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FRAutoRepair PDF
FRAutoRepair PDF
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F & R Auto Repair
1.1 Objectives
The objectives over the next three years for F & R Auto Repair are the following:
· High-quality work.
· Constant contac t with c lients so as to keep them informed about the state of their
automobile and the repair job progress.
· Knowledgeable mechanics that are friendly, customer oriented, and will take the time to
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F & R Auto Repair
explain to customer the intricate nature of our business and our work.
1.3 Mission
The mission of F & R Auto Repair is to provide high quality, convenient and comprehensive auto
repair at low cost. The most important aspec t of our business is trust. It is the goal of our firm
to have 100% customer satisfac tion in regards to quality, friendliness, time to completion and
to disc over new ways to exceed the expec tations of our clients.
The company is seeking a loan in order to finance the start of operations for the company. Each
of the owners will be putting up some of their own c apital as equity.
Much of the equipment to go into the fac ilities such as tools, air compressors, etc., are currently
owned by the two partners.
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F & R Auto Repair
Table: Start-up
Start-up
Requirements
Start-up Expenses
Legal $500
Stationery etc. $200
Advertising $600
Phone $200
Insurance $800
Rent $4,000
Utilities $200
Computer $2,000
Other $600
Total Start-up Expenses $9,100
Start-up Assets
Cash Required $2,900
Start-up Inventory $0
Other Current Assets $0
Long-term Assets $20,000
Total Assets $22,900
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F & R Auto Repair
Assets
Non-cash Assets from Start-up $20,000
Cash Requirements from Start-up $2,900
Additional Cash Raised $0
Cash Balance on Starting Date $2,900
Total Assets $22,900
Liabilities
Current Borrowing $0
Long-term Liabilities $20,000
Accounts Payable (Outstanding Bills) $0
Other Current Liabilities (interest-free) $0
Total Liabilities $20,000
Capital
Planned Investment
John Ford $6,000
Michael Ronald $6,000
Other $0
Additional Investment Requirement $0
Total Planned Investment $12,000
3.0 Services
F & R Auto offers a wide range of services as outlined in the detailed sections below. It is
ultimately the goal of the company to offer a one- stop fac ility for all auto servicing needs,
including brakes, transmission, wheel alignment, etc. In this way the company can offer
greater perceived value for the customer than many other shops which spec ialize in c ertain
areas.
The industry is highly competitive with suppliers having a great deal of power in setting and
negotiating the prices of their products and services to repair shops. In addition, bec ause the
customers see the service as undifferentiated and a "commodity" with little value separation
between c ompetitors, buyer power is also very high. Finally, the barriers to entry are moderately
low, and the large number of competitors in this field, including substitutes (such as do-it-
yourself work) mean that the pricing for such services are very competitive. The only way to
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F & R Auto Repair
have an advantage in this industry is a low cost leadership principal applied aggressively or to
create higher switching costs through the building of strong business to customer ties.
F & R Auto will hire trained and certified mechanics who are able to prove they have superior
customer awareness and interac tion. It is the company's professional people who will fulfill the
firm's contrac ts and goals. The largest part of the company's expenses will be in labor costs.
· Sc heduled maintenance.
· Wheel alignments, tires and rims.
· Brake repair.
· Comprehensive engine repair.
· Transmission.
Each job or project will be on a reservation basis, although we will ac cept a small percentage
of drive in repair work.
Suppliers have a great deal of power in setting and negotiating the prices of their products
and services to repair shops. This is due to the fac t that the suppliers who absorb the
greatest amounts of cash from repair shops are large auto part companies. These companies are
more consolidated that the repair industry, have deeper poc kets, an almost limitless number of
substitute customers, and finally they are the single most important supplier to F & R's
industry. Therefore, these companies can set whatever price they wish to. Furthermore, labor
is a supplier in this industry as well, and salaries for such individuals are well known and not
very flexible.
