Thursday, 31 January 2008 17:00

Owners Should Aspire to Operate Shops That Make Money

Written by Lee Amaradio, Jr.

I’ve always taken pride in my business. Being a business owner and being my own boss is something I not only appreciate, I cherish. Making my own decisions became important to me early on in my life, but I knew that to have the freedom I wanted in my future, I would have to earn it. Owning a business has its rewards, but there is a price to pay.

 

Let me illustrate: Although it’s been twenty years since my last sailboat, I’ve owned three in my life. From a small 26-footer I moved up to a 29-footer, ending up with my dream boat – a 38-foot world cruiser. Getting my dream boat was something I had to work up to, learning more with each experience. Now I had the largest boat I could afford that would be capable of sailing anywhere in the world.


Ironically, my dream boat was what eventually separated me from the love of sailing. The larger boat had a higher cost attached to it, was harder to handle, and required a second person to help sail it. The maintenance was unending – as soon as one thing was finished, another thing would need to be done. She would self destruct just sitting in the slip. I had very little time to enjoy it, but was forced to make time to maintain it. After working on it constantly for about four years, I sold it and haven’t owned a boat since.


Sometimes the dream is far better than the reality. When you dream of being in business your dreams usually include making a lot of money and having more time than you know what to do with. Every business owner faces the reality of having less time and working harder than ever. You may make more money but you will earn every dime.

 

And if your dreams of owning a business don’t include making money then you are dreaming of a hobby, not a business.


A business that is making money merits all of your effort and becomes invigorating. You’ll jump out of bed each morning – anxious to get to work. When money is rolling in, nothing seems to matter – the extra hours, the hard work, the financial investment. All is good.


But a business that is losing money becomes a horrible place to be. It is very hard to get and stay motivated. It seems like you are paying some unreasonable task master for the privilege of working harder than you ever have.

 

A successful business needs to have integrity and make money. A shop making money regardless of the quality of work is considered a success, while the best craftsmen in the industry not making money would be considered failures.


Making money is the primary reason for owning a business. Taking pride in your work is secondary to ensuring the shop operates profitably.

{mospagebreak}

Valuable lessons learned
Like many shop owners, I went through a tough couple of years in the early ‘90s when I was losing money, making me the most miserable I had ever been. I felt trapped, sometimes hopeless, caught in the impossible situation of not being able to quit even if I wanted to. I had everything I owned invested in my company and with no options but to keep pushing forward. I thank God for pulling me through. I learned some valuable lessons and never want to be in the position of paying to go to work ever again.


During my years in business, I’ve learned a few things. I’ve dealt with almost every situation this industry can throw at someone. All businesses have their war stories and their learning curves, but in the end we become well-educated businessmen or we don’t survive. The lessons we learn along the way are priceless and I’m sure they total up to MBAs and doctorate degrees in the collision repair business.


We are the experts and know what we are doing. Most of us know how to make money on the worst job in the shop. We have survived because we are some of the best businessmen around. We know more than the collision industry consultants that give us advice. They know a lot about certain things but very little compared to what we know regarding the entire operation.


Insurers tell us we need to run leaner, using numbers to point out areas that need improvement, but no company has ever suggested that raising my prices would be an efficient solution. When insurers try to blame lack of profitability on insufficient knowledge or not running lean enough, I tell them to go pound sand. This is insulting when I know a price increase would  mitigate the problem. Autobody industry professionals know far more about the collision repair business than insurance professionals ever will, yet we treat them like they are the experts.

Captive audience

With laws requiring auto insurance, insurance companies don’t have to sell their products on merit. What’s so hard about selling something that everyone is forced to buy? It is not all that different than utility companies that provide a mandated service at a price guaranteed to make the company a profit.


So where is the business experience in that? Having an adjuster determine how to repair a vehicle is like having a meter reader tell an electrician how to run the wires. Imagine if you were an electrical contractor and Edison refused to turn on your power unless you ran all of the electrical wiring according to the meter reader’s recommendations.


