Strategies For Starting A Profitable Auto Service Business

Question 1: The New Venture Concept

Services offered in the auto service industry are a constant need in any society that uses vehicles as a means of transportation. The purpose of this report is to secure potential investors through outlining the strategies that will be put I place to assure high-profit turn in.

This report clearly outlines the risks involved in this business venture and suggests ways of avoiding failure. An analysis of the requirements for the starting of an auto service company is made, and management skills required are also outlined. Strategies for boosting profits are outlined and management plans defined.Finally, prediction of the financial outcome of the company in its first few years of operation are made with an assumption that all the factors necessary for financial success are in place.

According to the latest statistics on worldwide car production done by the International Organization of Motor Vehicle Manufacturers (OICA), there are more than 30 million vehicles that have been manufactured since the year started(Anon., n.d.). Car production rates get higher everyday. This can be attributed to the rising rate of vehicle manufacturing which makes vehicles more affordable with 75% of homeowners in London owning a car(Florida & Bendix, 2015). People’s desire to own things is constant. With the demand for more vehicles, also comes the demand for auto services. There is always an opportunity gap when it comes to the auto service industry. Longer life of newer car models also creates the need for auto services. People now value car maintenance as it ensures a longer life. Through advancement in technology such as the hybrid fuel systems creates the need for people to seek professional technical experts who can service these vehicles. The auto service industry does not depend on seasons because as long as there are vehicles on the road, there will always be a demand for its services. It is, therefore, accurate to say that the auto service industry is one that has sustainability.

Investment in the auto service company is a practical and potentially highly profitable venture. It does not require an extreme startup funding but instead, promises to yield high financial results if managed properly. The services offered to apply to every house with a car, and that is every town and city in the world. The company will get to set their costs of services and products at any price they see fit. As long as the quality of services given is high, people are willing to pay more if they are assured quality work.Quality control is very crucial in any service industry. Placing great importance in the quality control will assuredly enable the company to gain success in the market, locally and internationally. The company shall not only anticipate and meet the clients’ needs, but it shall also exceed them to gain a prominent and competitive position in the market. Initial services and product costs shall be low with a high level of quality services and customer satisfaction. This will enable the company to secure loyal customers. As the number of clients increase, the company shall infuse strategies that will enable it to achieve positive financial results. However, pricing is not key to gaining a competitive edge in the market. The most important factors that affect market competition are the quality of service, customer relations, and standardization.

Question 2: Requirements for the New Business Start-Up and Management Skills

Through combining quality services and good marketing strategies, the company will be propelled to a higher market level.

Other than quality control, the company will put in place strategies to attract the public. These are such as giving offers on some services, for example, half price on some services or free safety inspection for vehicles, enhancing customer care through offering a clean and serene environment and doing business ethically and legally to create a good reputation in the market.

Production of the company’s own certified and labeled parts will enable it to stand as a serious competitor to its rivals. Furthermore, diversification of services offered will enable the company to have more than one alternative means of income. Services such as auto towing, conveyor car wash, dent removal and paint touch ups will also be offered. This will make the company a “one-stop shop” for all vehicle servicing needs.

The initial costs for startup are not high. With the startup budget estimates being as indicated below:

Rent	12,000 pounds per month
Tools	10,000 pounds
Diagnostic Machine	8,000 pounds
Insurance cost per year	3,000 pounds
Lift with installation	4,000 pounds
Operating expenses	50,000 pounds
Total costs	87,000 pounds

Startup costs could go up to averagely 100,000 pounds if expenses during the initial set up are factored in. However, with the high growth potential that the auto service company projects, there is a high likelihood that it is a worthwhile investment. Through transparency of business transactions, revenue used can be easily traced thus enhancing reliability.

Hiring, recruiting and training of the company’s employees will also enhance the quality level of the services provided. There shall also be supervision of employees to oversee work transparency and ensure quality work is upheld. The more the staff, the easier it is to meet the customers’ needs.  A small staff will lead to inefficient customer care services. Therefore it is vital that the company hires a fair number of employees which will be inclusive of highly trained technical experts.

Setting up the company for operation is estimated to take about two months. During the setup time, vigorous marketing strategies will be put in place to ensure that the public is aware of the auto service company’s opening. Some of these marketing strategies include handing out flyers, advertisements on social media and local ads on newspapers and television. The company’s official opening day will be a public event which will include the public. On the opening day, the public will get an opportunity to have their vehicles inspected and assessed for free. This will attract customers as they will get a feel of the high-quality services offered.

Question 3: Proposed Business Model

Each business has specific requirements, legal or otherwise that have to be observed during its startup and running as well. These requirements ensure that the business runs smoothly and that future liabilities are reduced. The requirements of the auto service company startup are as follows:(McKay, n.d.),(Nixon, n.d.)

