HELP! Small Business Advice Needed!

[racer2c]

First I’ll state that I have zero knowledge of running a small business. I’ve been in the corporate world for 15 years and don’t know all of the in’s and out’s of what to watch out for and be careful for.

Here’s the story and I’m going to be brutally honest about the characters.

My, now 30 year old, brother in law got out of the Navy eight or nine years ago and decided that he would take his new found skills of painting out into the world, which he did. He went to work for some auto body shops as a prep boy and worked his way up to head painter. His forte though was graphic painting to which he aspired to do full time. He found a motorcycle shop that needed a graphic painter and he worked there for two years honing his skills. That place went under (this was before the chopper boom of the new millennium) and he went back to schlepping paint on cars (which is a step backwards for graphic painters but it’s a paycheck).

Fast forward to 2005. The real-estate boom raises the price of their house to three or four times what they paid for it six years ago and the light goes off over him and his wife’s head; sell the house and buy their dream of owning their own paint shop. So they start looking…and after a few months they found a turn key operation that’s perfect for them in another state.
They sell their place, buy the shop and a small house (the market is much more recessed then the area they were in) and have been the proud owners of their own auto paint shop for about four months now.
My wife gets a call the other night. It’s her brother and he’s moaning and complaining and unloads an hour of crocodile tears on his big sis. They have zero customers, the equipment is breaking and only three months left of the money they have allotted to keep them going.

Let me digress for a minute, when they came to the family and told them of their intentions to buy this place they didn’t want to hear any advice from us. He has three older sisters and one know it all wife and you couldn’t tell them anything and they weren’t asking. His wife had it all figured out. She was going to do the books and work on getting contracts with local rental car places and insurance places and she knew what she was doing and everyone keep your mouths shut. Well, my brother in law is about as smart as a carrot and his wife has a high school diploma and has been the telephone girl at a local company for the past seven years, but the family got together and said, “they can make their bed and lay in it, let’s stay out of it and wish them well” and we did. I did get my bro-in-law aside the day they moved to tell him a couple of things but his hands are tied as his wife was wearing the pants so to speak.

Back to the phone conversation; my wife doesn’t ***** foot around with anyone, let alone her little brother so she adds to his misery by telling him he’s an idiot for letting his wife who has zero business experience think she can buy and run a business. They still owe the guy they bought it from $68K (he financed them at a lower interest rate than they could get at a bank). Much of the equipment is broken and to top it off they don’t even own the building; they are renting it from the guy they bought the business from, so essentially they own $83K of broken body shop equipment. They don’t even own the name of the place because there is a clause in the contract saying that they couldn’t change the name until the pay off what they owe.

My wife comes to me with this story and asks what should I tell my brother (she already told him he was an idiot).
I said, “if it were me, and this is what I told your brother the day they moved, I said Mike, you need to be proactive with this. Don’t go down there and walk into this turn key biz and think you are an hourly employee. It won’t work. You’ll need to be proactive in getting customers. You’ll also need to network with other businesses. You’ll want to know Joe who owns the garage down the street, and Harry who owns the gas station on the corner etc, get out there in the business community, don’t just hide in the shop and hope you make a million dollars”.

I went on to tell my wife that he should get his slug of a wife out there to drum up business with the rental companies and insurance companies like she said she was going to do but hasn’t. Also, have an open house on a Saturday, pay the local country radio station to bring their mobile unit out, give away hot dogs and have a “new owner” special of complete paint jobs starting at $599 or whatever. Then I would hang in there, try to drum up enough business to keep going long enough to pay off the guy. That way they own the name that they can change ( they suspect the name doesn’t have a very good rep) and the equipment. Or should they bail now and cut their losses? In that case the guy they bought the place from takes it back over and they lose all their money. They think they got scammed, I think they are idiots who bought this place just like they bought the first car they saw a few years back and the first house they saw. They did have a lawyer verify that they guys taxes were in order and that the place was in the black every month. So where did the customers go Mike?

I told my wife I’d ask around OC as there was bound to be some business folks around that could probably give some advice. We’d hate to see him go down in flames like that in such a short time. So, any advice I can pass along?

