As an auto repair shop owner, deciding whether to buy your current building or move to a new location is one of the biggest financial decisions you’ll face. With soaring real estate prices and fluctuating interest rates, understanding the financial impact is crucial for making the right choice. This blog is based on episode 141 of Business by the Numbers.
Before jumping into a purchase, consider your gross profit percentage and how it will influence your shop’s ability to handle the added financial burden. The last thing you want is to move to a larger space or buy a property, only to see your overhead eat away every extra dollar of revenue.
Key Factors to Consider:
- Down Payment Requirements
For most shop owners looking to buy, the initial hurdle is the down payment. If you’re considering a million-dollar building, you need around $100,000 in liquid cash, assuming a 10% down payment for an SBA loan. While there are 0% down financing options, they are rare, and you should plan conservatively. - Overhead Costs and Monthly Expenses
One of the most important questions you need to ask is, “Can I afford the monthly cost?” This includes not just the mortgage but also additional costs like taxes, insurance, and utilities. In some cases, shop owners find that their overhead doubles when they move to a larger or more expensive facility. Make sure to forecast these expenses and know exactly what you’re getting into before you make any commitments. - Sales and Gross Profit Calculations
Increasing your space may mean more technicians, but it doesn’t guarantee more profit. Hunt suggests using conservative projections when calculating your gross profit percentage after a move. If you’re currently running at a 50% gross profit margin, perform a stress test using a lower percentage to make sure you’ll be able to cover your increased overhead. - Break-Even Point
You need to figure out how much additional revenue you need to cover the extra costs of a move. For example, if your new facility will increase your overhead by $10,000 per month, and your gross profit margin is 50%, you need to generate $20,000 in additional monthly sales just to break even.
Is It Worth the Risk?
Moving to a larger facility or purchasing your building could be a great investment in your future, but it’s not always a guaranteed win. Make sure to run the numbers carefully and consider both best and worst-case scenarios before making a final decision. Remember, the goal isn’t just to increase sales—it’s to increase profitability.
Before you commit, weigh the potential for growth against the risk of increased overhead, and always plan for the unexpected.