• A business plan with a very specific financial plan. There should be a comprehensive business plan which outlines the services and products offered by the company. It will include the specific consumer needs the company wishes to address, the risks involved in the auto service industry and how the management plans to manage them, a feasibility study of the company, a financial outcome prediction of the first few years of operation, specific strategies that the management will use to ensure a positive financial outcome and human resource management strategies which will be put into use.
• Securing space in a commercial building.Space should be ample so as to incorporate all the services offered by the company. When scouting for space, the location of the building should be considered. It is effective to have an auto service company located near the main road.
• Creating a checklist that details the products and service provided. This will enable the scope of the company to be identified. It will come in handy when doing the paperwork requirements. It will also help when creating the initial cost budget and inventories of the company’s tools and stock.
• Obtaining a business permit and license from the local town or city clerk. Any legal requirements such as inspections should also be undertaken to ensure the business is legal and meets all legal requirements. Furthermore, business tax registration should be ascertained and any other legal requirement pertaining employee and employer registration is met.
• Purchasing of a business liability insurance to ensure the business is protected. The employer should also ensure that the staff is insured in order to protect them from work safety risks. Safety measures such as putting in place warning signs, putting up fire extinguishers and first aid training of employees will reduce the chances of work accidents occurring.
• Getting legal advice from a lawyer to be aware of the legal risks that the auto service industry faces and also to ensure that the business complies with the law. Running the company legally and ethically will create a reputation in the market due to the legal transparency displayed by the company. This will also ensure that the company protects itself from any future legal reprimanding.

To ensure that the company runs smoothly, all requirements should be met. This will go into avoiding any future liabilities.

Competent management is essential in ensuring that the company is successful. The management is responsible for the recruitment and supervision of employees and overseeing the general running of the company. To efficiently supervise employees, the manager should be well organized and detail-oriented. This will come in handy when creating work schedules and duty rotation plans. There should be no bias. The manager should be fair and respectful. Employees need to feel a sense of fairness and respect at the workplace to produce quality results.

Management is also responsible for handling the customers’ complaints and concerns. Through good communication skills, the manager can understand and interpret the customers’ complaints and address them by giving specific instructions to the employees. Customers are likely to come back if they feel that their opinions are heard and reasonably implemented.

Managers should also have some level of creativity to come up with ways of maximizing the company’s revenue. This is through proper advertisement, coming up with offers which attract clients or by increasing the value of the services and products offered.

A manager should ensure that the highest degree of customer satisfaction is achieved so as to secure the loyalty of clients. The manager should ensure that the company is reliable and that quality services are provided at all times. This requires the manager to have technical skills to carefully assess the work of the employees. After completion of work, the manager should evaluate the quality of work done and suggest corrections where possible. This will not only encourage the competency of employees but also boost transparency as technicians give a detailed account of the work done.

Another management skill required in the auto service company is accounting skills. A manager is responsible for the allocation of funds to various departments such as employees’ salaries and wages, payment of rent and bills and other operational expenses. If the manager is not conversant with accounting, the company may end up bankrupt due to poor allocation of funds. Accounting skills will also enable the management to ensure profitability in the company. This is due to the ability to formulate income generating ideas.

Question 4: Human Resource Management Strategies

For positive financial results to be realized in the company, it requires the efforts of the staff as well as the management. The company is set on achieving profitability through various strategies. Firstly, quality will be stressed. High-quality service is the backbone to the success of any business in the service industry. High-quality services should be felt by the customer from their time of entry till exit. This entails the work done and also how the customer is treated by the company. Hiring of qualified, trained technical professionals will promote high-quality work. Furthermore, it is required that the employees be well supervised. The hiring of service advisors who assess the work done and handle the customers’ complaints by owning up to problems will promote the quality of services provided. Instead of the manager handling all customer concerns, it will be the duty of the service advisors to listen and handle complaints. The service advisor will also ensure transparency by overseeing the work which is being done.

Other than high-quality services, the company should also be in a position to ensure its clients of high-quality products. Purchasing of parts should be through transparent and clear channels from a trusted and certified distributor. All parts should be certified and to ensure quality. In the future, the company plans to produce its own labeled and licensed parts. This will boost revenue and also secure the company a competitive position in the market.

Marketing is very crucial in any business. It is important to publicize the company to increase the flow of customers. Social media platforms are a good way of spreading the word. They can also be used to advertise special offers that are used to attract the public. Advertisements in newspapers and television tend to reach a lot of people as well. Handing out flyers and posters is also efficient. It is important to market the company through the use of catchy theme songs, catch phrases and other methods of getting the public’s attention.

