Louis Altazan
Joined: 15 May 2007
Posts: 774
Location: Baton Rouge, LA
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 Posted: Sun Dec 16, 2007 9:30 pm Post subject: More on Helping Bob |
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From the previous post on Bob
| louis wrote: | Bob has an auto service shop. Business is brisk, the bays are full everyday and have been for years. He decides he would like to expand. Looking at his present situation:
- He has two techs and Bob is the one service writer.
- He has four bays and he owns the shop.
- There is room to expand the shop to eight bays.
- Bob has excellent credit and enough cash to add-on if he wishes.
- He is currently doing about $600,000 per year in sales.
- Net profit is about 25%.
- He would like to expand the shop to about $1M in sales.
There are several things that could be done, each with other implications. If you were Bob, how would you proceed? |
Bob has several ways he could accomplish his plan. Let’s look at three:
Option one: Expand by two bays and add a tech.
Two bays = 25'X 30" or 750 square feet @ about $100.00 per foot = $75,000.00
Financed seven years @ 7% APR payments = about $1130.00 per month.
Sales rise to $1,000,000 and assume profit drops to 20% [confusion, new problems, etc.]
Profit = $200,000.00 per year or $16,666.67 per month. Profit after mortgage payment $15,536.67/mo.
Previous profit $12,500.00 per month. Additional profit $3,036.67 per month.
Current profit $200,000.00 less mortgage payments $13,560.00 less previous profit $150,000.00 = Additional profit after mortgage payments $36,440.00 per year.
Option Two: Expand by four bays and add a tech.
Four bays = 50'X 30" or 1500 square feet @ about $90.00 per foot = $135,000.00
Financed seven years @ 7% APR payments = about $2038.00 per month.
Sales rise to $1,000,000 and assume profit drops to 20% [confusion, new problems, etc.]
Profit = $200,000.00 per year or $16,666.67 per month. After mortgage payment $14,628.67/mo.
Previous profit $12,500.00 per month. Additional profit $2128.67
Rental from additional bay @$1.00/foot/month $750.00 month or $9000,00 per year.
Current profit $209,000.00 less mortgage payments $24,456.00 less previous profit $150,000.00 = Additional profit with rent $34,544.00 per year.
Option Three: Hire a manager and extend hours in present building
Sales rise to $1,000,000 and assume profit drops to 20% [confusion, new problems, etc.]
Profit = $200,000.00 per year or $16,666.00 per month. Additional manager’s salary $75,000.00/year or $6,250.00 per month.
Previous profit $12,500.00 per month. Additional profit -$2084.00 per month.
Current profit $200,000.00 less previous profit $150,000.00 less manager’s salary $75,000.00 = Additional profit after manager’s salary $-25,000.00 per year.
This calculation overlooks several factors. How many additional considerations can you add?
_________________
Louis Altazan
Owner/Manager AGCO Automotive Corporation
Baton Rouge, LA
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