In addition, bec ause the customers see the service as undifferentiated and a "commodity" with
little value separation between c ompetitors (if they offer a suitable level of quality) buyer
power is also very high. Additionally, the costs of our services are not cheap, and buyers are
willing to search for the most favorable combination of price and ac ceptable service.
The barriers to entry and exit are moderately low in this industry. Switching costs are virtually
non-existent and the costs to entry and exist the market are low. The large number of
competitors in this field including substitutes mean that the pricing for such services are very
competitive. The only way to have an advantage in this industry is a low cost leadership
principal applied aggressively to all aspec ts of the business or to build up customer relations to a
point where the switching costs are raised.
3.3 Technology
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F & R Auto Repair
The technological revolution in c omputers has enhanced our abilities to diagnose and repair our
clients vehicles. F &R will remain on the cutting edge by instituting the use of computer
diagnostic equipment in its shop. The company will continue to seek new ways to provide a
better service through technology.
An automotive repair company that can anticipate, meet, and even exceed customer's needs
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F & R Auto Repair
can build a defensible position within the market plac e and ac quire market share at the
expense of other rivals.
F & R will seek to compete initially in the low cost strategy. At the same time, it will seek to
provide a higher level of customer satisfac tion by having more rigorous quality control and
seeking ways to enhance the entire service experience (not just repairing a person's car). In this
way it will loc k in a loyal customer base who value the client-service provider relationship.
1. Flyers.
2. Direct mailers.
3. Disc ounts.
4. Newspaper ads.
5. Yellow pages.
6. Referrals through other loc al businesses.
Each of these marketing approaches has the advantage of being low cost and creating service
awareness. The company's long-term marketing goals are to use loc al radio and TV ads similar to
the Les Sc hwab Tire Center ads.
The company is also investigating the possibility of having a grand opening program that would
feature disc ounts, food, a loc al radio disc joc key, and other promotional ideas.
This promotion strategy will take the form of flyers, direct mailers, price disc ounts, and
advertisements in newspapers and yellow pages. F & R does not desire to spend a large
amount on marketing until the firm is ready to expand either into new fac ilities or open up new
ones. It is estimated this will oc cur sometime after year five.
What all of this means for F & R Auto is that the company must seek to charge its clients at
the market price (or lower). Research has shown that the average price is approximately $400
per vehicle. As long as marginal costs do not exceed revenues, the method to maximize short-
run profits is to service automobiles at maximum capacity. This means that F & R Auto can
expec t an ROA of approximately 4.5%
1. The number of clients Ford and Ronald can attrac t from their previous companies.
2. The effect of planned promotions and word-of-mouth marketing.
3. Current prices and costs of doing business.
4. The types of automobiles and jobs that will oc cur in every month.
For the most part, sales for an automobile repair firm are steady year round and reflect little
seasonality.
The table and charts below outline the sales forecast. Three years of annual sales and costs
of sales are shown. Twelve monthly tallies are included in the appendices.
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F & R Auto Repair
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F & R Auto Repair
Michael Ronald attended ITT Technical Institute where he received a certificate in electronics
repair in 1980. In 1983 Mr. Ronald went to work for Jim Click Ford Dealership in Tucson AZ, where
he worked on automotive electrical and electronic systems. Desiring to expand his skills, Mr.
Ronald received a mechanic's certificate in 1988 and since then has bec ome certified in various
automotive fields. In anticipation of F & R's business needs, Mr. Ronald is taking night classes
at Seattle University in marketing.
