas will be improve in order to increase profitability:

Client retention
Sales
Performance

The first repair shop will be acquired using personal savings mainly, in order to reinvest
all the possible profits in the purchase of the next garage. At the same time the risk of being
unable to find external resources is reduced.

3

Market research

The market

Usually, using the customer point of view, the vehicles´ aftermarket is divided in:

Automobile brand repair shops
Non Automobile brand repair shops Do-it-for-me
Parts shops Do-it-yourself

Three are the factors that distinguish these businesses in the consumer brain:

Technical competence: the repairs shops under the umbrella of an automobile
brand have better technical skills. This is due to the training, access to
technical information and support from the brand. Consumers tend to use
these services in case of difficult reparations.
Price: the use of original equipment service (OES)parts and the technical skills
required from the technicians cause a higher price in the automobile brand
repair shops.
Warranty: the obligation to repair the car in the official network during the
warranty period is an advantage for this kind of repair shops. In the other
hand, the reparations under warranty are not as profitable as other services.

As a result of these 3 factors, the clients use the official network during the first years
of vehicles´ life, or only during the warranty period. The owners tend to look for cheaper
places where to repair their vehicles as these are getting older.

Vehicle age

% clients that use the official network for reparations

At the same time, as the vehicles are getting older, they required more reparations. So
the average expenditure in maintenance and reparations increases during the first years.

4

Vehicle age
Average expenditure in reparations/maintenance
(€ in Spain)

This increase in reparations is an opportunity than the brands´ networks tend to lose
because of the low loyalty of their clients. This opportunity is absorbed by the other players of
the industry.

The evolution during the last years

The combination of lower gasoline prices, easing cutbacks in miles driven, and
expectations of lower new vehicle sales has the potential to increase aftermarket sales in the
near to intermediate term. The aftermarket experienced a sales boom after 1,160 dealerships
closed in 2009. It was estimated that more than $7 billion in 2009 parts and services would be
redirected to independent service outlets and auto parts stores and non-OE auto parts
distributors as dealers closed shop. Independent garages employed an estimated 332,262
individuals. For 2010, there are an estimated 80,050 independent general mechanical service
businesses in the United States. It is estimated that 70 percent (173 million) of out-of-warranty
vehicles are repaired at independent shops.

5

The perception that a weak economy favors the aftermarket appears to be holding for
the short-term. Cost-awareness amongst automobile consumers have lead many to invest in
servicing and repairs of their vehicles rather than purchasing a new one because of the effect
of the weakened global economy. The aftermarket (parts and services) is estimated to be a
nearly $200 billion industry and has benefited as consumers defer new vehicle purchases
because of uncertainty about their jobs, housing market, and availability of disposable income.
Still, even the aftermarket is not immune to the state of the economy.

Using the Survey Cost Method the size of the U.S. automotive aftermarket including
the service sector was $187.3 billion in 2008, down slightly from 2007.

Focusing solely on the parts portion of the market, the North American aftermarket
parts sector was worth $80.3 billion in 2009 in wholesale dollars, up slightly (0.9 percent) from
2008. The aftermarket in North America has shown a slow, but steady increase since 2000
when the market was $62.4 billion.

ASA (Automotive Service Association) projects total sales for general mechanical repair
facilities in 2010 to be $39.9 billion, based on U.S. Census Bureau figures for general
mechanical repair. Adding in specialty repair facilities, oil change facilities and transmission
shops, the estimated total sales moves closer to $57 billion.

The figures do not include the approximately 17,900 auto dealerships with service
facilities that took in approximately $28 billion ($16 billion in labor and $12 billion in parts) in
2009, according to the National Automobile Dealership Association.

6

Factors influencing the health of the aftermarket sector industry include: the number
of vehicles reaching prime aftermarket age (about 8 years); the cost of fuel; the amount of
unperformed maintenance; and the ability to get or keep used cars in circulation. In 1996,
there were a total of 198 million vehicles in operation in the United States. By 2007, that
number had grown to over 241 and more vehicles “came of age” needing more repairs. In the
longer term, the number of cars sold was only 10.3 million in 2009, down from 17 million a few
years ago, which means in the aftermarket’s sweet spot of 5-7 years, there will eventually be
fewer cars needing service.

There were fewer new cars bought (10.3 million vehicles) in 2009 than were scrapped (14
million vehicles), resulting in 246 million vehicles on the road, four million fewer than in 2008.