In addition to advertisements, it is important that the company creates a website. The website may be used to further advertise the company, give knowledge on the types of services and products offered, making of orders by clients and conducting surveys to get the public’s opinion. The website should not have too many details or ads, and it should be easy to navigate. Contact information will be placed in case of any queries by the clients. This will enable the company to reach a larger audience and also enable it to keep up with the growing technological trends.

Question 5: Risk Management Strategies

As part of customer care, the company has plans to ensure that not only are the services welcoming but also the general environment. Hygiene is to be observed. Also, the lobby area is to be well furnished and decorated appropriately to create a serene environment. Employees are also to maintain high standards of personal hygiene. Disciplinary action is to be taken to employees who do not adhere to this rule. This will ensure that clients are comfortable.

Another strategy for boosting profits is the creation of offers which will be used to attract clients. Long warranties on sold parts could be offered. Furthermore, special offers on services could be created to ensure attraction of clients. Offers such as free safety inspection to vehicles and loyal customer rewards can be made to attract the public. Other offers include an opportunity for membership through spending now and saving later, self-servicing opportunities such as pumping gas for low costs and serving free refreshments at the lobby during servicing.

Alternative income generating sources can be put into place to increase revenue sources. These include selling of used cars and parts and after service maintenance.

Also, developing customer relationships through being trustworthy and openly communicating with them can further enhance the achievement of high profits. Making calls to clients who have left their vehicles for servicing, being open minded when it comes to customer complaints and doing follow ups on products and services provided creates intimacy with the clients. This secures their loyalty to the company and further markets the reputation of the company through recommendations.

Doing business ethically and legally will enable the company to operate smoothly. It is crucial to make sure that all the legal requirements are met, and all methods of operation are transparent and through the proper channels. This will save the company from any future liabilities such as lawsuits being filed against the company. Operating legally and ethically also builds a good reputation for the company in the market thus enabling it to gain the trust of the public.

Without diligent and competent employees, success cannot be attained. It is therefore crucial that the company does not neglect its staff. The motivation of employees goes a long way into yielding success. Employees will be given opportunities such as rewards, competitions and company trips for motivation. Through the creation of a reward system, employees will strive to produce quality results. Such rewards may include compensation, extra vacation days, promotions and being given the Top Employee Award. This will act as a motivation to give good results.

Question 6: Break-Even Point

Employee training is also fundamental in the auto service industry.  Training will be done by qualified experts. It will not only ensures that the employees have the required skills to perform tasks but also that they are kept up to date with the current technical innovations. This will enable them to be able to fully satisfy the customers’ needs.

Another crucial strategy is the creation of a human resources department which will oversee the recruitment, training, and supervision of employees. The human resources department will conduct interviews during the hiring process to get the best candidates qualified for the jobs. Afterward, it shall allocate specific duties to the new staff. These duties shall be supervised by the department and fair work schedules made. Furthermore, the human resources department will be responsible for handling all employee disciplinary cases. It will also be responsible for evaluation and awarding of employees.

With all these in place, the company is expected to have started achieving positive financial results by the third year of operation. The graph below indicates a prediction of the gross income for the first three years of the auto service company operation.

In the first year, the gross income is fair. This is because the company is still trying to settle into the market. It is still testing the waters. At this stage, the company tries to establish new relationships with the public and also with distributors.  An increase is noted in the second year. This might be due to an increase in repeat customers. This could be attributed to the reputation that the company has begun to create for itself due to its high-quality services. Also, the rigorous advertisement campaigns undertaken to publicize the company. In the third year, there is an exponential increase in the gross income. At this point, the company has already started to establish a niche in the market. It has been able to gain loyal clients who continue to recommend its services to other people and has proven to the public that it is indeed reliable.

The human resources department is one of the most important departments in any business. The main objective of the human resources department is to identify, recruit and develop talent. It is expected to uphold competency and discipline in the company. Human resources management strategies have to be put in place to ensure that employees produce quality results. One strategy that will be implemented in the auto service company will be the formal training of all employees. This is a way of ensuring that the knowledge and skills of the employees are kept up to date with the current technological advancements.

Another strategy is conducting surveys to the staff and clients to gain a proper perspective on the condition of the services and general working conditions. Surveys will also be conducted to the stakeholders and investors to get their opinions as well. This will shed light on any areas that need improvement and enable the management to take action.

Also, giving the employees a sense of ownership through allowing them to participate in company competitions will provide motivation. These competitions may result to awarding of employees who produce the best quality results. This will empower the staff to give its best to the company. Reward systems should apply to employees in every department and every level.

Another human resource management strategy includes communication of the company’s goals and objectives to the staff. This will give a sense of direction and reality to their work as they will know what they are working towards. Weekly briefing for the staff not only communicates the company’s objectives but also gives them a sense of motivation.

