Nawoong Yoon is a 22-year-old who has always loved cars. He grew up helping his father, a mechanic, run his business in Richmond, BC. Unfortunately, Nawoong’s dad was severely injured while repairing a short-haul truck and decided to retire just as Nawoong was graduating high school. Nawoong had plans of working with his dad over the near term as he figured out his career path. Perhaps taking over the shop was an option down the road. However, his dad had been quick to sell the business and both his parents had strongly urged him to go to college (as they always had from an early age).

Nawoong ended up studying mechanical engineering and graduated with top grades. However, it’s currently a tough job market and he has only received one offer- to work as a temp at a major firm. While he would get some exposure to the engineering industry, much of the work is administrative- communicating with customers and production managers, maintaining accurate records/paperwork, etc. Nawoong isn’t thrilled about the compensation, as he would be paid $19 an hour for three months (40 hours a week). He believes he can eventually get a job earning $50,000 a year but isn’t sure exactly when that might happen- one of his lingering concerns is that his wage may only grow at about a 3% annual rate for the first five years of his career. Hence, Nawoong is considering starting his own auto parts and repair business. He wants to initially focus on sales of common replacement parts such as wiper blades, motor vehicle fluids, and headlights. He also plans to accept small servicing jobs to complete on his own. If more complex repairs come up, Nawoong wants to employ his father’s long-time friend, Jayar, on an hourly basis. This would help Nawoong continue developing his skills via mentorship while procuring some higher paying work, too.

Since Jayar lives out of town, he would require a $100 travel fee to come out to Nawoong’s shop. This would be followed by an hourly rate of $50 per hour, up to a maximum of six hours. Jayar has implied that he would prefer to work on Saturdays since his own shop is closed and he gets the next day to rest.
Nawoong believes there will be 800 minor servicing jobs in the first year and maybe 100 major repair jobs (he anticipates 4% year-over-year growth for the next three years then flat numbers afterward). Nawoong anticipates the minor jobs will be billed at an average rate of $75 per job (taking 45 minutes each on average), while the major jobs will be billed at a rate of $400 per job. For the major jobs, the average time required will be about two hours (both Nawoong and Jayar will simultaneously work that time, with Nawoong serving as labor help).

As he is not from an accounting background, Nawoong wants an idea of how someone may maintain records/costs for a particular job in progress. He is especially confused about how the shop’s monthly rent of $3,000 would be dealt with. There is also the matter of minor other production costs averaging out to $10 per hour worked in the shop.

In his second year, Nawoong is planning on employing Jayar for only half of the major jobs. By the third year, Nawoong expects not to need Jayar’s help at all since he will have mastered the necessary skills. When working on major jobs without Jayar, Nawoong will need to hire general labour assistance at $20 per hour. In addition to labor costs, materials costs will average out as 25% of revenues for minor jobs and 33% of revenues for major jobs.

First-year sales of minor car parts are expected to total $15,000 (55% gross margin) and grow at a rate of 3% per year for five years afterward (assuming no advertising). Nawoong believes that spending $500 a month on flyers and online ads could help increase revenue numbers in the second year and beyond. With marketing, Nawoong believes that the sales growth rate can be bumped up to 10% annually for five years, and servicing jobs can also grow at an annual rate of 7% for the next three years). Additionally, Nawoong is looking for general budgeting tips and advice on how budgeting can help his small business. Seeing a sample budget and analysis would be helpful.

Nawoong is considering asking Jayar to partner up with him. Since Jayar isn’t currently operating in the same area, there wouldn’t be much direct competition or sabotage. Nawoong is thinking of offering Jayar a 25% share in his business in exchange for free labor (one hundred 3-hour Saturdays over the course of two years or equivalent) for the next two years. Nawoong wants a detailed analysis of partnering with Jayar and a recommendation on if he should make the offer.
Nawoong has noted that a quality painting machine can be purchased for $2,000. Alternatively, he has found a used machine for $800 which can be used after $400 of repairs. Nawoong estimates that a new machine can paint 1,000 cars in the next three years while the repaired one can paint 800 (at that point, the new machine could be resold for $200, but the repaired one would be worthless). Nawoong is wondering about the pros and cons of buying a new machine versus repairing the used one. Also, he needs advice on depreciation policy and methodology.

Nawoong has heard of cost-volume-profit analysis and wants more details on what it is, including reading and using a CVP graph. He is wondering which specific metrics/tools can help him manage his business and if there is value in defining precise goals as his business grows.

Although Nawoong doesn’t have much business management experience, he is committed to learning new skills and running an ethical business if he does indeed pursue entrepreneurship. He is primarily interested in a three-year outlook/plan but is open to analysis of a longer time frame. As his parents are covering living expenses, for now, Nawoong isn’t overly concerned about his short-term cash situation but does want to be successful relatively soon. Fortunately, he doesn’t have student loans, but his bank account is practically empty. He does have a $10,000 line of credit secured at a rate of 6.25%.

Question

Advise Nawoong on his career path and the outlook of his proposed business. Produce a business report, including a comprehensive analysis, recommendations, and any questions you may need to ask Nawoong.

Answer rating: 100% (QA)

Step 12 The first factor we might recommend to Nawoong is to satisfy his entrepreneurial goals and b... View the full answer