Vehicles on the road (millions)

The average vehicle age increased to 10.6 years for all cars and light trucks up from 10.2 years
in 2007. In 2007, the percentage of cars 11 years old or older was 41.3 percent compared with
40.9 percent in 2006. For trucks the percentage was 29.5 percent in 2007, and 29.2 percent in
2006. The older fleet reflects improved overall vehicle durability. Despite improved durability
per unit, increased vehicle lifespan provides a market for replacement aftermarket parts such
as struts, exhaust systems, water pumps and alternators, as well as performance and styling
products. This increased fleet age offers increased aftermarket sales which offsets to some
degree the lower parts replacement rate due to increasing new vehicle quality and reliability.

7

Sustained periods of gasoline costs over $3 per gallon could result in uncertainty for the
consumer, reduced miles driven, and prolonged periods of deferrals of automotive services.
The fewer miles driven also reduce wear, leading to less maintenance. The average annual
miles driven by motorists, 11,604 miles for cars in 2007, was down slightly from previous years.
The U.S. Department of Transportation found Americans drove 6.6 billion miles more in 2009
than in 2008, an increase of 0.2 percent. In 2010 the increase was a 0.70%. Although gas
prices have dropped from the $4 per gallon levels experienced in the summer of 2008,
Americans continued to drive less miles on average.

8

Location selection

This research is focus in to evaluate the location of the first repair shop. The research will be
done again to decide next locations when necessary.

In the research 3 areas in the LA County will be evaluated. To decide which the areas are to be
evaluated, the population growth, the income growth and the average age are going to be
considered.

Population growth: areas with fast population growth are the most interesting
for our business. In general, this type of areas are residential areas, with lack of
services.
Median household income growth: many areas around big cities absorb people
that cannot afford anymore the increase of housing prices in the city centre.
They look for more disposable income, which can be use in other services. At
the same time we look for low-median class people.
Average age: we look for areas with young people, which in the next years will
increase their income.

Population growth since 1960

In order to locate the areas with fast growth population, we are going to use the following
maps. In them the population density is represented by colors.

1960

9

2007

Areas with faster population
growth

Median household income growth

Change in median household income since 2000.

10

Median household income

Median age

11

Conclusion

The areas to be studied in order to acquire the first garage are going to be:

Glendale
Alhambra
El Monte – South El Monte

12

Glendale

Zip Codes: 91201, 91202, 91203, 91204, 91205, 91206, 91207, 91208

Population: 190,000

Median household income: $53,000

Median Age: 41 years

Reference point

Glendale ZIP codes

13

Areas of interest

Glendale population density (US Census Bureau 2000)

Area of interest

Glendale Change in median household income since 2000
(US Census Bureau 2010)

14

Area of interest

Glendale median age (US Census Bureau 2000)

15

Competition

Using the key word “automobile repair shop” in Google maps, we can see as red points all the
business related with the automotive after-sales.

Business Area

Comercial Area
Target area

Dealerships Area

16

17

Alhambra

Zip codes: 91801, 91802, 91803

Population: 86,000



Reference point

Alhambra ZIP codes

18

Areas of interest

Alhambra population density (US Census Bureau 2000)

Areas of interest

Alhambra Change in median household income since 2000

19

Area of interest

Alhambra median age (US Census Bureau 2000)

20

Competition


Target area

Dealerships Area

Comercial Area

Comercial Area

21

El Monte – South el Monte

Zip codes: 91731, 91732, 91733, 91735

Population: 113,000+20,000



Reference point

El Monte ZIP codes

22

Al Monte population density (US Census Bureau 2000)

El Monte Change in median household income since 2000

23

El Monte median age (US Census Bureau 2000)

24

Competition


Target area

El Monte Shopping
Centre

Five Points Plaza
Shopping Centre

25

Assessing the potential market

In order to assess the potential revenues related with the automotive after-sales market, we
use the Consumer Expenditure Survey 2010 (CES), made by the Bureau of Labor Statistics. The
survey provides average expenditure in “Gasoline and Motor Oil” combined, and expenditure
in vehicles “Maintenance”. The gasoline expenditure is not part of our market, so the expense
in oil has been estimated as a 23% of the “Gasoline and Motor Oil” expenditure.