The human resources department will strive at promoting clear and specific career goals for the employees. During training, the department will assess the employees’ skills and be able to allocate them to the departments they see are fit. After allocation, it will help the employees to nurture their skills and develop their talents to serve the company better. Assessment of employees will be done to identify those who deserve to be rewarded for their good work and those who require correction. This will enable the department to ensure effectiveness and competency.

These strategies will not only ensure that employees produce quality results through motivation and assessment, but also that they have a conducive work environment where their opinions are heard.

Every business faces certain risks that threaten to lead to its failure. These risks must be identified early enough and managed in to ensure uninterrupted success.

One risk faced by companies in the auto service industry is competitive pricing. This is due to different companies offer different quality services and products. A way of managing the pricing is offering high-quality services for low costs. This will enable the company to secure clients. After establishing a niche for itself in the market, the company can then slowly increase the value of services and products. It is important that the prices remain fair even after the increase.

Another risk the company faces is product testing. Product quality can be assured through purchasing certified parts from a licensed dealer. The company also has plans to produce its labeled products which will identify its products from other companies in the market.

In addition to that, the company also faces the risk of a lawsuit being filed against it. This can be avoided by making sure that the company has fulfilled all the legal requirements. These include insurance, permits, and inspections. Consulting a lawyer to ensure that the business is legal will ascertain if there are any legal risks.

In the auto service industry, accidents may happen. It is therefore important that the company takes measures to reduce the chances of such occurrences. Measures are such as insuring the company against any accidents, ensuring all employees has medical insurance, putting up warning signs at potential danger zones, putting up fire extinguishers throughout the premises, having available first aid kits in the work area and first aid training of all employees. This will enable the company to avoid any accidents at work or in the case of any, be able to handle the situation as fast and as effectively as possible.

To avoid failure, certain conditions must prevail. Firstly, high-quality service is mandatory for success. This also includes the customer service experience. Secondly, there must be constant funding to cater for the various operation expenses incurred. Funding is also used to gain a competitive edge through offering high-quality products and services. Funding is generated from investments and revenue. There must also be set human resource management strategies to ensure that there is proper functioning and competence. The human resource department plays a big part in the motivation, training, and supervision of employees.

As long as these conditions prevail and the risks managed, there is no reason why the company cannot soar to great heights.

The break-even point can be defined as the point at which the rate of revenue production is equal to the estimated costs. The business is said to be financially viable (Anon., n.d.). At the break-even point, the net income is zero. The company does not make any losses, but it does not make any profits either. The company broke even.(Anon., n.d.)

The formula for calculating the break-even point is:

Break-even point= Fixed costs/Contribution margin ratio

The fixed costs are defined as the costs the company incurs that are constant, that is, they do not depend on revenue changes. These costs are such as rent, insurance, and taxes. An estimation of the fixed costs is given below:

Rent-12000 pounds

Bills-50000 pounds

Taxes-5000 pounds

Insurance costs-3000 pounds

Salaries-80000 pounds

Total- 150000 pounds

The Marginal cost ratio is an expression of a company’s variable costs as a percentage of the sales costs. It is calculated by dividing the difference between the sales costs and the variable costs (Contribution margin) and dividing the result by the sales costs.

Sales price costs are the net sales or the net revenue made by the company.The revenue of the third year in the graph that was illustrated will be used. That is 145000 pounds.

Variable costs are the costs that are dependent on the revenue made. They keep changing and are adjustable. An estimation of the variable costs is given below.

Operational expenses-50000 pounds

Rewards and compensations- 20000 pounds

Advertising-10000 pounds

Total-80000 pounds

To calculate the break-even point;

Contribution Margin= Sales price costs-Variable costs

 (145000-80000)=65000

Contribution Margin Ratio= 65000/145000*100

Contribution margin ratio=44.8%

Break-even point= Fixed costs/Contribution margin ratio

150000/44.8%

Break-even point=334821 pounds

It has therefore been determined that 334821 pounds in sale price costs are required to reach a point of financial viability. The break-even point determines how much sales a company needs to make to meet its minimum costs. After the break-even point, the company can generate pure profits. The break-even point also helps the company know if its sales goals are realistic. The company also gains insight on which products and services are profitable. This enables it to thoroughly examine the services the company offers. It can decide on whether to increase or reduce the value of the services or stop offering certain services.

Determining the break-even point is crucial in understanding the financial status of the company. Financial analysis can be comprehensively done once the break-even point is determined.

 Conclusions

The auto service business has a constant demand for its service. It is a venture that does not depend on seasonality. Despite the risks it faces, its endless growth potential cannot be ignored. With competent management and proper strategies, the business can grow to attain a high niche in the international market. It is, therefore, a worthwhile investment that promises to yield positive financial results.

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