Table: Personnel
Personnel Plan
Year 1 Year 2 Year 3
Mr. Ford $36,000 $36,000 $36,000
Mr. Ronald $36,000 $36,000 $36,000
Office manager (part time) $14,400 $15,000 $15,000
Apprentice mechanic (part time) $6,900 $15,000 $15,000
Apprentice mechanic (part time) $0 $0 $15,000
Apprentice mechanic (part time) $0 $0 $0
Total People 4 4 5
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F & R Auto Repair
Assumptions:
Average Percent Variable Cost 10%
Estimated Monthly Fixed Cost $13,107
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F & R Auto Repair
Expenses
Payroll $93,300 $102,000 $117,000
Sales and Marketing and Other Expenses $6,000 $7,200 $7,400
Depreciation $1,992 $2,000 $2,000
Leased Equipment $6,000 $1,000 $1,000
Utilities $4,800 $5,000 $5,000
Insurance $7,200 $7,400 $7,400
Rent $24,000 $24,000 $24,000
Payroll Taxes $13,995 $15,300 $17,550
Other $0 $0 $0
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F & R Auto Repair
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F & R Auto Repair
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F & R Auto Repair
Current Assets
Cash $6,138 $15,751 $23,332
Accounts Receivable $3,245 $3,634 $3,910
Inventory $1,815 $2,056 $2,124
Other Current Assets $0 $0 $0
Total Current Assets $11,198 $21,442 $29,366
Long-term Assets
Long-term Assets $20,000 $20,000 $20,000
Accumulated Depreciation $1,992 $3,992 $5,992
Total Long-term Assets $18,008 $16,008 $14,008
Total Assets $29,206 $37,450 $43,374
Current Liabilities
Accounts Payable $7,088 $7,090 $7,296
Current Borrowing $0 $0 $0
Other Current Liabilities $0 $0 $0
Subtotal Current Liabilities $7,088 $7,090 $7,296
Overall the company's projections show a company that fac es the usual risks of companies in
this industry and one that will be profitable in the long-run. The company shows that it has
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F & R Auto Repair
higher SG&A costs than other competitors, however management has deliberately overstated
costs and minimized profits in order to create a "safe" or "buffer" zone in c ase of hard times or
other unforeseeable problems. Pre-tax return on net worth and pre-tax return on assets appears
to be very high, especially within the first two years, however this is due to the fac t that the
company will be operating with fewer assets than most companies in the first few years until it
can build up enough c ash to ac quire the tools and fac ilities that are desired and go beyond the
"adequate" level.
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F & R Auto Repair
Table: Ratios
Ratio Analysis
Year 1 Year 2 Year 3 Industry Profile
Sales Growth n.a. 12.00% 7.57% 7.00%
Percent of Sales
Sales 100.00% 100.00% 100.00% 100.00%
Gross Margin 90.00% 90.00% 90.00% n.a.
Selling, General & Administrative Expenses 89.32% 84.89% 86.42% 75.20%
Advertising Expenses 1.34% 1.50% 1.39% 1.30%
Profit Before Interest and Taxes 2.03% 8.15% 5.81% 1.70%
Main Ratios
Current 1.58 3.02 4.02 1.17
Quick 1.32 2.73 3.73 0.65
Total Debt to Total Assets 85.90% 61.65% 49.10% 59.50%
Pre-tax Return on Net Worth 42.28% 101.88% 49.94% 1.80%
Pre-tax Return on Assets 5.96% 39.07% 25.42% 4.60%
Activity Ratios
Accounts Receivable Turnover 5.51 5.51 5.51 n.a
Collection Days 57 63 64 n.a
Inventory Turnover 10.91 10.35 10.31 n.a
Accounts Payable Turnover 11.87 12.17 12.17 n.a
Payment Days 27 30 30 n.a
Total Asset Turnover 6.12 5.35 4.97 n.a
Debt Ratios
Debt to Net Worth 6.09 1.61 0.96 n.a
Current Liab. to Liab. 0.28 0.31 0.34 n.a