Average MPG: 24

Average annual mileage (2010): 12,000

Average gasoline cost: $3.30/gallon

Total annual expenditure in gasoline: (12,000/24)x3.30= $1650

Average expenditure in “Gasoline and Motor Oil”: $2.132

% spent in oil: 1-(1650/2132) = 23%

According to the CES, the expenditure in these 2 concepts vary significantly with different
socioeconomic factors, such as region of residence, age, occupation, education, etc… To have a
more accurate number, the medium age and house income of the 3 cities have been
considered.

Alhambra Glendale El Monte/S . El monte
Population 86000 190000 133000
Nº of households 29000 72000 32000
M edium income $ 50.352 $ 53.980 $ 44.000
M edium age 39 41 31
Consumer Expenditure Survey Gasoline and motor oil by medium income$ 2.455 $ 2.455 $ 2.152
2010 (Average annual % of motot oil 23% 23% 23%
expenditure by income before M otor oil by medium income $ 565 $ 565 $ 495
taxes) M aintenance by medium income $ 752 $ 752 $ 760
Total by medium income $ 1.317 $ 1.317 $ 1.255
Gasoline and motor oil by medium age $ 2.537 $ 2.537 $ 2.208
Consumer Expenditure Survey
% of motot oil 0,23 0,23 0,23
2010 (Average annual
M otor oil by medium age $ 584 $ 584 $ 508
expenditure by age)
M aintenance by medium age $ 889 $ 889 $ 705
Total by medium age $ 1.473 $ 1.473 $ 1.213

Average expenses in maintenance and oil $ 1.395 $ 1.395 $ 1.234

Potential market (Nº of
households x Average expenses in
maintenance and oil) $ 40.442.820 $ 100.409.760 $ 39.484.800

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Once we know the potential market, the current size of the market should be calculated. In
this case the data are obtained from the US Census Bureau. Our market is included in 2
different NAICS codes: 8111 (Automotive repair and maintenance), and 4413 (Automotive
parts, accessories, and tire stores).

Alhambra Glendale El Monte/S . El monte
NAICS 8111 (Automotive repair Number of stablishments 42 114 144
and maintenance) Receipts/revenues $ 27.000.000 $ 65.000.000 $ 58.000.000

NAICS 4413 (Automotive parts, Number of stablishments 13 29 38
accessories, and tire stores) Receipts/revenues $ 12.000.000 $ 23.000.000 $ 77.000.000

Total $ 39.000.000 $ 88.000.000 $ 135.000.000

I defined the absorption rate as real revenues/potential market, to know how the actual
market is cover by the companies currently running.

Alhambra Glendale El Monte/S. El monte
Absorption 96% 88% 342%

As we see, in El Monte the absorption is much bigger than in the other 2 cities. EL Monte –
South El Monte has 27 used car dealers (3 in Glendale, 2 in Alhambra). This can cause the
proliferation of the after-sales business. At the same time El Monte look like a point of
reference for cities around. It causes that the population of Montebello, Pico Rivera, Baldwin
Park or Temple City goes to El Monte in order to repair their car. So El Monte is not considered
as a good location for a new repair shop.

The best situation for our repair shop seems to be Glendale. The lower market absorption by
the current competitors suggests this city. At the same time its business area attracts
thousands of workers everyday, which are potential clients for our business.

27

The ideal repair shop

According to the Midas investor presentation, their average shop sales are $600,000. In the
NADA state of the industry report, the total service labor sales to customers in 2009 were
$16.38 billion, and $12.48 billion in parts. So the service sales are a 60% labor and 40% parts.

If we apply these percentages to an average Midas shop, the labor sales are $360.000.

Average labor rate in the US: $68/h

Hours invoiced: $360,000/($68/h)= 5,294h

The staff

Time invoiced by technician:

Hours per day: 8

Annual working days: 261

Holidays: 11 federal holydays + 2 weeks = 21 days

Total hours of presence= 8 x (261-21) = 1,920 hours/year

Estimated productivity (Hours invoiced/Hours worked) = 110%

Estimated employment (Hours worked/Hours presence) = 95%

Total hours invoice by technician by year = 1920 X 0,95 x 1,10 = 2,006 hours

Technicians required: 5,294 / 2,006 = 2,63 ~ 3 Technicians

Median hourly wages for technician: $16.09/h

Direct labor cost: 16.09 x 3 technicians x 2,006 hours= $96,829

1 service advisor/technicians supervisor is required.

