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Michael Auto Repair Business Plan

Student Name

Instructor Name

Institutional Affiliation

Date
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Table of Content

Product Pricing………………………………………………………………………………….3

Distribution Channels……………………………………………………………………………6

Business Location………………………………………………………………………………8

Break-Even Point……………………………………………………..........................................9

Financing and Funding………………………………………………………………………10

Key Financing Ratios…………………………………………………………………………11

References………………………………………………………………………………………14
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1.0. Product Pricing

Michael auto repair has to choose an effective pricing strategy since its essential for the

continued success in sales. To determine the right tactic for the spares parts, setting prices for the

products may seem simple: first, Michael's auto repair shop has to list its products higher than its

acquiring cost, then it will make profits. However, prices are just more than numbers. The way

the auto repair shop would price its products could be a reflection of its business's identity, how

it perceives its competitors and how it values its customers. Therefore, it is essential to have a

well-planned strategy for pricing.

1.1. What should be considered by Michael spares when setting a pricing strategy.

When the auto repair shop sets prices for its products, it should not be a haphazard

decision focused on entirely making profits. Has to be a conscious, informed choice in which

Michael's business financial stability and brand would be considered. As with any pricing

decision, the determination of its business strategy has to start with assessing its business needs

and objectives. This would involve commercial soul searching; for instance, what does Michael's

Auto repair wants to contribute to the world's economy? This can mean embracing a traditional

retailing strategy, establishing a business mindset, or emphasizing its customers’ relationship in

the course of doing business.

Once Michael Auto repairs have established its goals and defined the needs, they'll have

to do some research on the market they are entering. Then the company has to determine its

major competitors in the industry through the conduction of online research or to scout out local

companies. No matter the pricing strategy the auto repairs would adopt, its competitors would
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impact the company's success and future decisions. Therefore, understanding the competitors'

strategies can help Michael auto repair its operations from others in the market. The company

would be operating in an economy with many small other businesses providing the same goods

and services; an effective strategy would help the company stand out.

The final stage of the research is Michael auto repairs has to talk with its potential

customers for them to get a feeling on how they will value the company’s products and services.

This would give them valuable insight on how to set their prices.

1.2. Pricing strategies that would attract customers to Michael auto repairs

There are several ways Michael auto repairs would use to price its products, and the

company would find some works better than the others because of market dynamics. The pricing

strategy that the company would consider using to attract the customers are as follows:

a. Price skimming

This will involve the company setting high prices when introducing its products and then

lowering its prices as more and more competitors join the market. This pricing strategy is ideal

for businesses entering an emerging market. prices are just more than numbers. The way the auto

repair shop would price its products could be a reflection of its business's identity, how it

perceives its competitors and how it values its customers But since Michael auto repairs could be

entering markets in which there are no other auto repairs, it is essential, at the beginning to apply

this pricing strategy since it will give the company an opportunity of capitalizing on the early

adopters and undercutting the future competitors when they join a market which is already

developed. A skimming strategy that hinges mainly on the market that Michael auto repairs are

considering to enter.
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b. Market penetration pricing strategy

This strategy of market penetration is the opposite of price skimming. Rather than

beginning high and later lowering slowly, Michael auto repairs should take over the market by

undercutting its competitors. Once the auto repairs come up with a reliable customer base, the

company can increase prices. Several factors decide on such a strategy, for instance, the

company's ability to take losses upfront, potentially in establishing a stronger footing in the

market. It is also essential for Michael auto repairs to develop loyalty amongst its customer,

which would lead to requiring other branding and marketing strategies.

c. Premium pricing

Michael auto spares aim at creating and providing high-quality products in the market;

therefore, it would require marketing them to higher-income earners. What is fundamental to this

pricing strategy is providing high-quality services and that customers would consider being of

high value. Therefore, Michael auto repairs would need to develop a lifestyle of luxurious

branding strategy that is appealing to the right consumers.

d. Economy Pricing

This involves a company targeting customers who are considering saving money as much

as possible on the products or services they are willing to pay for. Therefore, in some scenarios,

Michael Auto repairs will also have to consider applying this pricing strategy if it wants to target

this type of customer.

e. Bundling pricing
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Michael auto repairs would pair various products together, for instance, motorcycle

spares, and sell them for less than how it would cost each individual product; this is referred to as

bundle pricing. This type of pricing is the best way of moving a lot of inventory quickly. This

form of pricing, which, if successful, would involve low-value profits on items outweighing

losses on the items of high value included in a bundle.