[devilmaster]

It sounds like a classic case of we'll open and they will come.

The most important part of any business venture is to have an exit strategy. You need to say to yourself before you open or buy the business, how will I fail? And what do I do if I fail?

Its entirely possible that the previous owner saw his business may begin to fail even though he was in the black, and sold out while the getting was good.

r2c, you were absolutely right when you told him he needs to know all local shops and their owners. Thats where the meat of his business will come. Customers, if they know nothing of the business will go to the nicest shinest biggest place to purchase the product they need. Only people in the know will go to a small local business, regardless of the product.

Is it survivable? Maybe and maybe not. They have to sit down and weigh the options. First, they should try and find out if anyone will invest in them - not the business, them. I assume they will need at least 200,000 to pay off the previous owner and fix/buy equipment.

They have to compare what they need to reinvest with how much they have been making so far. A new investor only delays death if they cannot find new business. They should be calling every shop around to find out if they have an exclusive contract for painting. You also need to know what other shops are charging. Can they afford to provide a cut rate to drum up business?

I can go on, but the biggest question to ask them is did they do a business plan when they bought the place? I assume not, but maybe they did. Any business, whether new or turnkey, needs a business plan. Its a plan where you put everything down on paper, the business, yourself, your dreams and aspirations, your fears, and a continuing look at how your business is run.

A good BP will have a 'catastrophe' section, which says how they will fail, and what to do if the business is failing. You need to face that before you walk into the business. It should save the late night calls to the siblings and their husbands.

In the end, they need to look at their books. Their books will tell them how much more business they need to succeed, and then they can try and figure out if that number is attainable. If it is, then they should look hard at more financing with a full business plan that explains that the business is failing, but with a turnaround plan. If they cannot believe that the business can be turned around, then they should cut their losses and walk away.

[racer2c]

It sounds like a classic case of we'll open and they will come.

The most important part of any business venture is to have an exit strategy. You need to say to yourself before you open or buy the business, how will I fail? And what do I do if I fail?

Its entirely possible that the previous owner saw his business may begin to fail even though he was in the black, and sold out while the getting was good.

r2c, you were absolutely right when you told him he needs to know all local shops and their owners. Thats where the meat of his business will come. Customers, if they know nothing of the business will go to the nicest shinest biggest place to purchase the product they need. Only people in the know will go to a small local business, regardless of the product.

Is it survivable? Maybe and maybe not. They have to sit down and weigh the options. First, they should try and find out if anyone will invest in them - not the business, them. I assume they will need at least 200,000 to pay off the previous owner and fix/buy equipment.

They have to compare what they need to reinvest with how much they have been making so far. A new investor only delays death if they cannot find new business. They should be calling every shop around to find out if they have an exclusive contract for painting. You also need to know what other shops are charging. Can they afford to provide a cut rate to drum up business?

I can go on, but the biggest question to ask them is did they do a business plan when they bought the place? I assume not, but maybe they did. Any business, whether new or turnkey, needs a business plan. Its a plan where you put everything down on paper, the business, yourself, your dreams and aspirations, your fears, and a continuing look at how your business is run.

A good BP will have a 'catastrophe' section, which says how they will fail, and what to do if the business is failing. You need to face that before you walk into the business. It should save the late night calls to the siblings and their husbands.

In the end, they need to look at their books. Their books will tell them how much more business they need to succeed, and then they can try and figure out if that number is attainable. If it is, then they should look hard at more financing with a full business plan that explains that the business is failing, but with a turnaround plan. If they cannot believe that the business can be turned around, then they should cut their losses and walk away.

Awesome Steve! Thanks a million!

[cameraman]

This entire business "plan" is based on the ability of the wife to network and generate a client base. Simple reality check - can she do the job? If she can't then all the business plans in the world are not going to save them.

[oddlycalm]

This is a really common situation where service shops of all kinds are concerned. The buyer is often skilled at the trade involved, but has no business management knowledge. Rather than reiterate Steve's correct statements I'll hit a couple other points.