Annual wage: $56,190

A service administrative is recommendable.

Annual wage: $28,320

Labor cost: $96,829 + $56,190 + $28,320 = $181.339 + 10% Bonus/commissions = $199.472

Taxes (paid by the company)

Social Security: 6.2%
California State Unemployment Insurance: 3.4%
California Employment Training Tax: 0.1%

Total taxes: 9.7%

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Total labor cost: $199.472 + 9.7% = $218.820

Manager: the owner will take the manager position due to his experience in the automotive
industry.

Owner´s resume:

Mechanical engineer with an MBA. 6 years of experience in the automotive industry. He has
worked in all the major players within the automotive distribution system (dealerships,
national sales companies and consultancy/audit firms).

Professional experience
Automotive After-sales Consultant, JMAC (Japanese Management Association Consultants),
Spain, June 2010- June 2011
Warranty contact, Renault Trucks (Volvo Group), Madrid, June 2008 - September 2009
Service Zone Manager, Renault Trucks (Volvo Group), Spain, February 2007 - June 2008
Ford Warranty Specialist, MSX International, Spain, October 2005 - February 2007

Education
2011-present: Certificate in International Trade and Commerce, UCLA, Los Angeles
2008-2009: Higher education program in Automotive Industry Management, Instituto de
Empresa IE, Madrid
2005-2006: Master´s degree in Business Administration, ESIC (School of Marketing and
Commerce), Madrid
2004-2005: Master’s degree in Automotive Engineering, UPM and the University Institute of
Automobile Research, Madrid
1995-2003: Bachelor Science in Mechanical Engineering, University Alfonso X, Madrid

The building

With 3 technicians, the ideal repair shop should have at least 6 bays, and a minimum of 4
hoists (6 hoists are recommendable).

Average time of reparation: 0.9h

Hours worked by 3 technicians/day =3 x 8 hours x 95% = 22.8 hours/day

Total reparations orders/day = 22.8/0.9 = 25.3

So in an average day we will attend 26 clients. If we estimated 0.8 parking spots for each OR

Parking spots= (25.3 OR/day) x (0.8 parking spot/ OR)= 20 client parking spots

Staff parking spots: 4

Total parking spots: 20+4 = 24

29

Other areas:

Client reception and waiting area
Administrative area, used by the technician controller and by the service
administrative. Should be inside the reception area in order to attend clients.
Parts warehouse
Manager office
Clients´ restroom
Staff area (launch area + restroom)

Staff parking

Loading
zone

Reception area +

Manager
Parts

office
waiting

Staff Restr
area oom

30

Marketing

Total market: $88,000,000

Total competitors: 114+29 = 143

Average market share: 1/143= 0.7%

Average competitors sales: $88,000,000x0.7%= $615,000

As defined before, our ideal repair shop is calculated for selling $600,000/year. Having 6 bays
allows 4 technician to work in our repair shop. So our potential sales are:

Potential invoiced hours: 4 technicians x 2,006 hours = 8,024 hours/year

Potential labor sales: 8,024 x 68$/h = $545,000

Total sales (60% labor / 40% parts) = $545,000/0,6 = $910,000

Potential market share =$910,000 / $88,000,000 = 1,03%

As seen, we can absorb the average market share ($615,000), and even grow up to $910,000.
So we are going to develop marketing actions in order to achieve our maximum potential.

Our client

Our objective is become part of a franchise network (Midas, Meineke,…) So the type of clients
we are looking for should be similar to their clients. In order to have a better understanding of
our potential clients, the meets end chain theory is going to be used to know their values.

The meets end chain theory makes connections between the attributes of a product or service
with the clients´ values, in order to know the motivations that drive the client to the purchase.
The method used is personal interviews. The lack of resources doesn´t allows us to use the
personal interviews, but we apply the theory in order to know better our clients.

To see the attributes that our clients value the most, let´s analyze the Midas and Meineke
websites.