2.0. Distribution Channels

This is a process through which products and services to the consumers. These channels

could be retailers, wholesalers, distributors, or the internet. Therefore, this is downstream in

which Michael Auto repairs would get its products to the customers and an upstream to describe

who their suppliers are. The repair parts would have to make their way to customers through

several channels; hence, the company has to combine both long term and short term. Generally,

increasing the number of channels a customer can get the products will increase sales; therefore,

Michael auto Repair has to diversify distribution channels to enable its customers to get their

products quickly (Gam et al., 2013). The company may also develop a complex system that

would make management of distribution difficult; Michael auto repairs should avoid long

distribution channels since they could mean fewer profits.

2.1. Choosing the right distribution channel

For Michael, auto repairs to find a suitable distribution may be challenging and this

choice should be made with an indirect alignment with the goals and objectives of the company.

The goal of Michael auto repairs is to establish some sales within its first year of operation, then

an indirect channel of distribution would provide it with a starting speed which it requires to

achieve those goals (Gam et al. 2013). However, it may also consider creating direct
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relationships with its customers, which is long-lasting as its key strategy, then it has to bear the

burden of the workload and high starting cost to do that. However, some factors should be

considered while choosing the company's distribution channels: the product, market,

competition, and the company.

The market is where the customers of Michael auto repairs are, their numbers, their

purchasing habits and the best way of reaching them. For example, the indirect distribution

would work better for geographically stretched customers and would need more infrastructure to

access them. When it comes to the company’s products, Michael auto repairs need to consider

their perishability, costs, and goods sold in bulk. When the company considers its competition, it

must consider if it can reach its customers conveniently and quickly (Gam et al., 2013). If the

company's products don't have less likely competition in the local market hence, the indirect

distribution won't have downsides. Still, Michael auto repairs would not want to rely on it if

competitors directly reach consumers. Michael auto repairs have to consider the roles which

distribution plays in the company. A healthy cash flow is necessary for maintaining an indirect

distribution channel, for example, while management expertise is essential for maintaining direct

distribution control.

2.2. Direct and Indirect channels

Distributional channels can be broken into two types that are direct and indirect. Michael auto

repairs will adopt any of these forms of distribution channels. A direct channel will allow

consumers to buy products directly from Michael auto parts whereas, an indirect channel allows

the consumers to acquire products from retail shops. Michael auto repairs serve as a supplier.
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The main difference between the two channels of distribution which will be used by

Michael auto repairs that are direct and indirect is as follows: direct distribution would allow

Michael auto repairs to deal directly with its end customers, for instance, developing an outlet

that will sell its spare parts directly to customers. The company may consider using an e-

commerce platform to reach its customers directly. Michael auto repairs will also consider

having a huge company and sell its products to wholesalers or retailers who would sell them

directly to customers.

3.0. Business Location

Strategic location is one of the most critical decisions for any business. While choosing

the right location for Michael auto repairs, it is essential to consider the following; it should be

convenient for its customers. Michael auto repair needs to consider the number of customers who

drop vehicles off and have choices for walking to where they are going or there are other

transport options. Michael auto repairs should beneficially position the company in a place where

public transportation is near, so if individuals want to drop their vehicles, then they could jump

subways.

Michael auto repairs should use signage to attract customers. It is suitable for the

company to select a location near the main road to enable individuals driving by to see it and

knowing the exact location of the company when they require your services. Michael auto parts

can use signage to direct individuals right to their doorstep, making it a good option and

affordable. Additionally, it is also essential for Michael auto parts to select a spot which also

tracks can get to; it is not just about getting a strategic location that customers get into; the

company also has to be able to receive parts of shipment and any other products from big

delivery tracks. Therefore, Michael auto repairs need to have enough space around and inside the
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building of operation to enable tracks to enter and have spots designated to unload. Therefore,

Michael auto repairs need to ensure that it has enough space for all its customers for parking and

sufficient space for bays, allowing the team to work quickly.

Lastly, Michael auto repairs should do its zoning homework, and some areas should be

zoned for such a type of its operation. Therefore, research is required to find a particular location

that works for their company and the services it provides. For instance, restorations and collision

working should be loud reasonably. Some close locations, primarily residential areas, could not

be available to such types of businesses. If the company abides by these rules would assist it in

avoiding potential problems with the neighboring organizations.

4.0. Break-even point

To calculate a breakeven is based on units; is dividing fixed costs by revenue/unit then

less the variable costs per unit.

For instance, if fixed costs are $ 75,000

Revenue per unit is $ 5,000 and Variable cost per unit is $ 1,000

Therefore, BEP is 75,000/ (5,000 – 1,000) = 18.75 units.

