According to Entrepreneur Magazine, only 50 percent of small businesses make it beyond the five-year mark. Lack of sufficient cash flow and market shifts are often the culprits. But did you know that the next big dropout is at 10 years?
At 10 years, the failure rate jumps to 70 percent of small businesses, including independent auto repair shops. The problem is a shop owner may feel like he or she has “figured it out.” He or she has a good team, a strong customer base, and is making money.
So why is 10 years the timeframe when many auto repair shops fail? I have worked with hundreds of small business owners and see the same patterns. At the 10-year mark, or sometimes sooner:
• The business has more expenses than it can handle. Often, the owner is paying personal bills out of the business at a rate the sales can’t support.
• The business has excessive payroll expenses (too many family members working in the business or wages are too high for the revenue coming in).
• The owner is exhausted from working open-to-close for so many years.
• The owner put someone in charge who is not qualified to run the business.
Eventually, we hit critical mass and the business collapses in on itself.
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Here are my top-five tips to avoid the 10-year dropout:
1. Find experts to help
Did you have a marketing degree, accounting degree, management degree, etc. when you started your business? If the answer is no, reach out to an expert for help. You don’t have to be an expert at everything, but you do need to have a basic understanding of best practices so you can ask the right questions and find the right help.
2. Understand your books
Learn how to read your Profit & Loss Statement, Balance Sheet, and Statement of Cashflow so you know where your business stands financially before tax season. Review all the business expenses at least quarterly and compare them to the previous year to see if any dramatically changed. If you are paying personal bills out of the business, know what they are so you can decide what the right course of action is with your accountant.
3. Set expectations for everyone on payroll
I often work with shop owners who have no job descriptions and no written expectations for their team. If you have people on your team that take advantage of you or act entitled, it is probably because you don’t set expectations and don’t hold them accountable. This is especially true in shops with several family members working there. By setting expectations you show your team what success looks like and can create a plan to achieve that success.
4. Create a manager success track
Too many shop owners put someone in charge and don’t keep an eye on them – a poorly trained (or dishonest) manager can have you on the brink of bankruptcy in six months. If you want more freedom, properly train the person who will oversee the shop while you are away, and regularly review the key performance indicators and expenses with them. You’ll spot an issue quickly and fix it before any serious consequences.
5. Learn leadership skills
This is by far the number-one reason people leave you. You can’t be a dictator, but you can’t be a pushover, either. Leadership and management skills help you get the most out of your team. Learning to be a better leader will reap rewards in all areas of your life.
With these five tips and good succession planning, the common 10-year dropout will not become your reality. Build a foundation of long-term success encompassing an efficient, profitable business and strong team. Your successful shop will pass the 10-year mark, and you will have more control over what your life after work looks like.
