When I ask shop owners how they QC (quality control) their body technicians – what they look for is to get a sense of how those techs are doing. They generally say they check for simple details, such as making sure that gaps are aligned and that door handles and lights work.
If I ask them how they QC their painter, they usually say they check color match, and look for dirt or runs in the paint.
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But if I ask how they QC their bookkeeper or accountant, most shop owners just draw a blank. But it's a critical business function.
Here are some rules I suggest to help ensure your bookkeeper or accountant is getting you the financial information you need to monitor and improve your business.
First, recognize that junk in equals junk out. If you're not putting accurate and detailed information into your accounting system, your profit-and-loss and other financial reports aren't going to be of very much value.
Second, a detailed chart of accounts will help ensure that items are getting coded and posted properly and consistently for both your management and accounting systems. (Email me for a sample chart of accounts.)
A good chart of accounts will help you meet my third rule: Don't lump things together. Don't just have one category for all labor; break down paint, body, mechanical and frame labor. Don't just have one category for all parts; break down OEM, non-OEM, recycled and "stock" (for such items as seam sealer).
Why? A good profit-and-loss statement doesn't just help you determine where you are making money or losing money. It also can help you determine where you are not maximizing profits. Lump all your parts into one category, and you'll probably find that you're making money – but is it the profit level you should be making? Different types of parts have different profit margins, so if you detail out the various types of parts, you can work to ensure you're maximizing profit on each.
Rule No. 4: Use the accrual system of accounting rather than cash-based. It will give you a much more accurate picture of how you business is performing month-to-month. Part of accrual accounting entails adjusting for your "work-in-progress" and "pre-payments" each month. Let's say you've paid a technician for some of the work done on a job that you haven't yet delivered and closed. By separating that out (and carrying it as an asset on your balance sheet), you can account for those expenses in the same month in which you are billing for the job. The income and expenses will synch up.
Similarly, if you've received pre-payments from a customer or insurer for work not yet performed, that should be separated out (and carried as a liability on your balance sheet) so that it gets accounted for in the month in which the sale occurred.
This may sound complex, but shops that have done it for a while will tell you it becomes relatively easy, and it gives them much more accurate accounting of sales and expenses.
One last rule for ensuring you're getting good information from your bookkeeper or accountant is to print out several versions of the profit-and-loss statement. Why? Let's say that on a month-to-date report you see your estimating system subscription is $200 a month. If your year-to-date report is for January through March, it should show $600 (3 months at $200 each) for that expense. If it doesn't, that will tell you someone missed (or misposted) a bill, or paid a bill twice.
Similarly, if a bill shows in the year-to-date report but not the month-to-date, that could indicate a bill wasn't posted for that month.
A percentage-of-income report shows you how much your paint materials, for example, are as a percentage of sales. These are useful measurements to track over time to look for changes that may indicate some problem within your shop or accounting processes.
Most shop owners understand the value of a system of quality control on production. Not having such a system means you've abdicated your responsibility rather than delegated it. The same holds true for your financial accounting. Make sure you're delegating that work; not abdicating your responsibility for ensuring it is the accurate tool you need to improve your business.
Mike Anderson , a former shop owner, currently operates CollisionAdvice.com, a training and consulting firm. He also acts as a facilitator for DuPont Performance Services' Business Council 20-groups.
If you have a business issue or question you'd like Mike to address, email him. [email protected]