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All services

Friendly/close

Affordable
Compromised

32

Friendly/close

Affordable

Using the attributes observed in the websites, we build the Meets ends chain:

Attributes Consequences Values
• Affordable • More disposable • Independence (time
• All services income and money)
• Compromised • One stop: more • Peace of mind
• Friendly/close disposible time • Family safety
• Trustworthy • Relaxation
• Fair price

33

Clients segments:

2 segment of clients are going to be defined in order to make a better communication:

Tightrope walker mommy

Medium, medium-low class

Married

Have kids

Higher education

Don´t work or part time work

Japanese second hand car

Her family is her priority

Don´t know anything about cars

Thrifty John

Medium, medium-low class.

Blue collar worker or white collar, but in a staff position (possibly retired).

Looking for a good price-service relation. He doesn´t want to feel that is wasting money.

He has achieve a good standard of living taking care of every expense of his family.

With free time for looking for bargains or competitors.

Old American car (that bought new).

After defining the general characteristics of these two segments, a more complete profile is
going to be developed for two possible clients within these segments.

Tightrope walker mommy

April Marshburn, 34 years old.

Married for 3 years.

1 Kid (Lucas, 2 years old).

34

Bachelor degree in science. Master degree in landscape design.

Lives in Los Feliz, LA.

Work part time in the Glendale City Hall, Environmental Protection Department.

Income: $30,000. Household income: $110.000

Spare time: her kid, her husband, reading, cinema… But in general she doesn´t have too much
time for herself.

Car : Toyota Camry 2000.

Likes organic food, but has no budget for it.

Buys at Trader Joes and Ralphs.

Her preferred thing to do is traveling, but since she got married they couldn´t afford traveling
abroad.

Has an Android phone.

Favorite restaurants: exotic (Thai, Indian…)

Thrifty John

Tom Hammer, 55 years old.

Married for 35 years.

3 sons, 2 grandsons. None of them live with him.

Enrolled 2 years in the army.

35

Lives in Glendale

Work as accountant in Americas United Bank.

Income: $85,000

Spare time: reading bestsellers, visiting his sons, makes and paints plumb soldiers (especially
focus on WWII)

Car : Cadillac DeVille 2005.

Every 3 years goes on a cruiser with her wife.

Has a Motorola.

Favorite restaurants: Italian.

Business processes focus on target clients

In order to achieve the attributes looked for by our potential clients, and to offer a service that
can fit with their values, there are some internal processes that should be developed.

Fixed appointment: All the previous paper work should be done previously the client
show up. It includes a quotation and the estimated time of termination of the work,
which could be communicated to the client when arranging the appointment. The
client should be attended at that time. His name will be in a welcome board
(Attributes: compromised; friendly/close. Values: Independence –time-; relaxation).
Dropping the car: all the possible reparations should be agreed with the client at that
moment. A final quotation should be given to him with the agreed reparations. A
reliable time for the end of the reparations must be communicated (attributes:
affordable –no surprises in the final invoice-; compromised; close. Values:
independence –time and money-; peace of mind; relaxation).
Getting the car back: Car ready on time and with the cost previously agreed. The
invoice, the reparations done to the car, and issues relative to the car should be

36

explained to the costumer (Attributes: compromised; friendly/close. Values: peace of
mind; family safety).

As a summary, the clients should now 3 things as soon as possible:

What are the reparations my car needs?
How much is going to cost?
When am I going to have my car back?

Focusing most of our processes in answering these questions the sooner we can, we will
achieve the client satisfaction.

Brand Image

Trying to develop a friendly brand, focus on service, the brand name will be:

OMG (Oil Maintenance Group)

The claim for the brand will be “OMG: what a service!”

Example of communication

37

Operations

In order to improve the internal processes and the client retention, a probed methodology is
going to be deployed in every new repair shop acquired.

Putting it simply, if 3 things (‘elements’) should be done well:

• keep customers coming back (Retain), and

• find and satisfy all their Service needs on every visit (Sell), and

• run the workshop as a ‘tight ship’ (Be Effective),

then more profit is earned.

Improved customer retention comes from:

• Making sure customers are fully satisfied after every visit (customer concern
resolution by surveys)

• Knowing, and responding to, local competition (local competition analysis every 3
months)

• Keeping in touch, and reminding Routine Services by letter, text or email.

• Bringing lost customers back in on a planned, organised basis , developing a service
marketing planning

Improved Sell comes from:

• Customer appointments that give time with the advisor

• Running ‘health checks’ on every vehicle that comes in, and offering customers a
vehicle health check with the Advisor (Direct Reception)

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• Motivating and rewarding the people involved to do it right, developing incentives
and commissions.