The #1 question they needed to ask was why they were buying someone else's business. Did they want the obsolete and unreliable equipment? The customer base? Or was it because they wanted someone to finance them and a bank wouldn't? If the shop had a long history and strong customer base then they had a good reason to buy it, if not, then they probably bought a pig in a poke and would have been better off to lease their own building and buy new equipment.

You mention that the area had much lower housing prices then where they moved from. That may very well mean that the people at their present location have much less money to spend on discretionary whims like custom paint jobs. If that's the case, then unless they have a relationship with an insurance company or some other major customer they will starve.

The most important part of any business plan is the marketing plan and the most important part of the marketing plan is the market study. Absent that you have no idea if there is a market or not.

It is never too late to do a business plan. Worst case is that it will tell them that they need to fold the tent. More likely is that it will tell them they need to get some customers and if they do it right it will tell them where.

If the market study and marketing plan indicate there is a market, then I'd go back to the guy that sold it to them and renegotiate the lease on the building to conserve cash. The sale contract is the real issue, but it's nearly impossible to edit a finalized sale. Tell the seller the equipment is junk and that they will default on the contract unless he cuts them a deal on the building lease. Unless he wants a dead business back he deals. If he doesn't, maybe letting him own it again is the right thing.

If they think he misrepresented the business he sold then they could go after him for that, but it would be a heavy burden of proof on them. It's up to the buyer to perform due diligence such as examining the seller's books and inspecting the equipment. Unless he falsified the books or records, or specifically made promises about the condition of the equipment this would be a bluff and a bargaining tool at best. At worst it could create an adversarial situation and long term complications. Staying friendly and negotiating a temporary reduction in the lease based on the cash flow emergency would be best.

I'm hoping that they incorporated so that a bankruptcy, should one happen, won't ruin them personally, but given what you've posted I'd guess not.

oc

[FTG]

Every turnaround is simple.

1. Cut expenses.
2. Focus on the fastest, easier, cheapest way to generate revenue.
3. Work your ass off to generate that revenue.
4. Measure your progress every day.

Champ Car is doing it.

[JLMannin]

If I ever threaten to start my own business, my wife will leave me in a heart beat. Why? Her parents own a mid-size commercial print shop, and running your own business is the hardest job anyone can have. Especially when you are mid-size. You are not big enough to just manage it, yet it is big enough that you need to work six 12 hour days a week just to keep you neck above water.

No Thanks - I'll "work for the man" and take my chances that I will get downsized.

[datachicane]

If I ever threaten to start my own business, my wife will leave me in a heart beat. Why? Her parents own a mid-size commercial print shop, and running your own business is the hardest job anyone can have. Especially when you are mid-size. You are not big enough to just manage it, yet it is big enough that you need to work six 12 hour days a week just to keep you neck above water.

No Thanks - I'll "work for the man" and take my chances that I will get downsized.

My folks were in the same boat through much of my formative years- medium-to-large sales/service business in a medium-sized town, 72+ hour weeks, paid themselves much less than they paid a number of employees, and after a few abortive attempts learned that they couldn't leave town on vacation without the inevitable staff crisis.

When I was a 22-year old college student, my father offered me the business. As fate would have it, I'd just finished writing a annoyingly pretentious and introspective review of the school production of 'Death of a Salesman' , and I saw myself channeling Willy Lomax in twenty years- I just couldn't do it, and I turned him down. He then offered it to my younger brother, who also turned him down, whereupon he sold the business to a much larger competitor, sold all of his automobiles and houses, and retired to a 50' sloop in the Sea of Cortez. My folks had barely even set foot on a sailboat before.

Now it's twenty years later, I'm the same age my father was when he retired, and I'll be working at least another 20 years. I don't know that I made the wrong choice, but I no longer question the choices my father made...

[Wabbit]

My parents started their own business when I was about 12. Didn't see much of them during my teenage years. When I turned 17, I started working for them. Didn't know how bad it is to work for parents, but stuck with it for almost 10 years. They sold, I went to work for The Collective. I won't retire with a million in the bank, but hopefully I won't be neglecting my child in the process either. I don't have the patience, social skills, or desire required to be a business owner.

