Top Ten Reasons Auto Body Businesses Fail

At Web-Est, we don't just sell collision estimating software. Our goal is to provide shops with as much resources as possible for them to succeed in their endeavors. The dream of being independent and owning a business is the goal of many, yet most small businesses go under within three years. There are several reasons for the failures that hold true for almost any small business, be it an auto body repair shop or a high tech software company. In order to prevent failure with a small business it helps to understand and know what are some of the biggest causes for business failure. Here are some researched points on what contribute to the failure of a small business.

1) Failure to realistically calculate the market and demand for the product or service-  This one stands to reason: that success is based on supply and demand and the size of the market. In short, don't try to set up an ice-making factory in the arctic. Take the auto restoration field. According to Peter MacGillivray, the VP of Communications Specialty Equipment Marketing Association (SEMA), car restoration field isn't as significant as people think. He points out that it is indeed a $1.9 billion industry, but when you segment it off by dividing that number by the makes/models that are actually restored, the number is quite small. So the question becomes, "Is the market big enough to just do auto restorations?" It's tough to determine, but if the demand isn't that high in your area, then it might make more sense to add some services to your business.

2) Failure to understand how to manage a small business's books and finances-  Most people who start a small business are masters in the trade or service the business offers but have no idea how to actually run the business. Take some business classes and basic book-keeping courses before opening shop. This is so important. It's just like the family budget: if someone isn't keeping track of the bank account in the family, then money starts going in and out, and before you know, there's nothing there to pay the bills.

3) Lack of operating capital- A sure kiss of death for any business is not having adequate funds to keep the business going through the first two years. This includes securing lines of credit, having money to pay employees and making sure the overhead costs are met on time. It isn't just start-up that is needed. Matt Shanks, Vice President of Operations at Web-Est, wrote on this topic in the past. He recommends repair shops definitely visit the bank, but also check out Small Business Administration's website for more ideas on obtaining more capital.

4) Poor management skills- Once again, when it comes to opening a small business, most of the folks starting have tremendous skills in the service or product offered. How's do you train guys you bring on staff? What's the work flow that you have in mind for them to stay busy? Will you have specialists or is everyone going to contribute to the jobs in the garage? If you don't have a plan in place for how your people will work, then there'll be chaos.

5) Lack of a clear business plan that includes business growth and expansion. A business plan is a necessity for success with a small business. This is incredibly important. You can't just dive into an initiative as significant as starting a business without a road map for the future and a plan to get there. It should be referenced when the business's mission is forgotten. The plan needs to include a realistic growth rate and plans for bringing in employees as the company develops and builds. Click here to check out our past article on writing a business plan

6) Not recognizing a dying market. Some businesses will never succeed because they are built around a dying market. A great example of this would be someone trying to open a pager and beeper store next to a cell phone shop. If the market is saturated or dying the business will not succeed no matter what. An important thing to look at in your area is the number of auto shops that are already up and running in the area. Will their competition be stiff? How many are there that are doing well? If it seems difficult to penetrate their market share, maybe look elsewhere for a start up that isn't as tough.

7) Failure to negotiate- A small business has a lot of overhead. This includes rent or mortgage payments, utilities, inventory supplies, infrastructure, and in the case of an auto body shop, tools and materials. A shrewd business owner knows how to negotiate with creditors, landlords and suppliers to get a consistent and acceptable rate for the needed goods. When this is not done, critical money is lost. Don't be afraid to stick it to the adjusters that come into the shop expecting less labor at lower costs. This is the Internet age where businesses have direct access to potential customers. Don't let them think they own you and you have to cave to them.

8) Not raising the bar- All too often start-up business owners sit back on their laurels and think that "just good enough" will lead to success. It will not. Shoot high. Even if the goals do not get met entirely, the fact that the bar was raised to a high level helps keep things going during lean times. Perfect your craft and pay attention to every detail.

9) Stubborn owners- Ego and pride often gets tossed into the mix, especially with services that are parts "art and tech" like auto repair. In a service-oriented business such as this it does not pay to act as if the customer is wrong and that they are being given a favor from the shop itself. Treat the customer like a valuable asset to helping build your business. Getting into arguments with your customers or trying to show you know more than them is a losing place to be. Impress them with your smarts, but empower them with choice if you can. They're valuable assets for references.

10) Growing too fast- When a business begins to succeed or show signs of operating in the black there is a tendency to try and expand and grow too fast. Plan the growth responsibly and stick to the plan. You'd be surprised how much of an issue this can be. There's plenty of stories of businesses using the daily deals and getting such a high volume of customers that they can't keep up. Make sure you can handle the volume any new marketing effort will bring or else it will really hurt your brand.

What are some reasons you've experienced that contribute the failure of a small business? Please share. Be on the look out for our next article: Top Ten reasons Auto Body Businesses Succeed.