Growing a footprint is one of the most exciting and challenging endeavors for quick lube operators.
Pete Frey knows a thing or two about that. He is the former president of Take 5 Oil Change and oversaw the brand through some of its biggest growth spurts. He’s now an operator of a single franchised Take 5 shop in Louisiana.
Whether an operation is big or small, successful operators are sure to do their homework.
“The most important thing is to make sure that the property itself meets all your criteria,” Frey says. “Many people, because of price or other reasons, have walked away from sites that probably would have made them a lot of money in the long run because sometimes you feel overwhelmed.”
There’s a lot to consider on your method to acquire the property itself, and this article will dive into that. But there’s another big factor, and that’s your leadership and mental planning. You’ve got to be ready for the challenge and not get overwhelmed, as Frey put it.
“You don't have to be an absolute real estate guru to pick out an ‘A’ site,” Frey says. “But you can make some critical mistakes along the way.”
Take a walk through some key acquisition tips from two angles—the mindset and the method—to make sure you’re on the right path.
Mindset: Ready for Change
Joe Conner is a managing director in the transportation and logistics group at Harris Williams, a firm that specializes in mergers and acquisitions. Conner and his colleagues have worked on some of the biggest company acquisitions in the quick maintenance industry.
He says that whether you’re a big firm that’s taking on a large network or a small operator setting up a second location, there needs to be a full mental preparation for the work ahead. A shop owner acquiring a second location must prepare to split their attention by half at each store.
The first question is: Are you ready?
“Do you have good managers in place in your store?” Conner says. “Do you have people that you feel like you can move into a location who are trained up who buy into the culture of the organization that you're running so that you know, when you have that second location, or if it's your 20th location, it looks and feels like the rest of them.”
Working with a mergers and acquisitions partner to identify all the challenge spots might be the right choice for a larger company. For smaller operators, an industry peer, fellow franchise owner, or another business owner might be a good fit.
Method: Linking Sites and Customers
Frey says that it’s easy to get into a long wish list for a potential quick lube property. If you’re feeling unsure where to focus, think of the customer.
“I think really the prime and most important thing is to identify a good piece of property that’s going to attract your type of customers,” he says. “That’s where a good program to help you identify the demographics comes in handy.”
Learn about the community that you’re looking at. What kinds of vehicles are driving by each day, and how many? Your potential shop site needs to match the customers’ needs right there on the spot in many cases, because oil changes tend to be quick decisions.
While you’re considering how your site will attract customers, think very literally about how they will access the shop. There might be certain ingress and egress requirements that make or break a deal.
“You can fall in love with a piece of property that has tons of cars coming by,” Frey says. “But if people can't get to a light and make a turn to get to you, then you’re going to find yourself in trouble there.”
Mindset: Shift Your Leadership
The operator of one store is often the day-to-day manager as well. There’s an important transition that takes place when that operator starts to oversee a bigger network of shops. That day-to-day work is delegated.
Being able to transfer your day-to-day expertise and management doesn’t happen naturally. In many cases, you need to think and plan a strategy to delegate duties to your management team. The mindset challenge for the operator is to really change the way they work on perfecting their enterprise.
“That is a very hard leap for a successful entrepreneur who’s been doing it one way, and then realizes that they might have to let go of some of that stuff because they can’t get that overextended,” Conner says.
It’s about trusting the managers that you’ve put into place and believing in the process that you’ve built in the company, Conner says. The upshot is that the processes that support growth are often in place for successful businesses. After working with multiple leaders going through this transition, Conner says that growth is no accident—it’s the goal.
Conner’s advice is to trust what you’ve built.
“You’re going to have to have an incredible belief in yourself and your team that you’ve got the right group to get it done,” he says.
Buying Commercial Real Estate—Pros and Cons
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Pros
- Equity in the property builds over time
- Asset value appreciates over time
- Potential for rental income
- Tax breaks for interest, depreciation and non-mortgage expenses
- Control of the property
Cons
- Up-front downpayment
- Difficult financing eligibility
- Prepayment penalties on loans
- Liability insurance required
- Potential for loss of liquidity or capital
Source: ValuePenguin (site)
Method: Buy or Lease?
Buying or leasing can depend on your personal preference, your initial investment abilities, your exit plans, and a lot of other factors.
Outright ownership of a property can be a good investment if it’s a good fit. At the end of a career, the owner could sell the business and retain the property for some partial income.
Leasing has become more common and could allow for an operator to get into a more suitable shop space, Frey says.
“I think if you are a single store operator, maybe the best way to go might be a lease property,” he says. “Or certainly finding a building that’s already there that you can convert. Maybe not go too far into debt with the property.”
There can be many moving parts during a lease negotiation, but Frey says operators should pay attention to exit options—starting after the first 10 years or so—and the assignment provisions in the event that you sell the business.
If your wish list for building attributes is a high priority, think about leasing property and building to suit.
“A single store operator, nine times out of 10, might find a long-term lease and then build what they want so that they can cross that off the list,” Frey says.