Liquidity Ratios
Net Working Capital $4,111 $14,352 $22,070 n.a
Interest Coverage 1.92 9.61 8.35 n.a
Additional Ratios
Assets to Sales 0.16 0.19 0.20 n.a
Current Debt/Total Assets 24% 19% 17% n.a
Acid Test 0.87 2.22 3.20 n.a
Sales/Net Worth 43.41 13.95 9.76 n.a
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F & R Auto Repair
Dividend Payout 0.00 0.00 0.00 n.a
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Appendix
Table: Sales Forecast
Sales Forecast
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Sales
Routine maintenance 0% $4,000 $4,000 $4,000 $4,000 $4,000 $4,000 $4,500 $4,500 $4,500 $4,500 $4,500 $4,500
Small repair jobs 0% $4,500 $4,500 $4,500 $4,500 $4,500 $4,500 $5,500 $5,500 $5,500 $5,500 $5,500 $5,500
Large repair jobs 0% $4,800 $4,800 $4,800 $4,800 $4,800 $4,800 $6,500 $6,500 $6,500 $6,500 $6,500 $6,500
Total Sales $13,300 $13,300 $13,300 $13,300 $13,300 $13,300 $16,500 $16,500 $16,500 $16,500 $16,500 $16,500
Direct Cost of Sales Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Routine maintenance $400 $400 $400 $400 $400 $400 $450 $450 $450 $450 $450 $450
Small repair jobs $450 $450 $450 $450 $450 $450 $550 $550 $550 $550 $550 $550
Large repair jobs $480 $480 $480 $480 $480 $480 $650 $650 $650 $650 $650 $650
Subtotal Direct Cost of Sales $1,330 $1,330 $1,330 $1,330 $1,330 $1,330 $1,650 $1,650 $1,650 $1,650 $1,650 $1,650
Page 1
Appendix
Table: Personnel
Personnel Plan
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Mr. Ford 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000
Mr. Ronald 0% $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000 $3,000
Office manager (part time) 0% $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200 $1,200
Apprentice mechanic (part time) 0% $0 $0 $0 $0 $0 $0 $1,150 $1,150 $1,150 $1,150 $1,150 $1,150
Apprentice mechanic (part time) 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Apprentice mechanic (part time) 0% $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total People 3 3 3 3 3 3 4 4 4 4 4 4
Total Payroll $7,200 $7,200 $7,200 $7,200 $7,200 $7,200 $8,350 $8,350 $8,350 $8,350 $8,350 $8,350
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Appendix
Table: General Assumptions
General Assumptions
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Plan Month 1 2 3 4 5 6 7 8 9 10 11 12
Current Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Long-term Interest Rate 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00% 10.00%
Tax Rate 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00% 30.00%
Other 0 0 0 0 0 0 0 0 0 0 0 0
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Appendix
Table: Profit and Loss
Gross Margin $11,970 $11,970 $11,970 $11,970 $11,970 $11,970 $14,850 $14,850 $14,850 $14,850 $14,850 $14,850
Gross Margin % 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00% 90.00%
Expenses
Payroll $7,200 $7,200 $7,200 $7,200 $7,200 $7,200 $8,350 $8,350 $8,350 $8,350 $8,350 $8,350
Sales and Marketing and Other $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500
Expenses
Depreciation $166 $166 $166 $166 $166 $166 $166 $166 $166 $166 $166 $166
Leased Equipment $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500 $500
Utilities $400 $400 $400 $400 $400 $400 $400 $400 $400 $400 $400 $400
Insurance $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600 $600
Rent $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000 $2,000
Payroll Taxes 15% $1,080 $1,080 $1,080 $1,080 $1,080 $1,080 $1,253 $1,253 $1,253 $1,253 $1,253 $1,253
