Using paint/material accounts to improve profits

The toughest obstacle to paint/material profitability is reporting products in the wrong category. I encourage shops to separate paint/materials into four categories: Paint, Supplies, Materials and Tools/Equipment. Since the calculated paint/material reimbursement you receive on damage appraisals is for liquid paint products only, it is important that the products used are accounted for correctly to ensure items outside of the liquid paint category are billed properly.

Knowing which category items go into will make it easier to bill for the items used during a repair. However, regardless of whether you bill for an item or not, accounting for them in the right area is what keeps you profitable. Accounting for paint and materials begins by organizing accounts like the chart above so you can receipt for products properly when they are delivered. Your supplier can assist you with accounting of items by creating a separate invoice for the items according to the account codes when they are ordered. Individual invoices will help prevent errors in the accounting process. The alternative is checking each line on the invoice and identifying the proper account. Ensuring the items you use on a day-to-day basis are properly accounted for is the first step in improving your profitability.

I commonly see everything used in the paint shop all put into one category; according to the chart above they should be separated into four buckets: Paint, Supplies, Materials and Tools/Equipment. As you can imagine, it would not take long for your profits to dwindle if a can of body filler or a roll of sandpaper was charged against your paint account — even a respirator can skew your profitability.  

The Supplies account is also called consumables as they are consumed during a repair. Billing procedures for supplies are different from shop to shop and market to market.  Some shops will add a charge for body supplies based on the number of hours on a repair appraisal, others use inventory systems to charge for each item used individually and others do not charge at all. 

Maintenance and Waterborne Best Practices

A majority of the profit loss I see is in the Materials category, which is unique to the other three.  The materials category is unique because the items listed in materials are all required, but often overlooked as billable. Many use a token fee, “Corrosion protection — $12” or “Seam Sealer — $10” in miscellaneous on their damage appraisals. Without getting into estimating processes, those two charges do not tell anyone anything: doesn’t say what product, doesn’t say where it is used nor, does it specify any quantity. My thought is that if you can measure what you use and tie it to a repair process, then it should be specified and billed. Another thought is that if it goes on a car and leaves with the car, then it could be considered a part and every part used on a repair should be billed separately. I had a chance to work with a shop using the 3M CRiMP tool where we created an invoice for the items required on a door skin replacement. Using the concept that materials are a part, let’s see how the billing would work.

As you can see, there were four additional “parts” required to install the door skin in accordance to OEM procedures and the 3M SOP, which were itemized in the 3M CRiMP invoice. The total of those parts was $132.38, a little bit more that the “Corrosion protection — $12” or “Seam Sealer — $10” shown on the damage appraisal. Just identifying these materials and documenting them as parts added $110.38 in sales to this repair versus listing the vague $12 and $10 charges.

The Tools/Equipment category is just that tools and equipment you need to operate your business. The key to profitability is knowing what is considered a tool or piece of equipment and ensuring they are not placed in one of the other buckets. Tools and equipment are generally higher-priced items and can affect profitability quickly if charged against the wrong account.

Not knowing whether an item is considered Paint, Supplies, Materials or Tools/Equipment can rob you of profits. Review how the items circulating through your shop are charged to your business as well as how the payments received are credited. I mentioned earlier that paint is reimbursed on a damage appraisal using a formula related to paint hours. If that reimbursement is not posted to a separate paint account, you will never show a profit. Likewise, if everything is put in one category, the reimbursement will never cover the expense posted.

	In just 3 minutes, you will learn the best practices surrounding maintenance and waterborne paint.