To Be Effective means:

• Optimising how the workshop is planned and loaded, using a workshop planning

• Operating good general workshop-related practices, organizing the lay out to
minimize the time waste by the technicians

• Pre-picking parts ahead of technicians starting any job

• Having technicians correctly clock on and off all jobs

To hold together and steer what’s happening elsewhere , and effective Management &
Monitoring system is needed:

• Regular measurement of actual performance vs. targets, developing a complete
system of evaluation and control

• Regular review of, and response to, measured performance (Weekly Management
Meeting and Action Plan update )

• Daily communication/discussion with staff on key items/issue (A daily, 10 minute
morning operating meeting )

This methodology has been probed effective in more than 200 repairs shops all around the
world, and only requires a small investment.

39

Iván Cuevas
Financials

Profit and loss forecast

Oil Maintenance 2012
Group 2011 January February March April May June July August September October November December 2012
Parts sales $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 20.000 $ 240.000
Labor sales $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 30.000 $ 360.000
Total sales $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 50.000 $ 600.000
Parts cost $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 168.000
Labor cost $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 7.619 $ 91.429
Gross profit $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 28.381 $ 340.571

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Rent $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 60.000
Salary service advisor (taxes included) $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 5.137 $ 61.640
Salary service administrative (taxes included) $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 2.589 $ 31.067
Supplies $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 150 $ 1.800
Repairs and maintenance $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 4.800
Telephone and utilities $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 3.600
Advertising $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 2.500 $ 30.000
Others services (accounting; insurances) $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 400 $ 4.800
Expenses $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 16.476 $ 197.707

Net profit $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 11.905 $ 142.864


Iván Cuevas
Group January February March April May June July August September October November December 2013 2014 2015
Parts sales $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 21.200 $ 254.400 $ 274.752 $ 302.227
Labor sales $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 31.800 $ 381.600 $ 412.128 $ 453.341
Total sales $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 53.000 $ 636.000 $ 686.880 $ 755.568
Parts cost $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 178.080 $ 192.326 $ 211.559
Labor cost $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 8.076 $ 96.914 $ 104.667 $ 115.134
Gross profit $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 30.084 $ 361.006 $ 389.886 $ 428.875
Rent $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 5.000 $ 60.000 $ 60.000 $ 60.000

41
Salary service advisor (taxes included) $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 5.291 $ 63.490 $ 65.394 $ 67.356
Salary service administrative (taxes included) $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 2.667 $ 31.999 $ 32.959 $ 33.948
Supplies $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 155 $ 1.854 $ 1.910 $ 1.967
Repairs and maintenance $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 4.944 $ 5.092 $ 5.245
Telephone and utilities $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 309 $ 3.708 $ 3.819 $ 3.934
Advertising $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 2.575 $ 30.900 $ 31.827 $ 32.782
Others services (accounting; insurances) $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 412 $ 4.944 $ 5.092 $ 5.245
Expenses $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 16.820 $ 201.839 $ 206.094 $ 210.477

Net profit $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 13.264 $ 159.167 $ 183.792 $ 218.398


Iván Cuevas
Cash Flow

Group 2011 January February March April May June July August September October November December 2012

Cash $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Clients $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000
Stock $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000 $ 10.000
Current Assets $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000 $ 27.000
Investment in current assets $ 27.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 27.000
Business purchase price $ 180.000 $ 180.000
Machinery renovation $ 10.000 $ 10.000
Signal renovations $ 2.000 $ 2.000
Computer renovation $ 1.500 $ 1.500
Initial Stock (15 days of sales) $ 10.000 $ 10.000
Permits and paper work $ 2.000 $ 2.000

42
Rent deposit (3 months) $ 15.000 $ 15.000
Fix assets $ 220.500 $ 220.500
Investment in fix assets $ 220.500 $ 220.500

Suppliers $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000 $ 14.000
Short term credits $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000 $ 2.000
Current liabilities $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000 $ 16.000
Investment in current liabilities $ 16.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 16.000

Invesmetn in Working funds (Current assest-current liabilities) $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000 $ 11.000

Investment in working funds $ 11.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 11.000