It’s time for the insurers to stop telling us how to repair collisions. They shouldn’t be allowed to give us recommendations because they have no experience repairing vehicles. We are the experts and telling us that we don’t know how to make money because we are poor businessmen needs to stop.


Would an insurance company sell a policy without having their legal department look it over? Wouldn’t they count the cost and make sure if they offered something that it would be profitable for them. What would they think if we told them what they needed to offer in their policies, like free rental coverage, deductible reimbursement, or we told them they needed to offer free comp and collision because we won’t allow them to charge for it. At the same time they were made liable for how we wanted them to do things. This is how ridiculous things have become. We are out of control, laws are being ignored, the consumer is being misled, and nothing is changing.


The state of our industry is appalling, in my opinion, because we allow ourselves to be pushed around. We are much better at our business than insurer will ever give us credit for. Along with  many good insurance companies, there are also some really bad ones. Either way, I don’t want to trust any of them with my bottom line. I’ve worked for nothing in the past and shame on me if I allow this to ever happen to me again.


My track record proves that I am a good businessman. I wouldn’t allow the meter reader to tell me how to repair a car. Why would I allow an adjuster – someone that knows little or nothing about the actual collision repair – direct me how to repair it. Their agenda is only to cut costs. If their primary training is in cutting costs, why would I allow outsiders to dictate my shop’s prices.


For the amount of money that is required to set up a collision repair shop today, an investor would make more profit by putting the money in a bank account with simple interest. This is no joke. I’ve done the math and if I had put the money invested in my shop in CDs, I would have made close to the same amount of money without going to work.

{mospagebreak} 


Turning things around
Who knows where this will end, but I suspect a day of reckoning is coming. More and more shop owners tell me they are fed up with the current state of affairs. We all want things to change but don’t know how to go about it. Raising our rates labels us as difficult to work with and we risk the chance of being blackballed. So what do we do?


Start by taking a long look at your bottom line. Immediately stop any unreasonable concessions. If you’re discounting your labor rate and losing money, quit. Raise the price of your paint materials if you need to.

 

Paint has gone up over 30% in the last year and is going up again. The bottom line is that our industry needs about a 40% increase across the board. This seems high but I’ve done the math and this is how far off we are. We have been subdued for much too long, and if we don’t find another 40%, we won’t be profitable.

 

I’m in business to make a profit and the insurers understand this because I explain it to them in a professional way. I’m concerned with helping reduce their costs but not to the point where I lose money doing it. I don’t care if the insurers average 48% to 58% net profit. I do care that I used to average 27% profit in 1979 and now I’m operating at a 2% to a 3% profit in 2007.

 

Do the math. Open your eyes. Quit being afraid of the insurance companies. What more can they do to us? Do you really think they can hurt our industry more than they already have?


Insurers have had a record year – one of the best in almost 88 years. While underwriting growth is at a stand still, the property and casualty divisions have produced a profit of approximately 25 billion dollars. Insurers may cry broke, but they are making billions.


If you gave your wife one million dollars and told her to go spend 100,000 dollars per day she would return in 10 days. Now if you did the same thing and gave her one billion dollars and told her to spend 100,000 per day she wouldn’t be back for 28 years. So 25 billion dollars profit is a lot of money.


When I read reports that earnings are down with some insurance companies I want to emphasize that there is a big difference between earnings being down and having a loss. We only profited 5 billion dollars instead of 10 billion. Either way they still made a huge profit. They could afford to pay the rate increases we need nationwide without changing their bottom line profits -- a measly 3%.


Make 2008 the year that you expect a profit and make the necessary price adjustments that guarantee a high quality repair and a profit margin you can be proud of.


By the way I’m starting to look at sailboats again.


In business for over 26 years, Lee Amaradio, Jr. is the president and owner of “Faith” Quality Auto Body Inc. in Murrieta, California. With 65 employees, he attributes his success to surrounding himself with good help, with some of the best office staff and techs in our industry. Amaradio has been in this industry long enough to see the handwriting on the wall. He feels that now is the time for us to unite as an industry before it’s to late. He can be reached by e-mail at lee@faithqualityautobody.com.