4.1. Margin

The margin of contribution = price of product – variable costs

If the breakeven analysis gives a BEP, the calculations continue. Once the numbers are

crunched, the company would realize that it would want to sell more goods and billing more

hours than those realized to break even. Therefore, taking advantage of a good look at the

company's plans is realistic and if raising prices is needed, then looking for ways of cutting costs.
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Then the company should consider if its product mix would succeed in the market. If the analysis

indicates to you the number of products needed to be sold, then there is no guarantee that the

service would sell.

5.0. Financing and Funding

Michael auto repairs have to devise ways of raising funds. The company needs to look for

available financing options for the owners. Based on the analysis, the startup costs for an auto

repair shop are between $ 10,000 and $ 50,000. The company may seek financing in any of the

following ways.

5.1. Funding from friends and family

The first option of starting up an auto repair shop is asking for financial assistance from

friends and family for capital. When taking financing from family and friends, it is essential to

have listed terms clearly to avoid future disagreements and conflicts. It is also essential to have a

business lawyer check the contract papers for having protection from liabilities. Some of the

things to consider to put into writing are; the amount of money lent, when to refund the money if

interest is charge and so on.

5.2. Small business grants

There are no available grants, particularly for new auto repairs shops; however, there are

several grants available for any form of business. For instance, government grants for small

business owners. Application of grants could be competitive since they don't require to be paid.

5.3. Loans
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There are several business loans, and they could be privately or government-backed loans.

Most loans need minimum credit levels, and others need one to put in fixed money from fixed

savings. To fund Michael's auto repairs, this needs to apply for loans for funding the project, but

the loan should be taken as a last resort that is other options have been exhausted and have

confidence in repaying it.

5.4. Auto repairs shop equipment’s funding

Michael auto repairs should consider applying this method of financing. If purchasing a

piece of expensive, specialized equipment for the company, owners should look to a loan that is

back by a piece of particular machinery or piece of equipment requiring funding.

5.5. Equipment / commercial loan

With this type of loan, lenders give upfront money for purchasing and then the company

would be technically owning the equipment. The company would then pay off funds used in

purchasing the equipment over time, with little interest. Its benefit is the company would claim

depreciation and interest of bought items as a tax deduction.

5.6. Finance Lease

The lender would purchase equipment Michael auto repairs needs on their behalf. Then rent the

equipment from them for some time agreed.

6.0. Key financial Ratios

Financial ratios are used in the tracking of the performance of a company. To determine specific

ratios and to track their changes per value would be carried out in spotting trends that could be

developing in the business. For example, an increase in the debt-to-assets ratio could indicate
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that the business is burdened with debt and could eventually face risks. Financial ratios also

make a comparative judgment about the performance of the company. Comparing financial

ratios with the company's competitors is carried out to identify if a company is performing better

or worse in the averagely required in the industry (Tian et al. 2017). For instance, comparing the

return on assets between organizations would help investors determine the company is making

use of its assets efficiently.

6.1. Liquidity ratios

These ratios measure the ability of a company to repay its financial obligations. They include

the following:

a. Current ratio measuring the ability of the company to pay short liabilities with current

assets. The current ratio divides by current liabilities.

Additionally, is operating cash flow ratio = operating cash flow / current liabilities.

b. Leverage financial ratios; this measures the amount of capital coming from debt. These

ratios are utilized in evaluating the debt level of the company. Leverage ratios include

Debt ratio = total liabilities / total assets

Debt to the ratio of equity = total liabilities/equity of shareholders

Interest cover ratio = operating incomes / interest expense

c. The efficiency ratio is also called a financial activity ratio, which measures how well the

company is using its resources and assets. It includes

The assets turnover ratio measures a company's ability to raise sales from its assets;

therefore, it is equal to net sales / average total assets.

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An inventory turnover ratio is used to measure the number of times the inventories of a

company can be sold and replace for some time; therefore, it is equal to the cost of goods

sold / average inventories (Tian et al., 2017).

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Reference

Gam, U., & Lee, S. Y. (2013). Case Study for Distribution Channel of Lubricants and Franchise

Network of Korea. The Korean Journal of Franchise Management, 4(1), 91-112.

https://www.koreascience.or.kr/article/JAKO201306859914701.page

Tian, S., & Yu, Y. (2017). Financial ratios and bankruptcy predictions: An international

evidence. International Review of Economics & Finance, 51, 510-526.

https://www.sciencedirect.com/science/article/pii/S1059056017305348