[Opposite Lock]

.

[emjaya]

Hmmm, must rewrite that business plan.Thanks from me :gomer: :)

[nrc]

I wonder how viable stand-alone paint shops are these days? Insurance companies tend to have relationships with body shops and most body shops do their own paint work. Rental companies are probably the same way.

People don't repaint cars that often these days. Factory paint jobs hold up better (well, except for GM) and repainting tends to raise suspicions on the resale market.

[racer2c]

I wonder how viable stand-alone paint shops are these days? Insurance companies tend to have relationships with body shops and most body shops do their own paint work. Rental companies are probably the same way.

People don't repaint cars that often these days. Factory paint jobs hold up better (well, except for GM) and repainting tends to raise suspicions on the resale market.

I've never had a car painted in my entire life. Car not shiny, buy new car.

I'm with ya. I think they were banking on Mike's wife's ability to garner corporate contracts. It was my understanding that they did obtain two contracts with local rental car places but that it's not enough day to day income.

My wife also told me that the money they put down went to the buying of the biz as a whole. It wasn't itemized out i.e. shop equipment, computers, name, and contracts so that if they had to bail it's simply a forfeit back to the original owner. Remember they took the loan out through him, not a bank so there isn't any bankruptcy. They did do an LLC so that is a limited liability which I believe will protect them from personal bankruptcy.

Thanks to all who responded to this thread. Every bit helps. This was a case of a young couple who saw a turn key opportunity and a slick experienced owner who saw a way out from a business that wasn't making any money.

they had stars in their eyes, didn't prepare and are paying the consequences. Sooner than they thought though. Shame. Live and learn. I just hope he doesn't ask me for money because my wife has already hinted around to me about helping them out just because she feels sorry for her little brother. Sorry man, I've got a girl going into college in three years.

[JLMannin]

I don't have the patience, social skills, or desire required to be a business owner.

My MIL works the desk at the pront shop. Dealing with the general public is something that I could never do, for the same reasons you state above. Anyone who can interact with stupid, abusive people all day long has my respect and has a much, much harder job than I do. My MIL sees the best in all people - what a gift!

[devilmaster]

Hmmm, must rewrite that business plan.Thanks from me :gomer: :)

I've been working on a business plan for over 5 years, and I still don't think its right. Or done. :(

To try and put my post and OC's post into an easy way of saying it......

A good business plan will:

Describe your talents and weaknesses
surveyed the market where you will conduct business
figured out how big your market is
what your share of the market will be
describe all opening and ongoing expenses
calculate your potential profit - market share vs. expenditures
how you will handle your finances
how you will enter the market
how you will find the financing
tell possible investors how you see your business run
show detailed forcasted income statements for a least 5 years
show a plan to survive tough times or a changed market - what if maaco opens down the street
how your product is different from everyone else in your market
plan for an exit strategy for investors (if any)
plan for an exit strategy for yourself.
show what an owner needs to thrive and survive
etc.etc.etc.


There are more, but that is a basic list. A good business plan is always a work in progress, even after you open. If you open and you are making more than your business plan said you would, that's great in one way, but it means you didn't do your plan right. If a BP is done right, the business should follow the basic outline that you set out in your BP. If your business is open, you should be comparing the BP with the actuals constantly.

In the end, a BP forces an owner to think about all possible events - it forces them to know everything about their business.

[Insomniac]

I've been working on a business plan for over 5 years, and I still don't think its right. Or done. :(

Hey devil, a good book to read is The Art of the Start by Guy Kawasaki. He has some good insight into starting a company and business plans. (In short, quit working on yours and start the company. ;))

http://www.amazon.com/gp/product/1591840562

[devilmaster]

(In short, quit working on yours and start the company. ;))

http://www.amazon.com/gp/product/1591840562

Got 2 million bucks? ;)

Thanks for the link. I'll look into the book. :thumbup:

[Insomniac]

Got 2 million bucks? ;)

Thanks for the link. I'll look into the book. :thumbup:

You'll definitely benefit from reading the book if you need $2M. The guy is a VC. Lots of advice on pitching in there.