Net profit after taxes (estimated taxes: 10% sales) $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 6.905 $ 82.864
Amortization $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 3.100
Funds generated by the operations $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 85.964
Invesmetn in Working funds $ 11.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 11.000
Investment in fix assets $ 220.500 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 220.500
Free operational Cash fllow $ -224.336 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ 7.164 $ -145.536
Accumulated Cash fllow $ -224.336 $ -217.173 $ -210.009 $ -202.845 $ -195.682 $ -188.518 $ -181.354 $ -174.191 $ -167.027 $ -159.863 $ -152.700 $ -145.536 $ -53.972


Iván Cuevas
Group January February March April May June July August September October November December 2013 2014 2015

Cash $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.060 $ 1.145 $ 1.259
Clients $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 18.317 $ 20.148
Stock $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 10.600 $ 11.448 $ 12.593
Current Assets $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 28.620 $ 30.910 $ 34.001
Investment in current assets $ 1.620 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 1.620 $ 2.290 $ 3.091
Business purchase price
Machinery renovation $ 6.000 $ 6.000 $ 6.000 $ 6.000
Signal renovations $ 2.000
Computer renovation $ 1.500
Initial Stock (15 days of sales)
Permits and paper work
Rent deposit (3 months)

43
Fix assets
Investment in fix assets $ 6.000 $ 6.000 $ 9.500 $ 6.000

Suppliers $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 14.840 $ 16.027 $ 17.630
Short term credits $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.120 $ 2.290 $ 2.519
Current liabilities $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 16.960 $ 18.317 $ 20.148
Investment in current liabilities $ 960 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 960 $ 1.357 $ 1.832

Invesmetn in Working funds (Current assest-current liabilities)
$ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 11.660 $ 12.593 $ 13.852

Investment in working funds $ 660 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 660 $ 933 $ 1.259

Net profit after taxes (estimated taxes: 10% sales) $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 7.964 $ 95.567 $ 137.844 $ 163.799
Amortization $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 258 $ 3.100 $ 3.100 $ 3.100
Funds generated by the operations $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 98.667 $ 140.944 $ 166.899
Invesmetn in Working funds $ 660 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 660 $ 933 $ 1.259
Investment in fix assets $ 6.000 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 6.000 $ 9.500 $ 6.000
Free operational Cash fllow $ 1.562 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 8.222 $ 92.007 $ 130.511 $ 159.639
Accumulated Cash fllow $ -143.974 $ -135.752 $ -127.529 $ -119.307 $ -111.085 $ -102.863 $-94.640 $-86.418 $-78.196 $-69.974 $-61.751 $-53.529 $ -53.529 $ 76.982 $ 236.622


As seen in the previous pages, the total investment required is $224,000 (January 2012).

$180,000 will be provided by the owner´s family.

$18,000 will be provided by the owner.

$26,000 to be borrowed from a financial institution

The total investment will be recover in the first semester of the third year.

44

Measurement

In order to assure the achievement of the objectives, and to be able to made a monthly follow
up (in some cases daily), these are the figures to be control, and the targets for the next two
years:

In order to have a good control on all the variables that can impact on these objectives, the
following tables will be used to control the business:

45

46

47

Legal considerations

Entity type: Limited Liability Company taxed as partnership.

Advantages:

Owners have limited personal liability for business debts even if they
participate in management
Profit and loss can be allocated differently than ownership interests
There are far fewer forms required for registering and there are fewer start-up
costs. Filing taxes is a once-a-year affair on April 15: a single-member LLC files
a 1040 and Schedule C like a sole proprietor; partners in an LLC file a 1065
partnership tax return like owners in a traditional partnership. LLCs are not
required to have formal meetings and keep minutes.

Steps to follow:

Choose a Business Name.
File the Articles of Organization.
Create an Operating Agreement.
Obtain Licenses and Permits. Business permits and other requirements in the
city of Glendale for automotive service and repair
o City permits (Glendale)
 Building and Construction Permit
 Zoning (Land Use) Approval
o County (Los Angeles)
 Business Personal Property
 Fictitious Name Filing (DBA)
 Weights and Measures
 Authority to Construct/Permit to Operate
o State (California)
 Air Tanks Permit
 Automobile Repair Dealer Registration
 Corporation, Company or Partnership Filings
 Discrimination Law
 Industrial Activities Storm Water General Permit
 Occupational Safety and Health Information: Injury and Illness
Prevention plan
 Registration Form for Employers
 Sales & Use Permit (Seller's Permit)
 State EPA Identification Number
 Wage order #4: Professional, Technical, Clerical, Mechanical
and Similar Occupations
 Waste Discharge Requirements (WDR's)
 Workers' Compensation Information
 California Business and Professions Code Section 9884