Other $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Operating Expenses $12,446 $12,446 $12,446 $12,446 $12,446 $12,446 $13,769 $13,769 $13,769 $13,769 $13,769 $13,769
Profit Before Interest and Taxes ($476) ($476) ($476) ($476) ($476) ($476) $1,082 $1,082 $1,082 $1,082 $1,082 $1,082
EBITDA ($310) ($310) ($310) ($310) ($310) ($310) $1,248 $1,248 $1,248 $1,248 $1,248 $1,248
Interest Expense $165 $164 $162 $161 $160 $158 $157 $156 $154 $153 $151 $150
Taxes Incurred ($192) ($192) ($192) ($191) ($191) ($190) $277 $278 $278 $279 $279 $279
Net Profit ($449) ($448) ($447) ($446) ($445) ($444) $647 $648 $649 $650 $651 $652
Net Profit/Sales -3.38% -3.37% -3.36% -3.35% -3.35% -3.34% 3.92% 3.93% 3.93% 3.94% 3.95% 3.95%
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Appendix
Table: Cash Flow
Expenditures Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Net Cash Flow $4,342 ($3,149) ($449) ($448) ($447) ($446) $1,242 ($3) $648 $648 $649 $650
Cash Balance $7,242 $4,092 $3,644 $3,196 $2,750 $2,304 $3,546 $3,543 $4,190 $4,839 $5,488 $6,138
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Appendix
Table: Balance Sheet
Current Assets
Cash $2,900 $7,242 $4,092 $3,644 $3,196 $2,750 $2,304 $3,546 $3,543 $4,190 $4,839 $5,488 $6,138
Accounts Receivable $0 $1,330 $2,616 $2,616 $2,616 $2,616 $2,616 $2,936 $3,245 $3,245 $3,245 $3,245 $3,245
Inventory $0 $1,463 $1,463 $1,463 $1,463 $1,463 $1,463 $1,815 $1,815 $1,815 $1,815 $1,815 $1,815
Other Current Assets $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Total Current Assets $2,900 $10,035 $8,171 $7,722 $7,275 $6,828 $6,383 $8,296 $8,603 $9,250 $9,899 $10,548 $11,198
Long-term Assets
Long-term Assets $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000 $20,000
Accumulated Depreciation $0 $166 $332 $498 $664 $830 $996 $1,162 $1,328 $1,494 $1,660 $1,826 $1,992
Total Long-term Assets $20,000 $19,834 $19,668 $19,502 $19,336 $19,170 $19,004 $18,838 $18,672 $18,506 $18,340 $18,174 $18,008
Total Assets $22,900 $29,869 $27,839 $27,224 $26,611 $25,998 $25,387 $27,134 $27,275 $27,756 $28,239 $28,722 $29,206
Liabilities and Capital Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12
Current Liabilities
Accounts Payable $0 $7,584 $6,169 $6,168 $6,167 $6,166 $6,165 $7,433 $7,091 $7,090 $7,089 $7,088 $7,088
Current Borrowing $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Other Current Liabilities $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Subtotal Current Liabilities $0 $7,584 $6,169 $6,168 $6,167 $6,166 $6,165 $7,433 $7,091 $7,090 $7,089 $7,088 $7,088
Long-term Liabilities $20,000 $19,833 $19,667 $19,500 $19,333 $19,167 $19,000 $18,833 $18,667 $18,500 $18,333 $18,167 $18,000
Total Liabilities $20,000 $27,418 $25,836 $25,668 $25,501 $25,333 $25,165 $26,266 $25,758 $25,590 $25,423 $25,255 $25,088
Paid-in Capital $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000 $12,000
Retained Earnings ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100) ($9,100)
Earnings $0 ($449) ($897) ($1,344) ($1,790) ($2,235) ($2,679) ($2,032) ($1,383) ($734) ($84) $567 $1,219
Total Capital $2,900 $2,451 $2,003 $1,556 $1,110 $665 $221 $868 $1,517 $2,166 $2,816 $3,467 $4,119
Total Liabilities and Capital $22,900 $29,869 $27,839 $27,224 $26,611 $25,998 $25,387 $27,134 $27,275 $27,756 $28,239 $28,722 $29,206
Net Worth $2,900 $2,451 $2,003 $1,556 $1,110 $665 $221 $868 $1,517 $2,166 $2,816 $3,467 $4,119
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