48

o Federal
 Employer Identification Number (EIN or SSN)
 Proof of Residency Requirement
 Labor laws
Fair Labor Standards Act
Davis-Bacon Act (prevailing wage)
Americans with Disabilities Act
Immigration and Naturalization Act
Family and Medical Leave Act
 Automotive Repair Act
Hiring Employees
Announce Your Business

Considerations for buying a business

Research for buying a business:

Letter of Intent: a Letter of Intent usually creates a non-binding offer to
purchase the business and is usually needed in order for the seller to provide
sensitive information about the business. The Letter of Intent should spell out:
o The proposed price
o Terms of the purchase
o Conditions for the sale of the business
o The document should also state that either side may revise the terms
or quit the proposed deal for any reason until a binding contract is
executed.
Confidentiality Agreement: often required by the seller, a confidentiality
agreement indicates that you won't use the information about the seller's
business for any purpose other than making the decision to buy.
Contracts and Leases: to discover all the obligations that the business is
subject to, including property leases and equipment leases. In the case where
there is a current lease for the location of the business, be aware that may
have to work with the current landlord to assume any existing lease on the
business premises or negotiate a new lease. If acquire an existing lease from
another lessee, may have to pay the previous lessee for the privilege. The cost
of acquiring the lease may be amortized over the remaining term of the lease.
Financial Statements: examine the financial statements from the business for
at least the past three to five years. Make sure that the statements are
accompanied by an audit letter from a CPA firm.
Tax Returns: review the business's tax returns from the past three to five
years. This will help to determine the profitability of the business as well as
whether any tax liability is outstanding.
Important Documents: numerous documents should be checked:
o Real and personal property documents
o Bank accounts

49

o Customer lists
o Sales records
o Supplier/purchaser list
o Contracts
o Advertisement materials
o Inventory receipts/lists
o Organization charts
o Payroll, benefits, and employee pension/profit sharing info
o Employee roster
o Certification by federal, state or local agencies
o List of owners

Determining the value of a business

Methods:

Capitalized Earning Approach: This method refers to the return on the
investment that is expected by an investor.
Excess Earning Method: Similar to the capitalized earning method,
except that it splits off return on assets from other earnings.
Cash Flow Method: This method is usually used when attempting to
determine how much of a loan the cash flow of the business will
support. The adjusted cash flow is used as a benchmark to measure
the firm's ability to service debt.
Tangible Assets (Balance Sheet) Method: This method values the
business by the tangible assets.
Value of Specific Intangible Assets Method: This method is based upon
the buyer's buying a wanted intangible asset versus creating it. This
method also takes into consideration valuing the goodwill of the
business.

Sales agreement: The sales agreement is the key document in buying the business
assets or stock of a corporation. The document need to be reviewed in minute detail to make
sure it outlines the terms agreed. The following is a checklist of items that should be addressed
in the agreement:

Names of seller, buyer, and business
Background information
Assets being sold
Purchase price and allocation of assets
Covenant not to compete
Any adjustments to be made
Terms of the agreement and payment terms
List of inventory included in the sale

50

Compliance with the Bulk Sales laws of the state
Any representation and warranties of the seller
Any representation and warranties of the buyer
Determination as to the access to any business information
Determination as to the running of the business prior to closing
Contingencies
Possibilities of having the seller continue as a consultant
Fees, including brokers fees
Date of closing

Bibliography, resources

Governor´s Office of Economic Development, CA http://business.ca.gov/

Small Business Administration http://www.sba.gov/

National Automotive Dealers Association http://www.nada.org/

Social Explorer http://www.socialexplorer.com/pub/home/home.aspx

Mapping America http://projects.nytimes.com/census/2010/explorer

Bureau of Labor Statistics http://www.bls.gov/home.htm

U.S. Census Bureau http://www.census.gov/

Maps Huge Info http://maps.huge.info/zip.htm

Federal Highway Administration http://www.fhwa.dot.gov/

Autoinc http://www.autoinc.org/

Midas http://www.midas.com/

Meineke http://meineke.com/

Center for Economic Vitality, Western Washington University http://www.cevforbusiness.com/

51

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