Analyzing your business correctly is time well invested

Aug. 3, 2016
Here is a list of items for consideration to be measured each and every month. Keep in mind that if you can’t measure it, you can’t manage it.

Too many shop owners spend all their time working “in” their business and not “on” the business. There really is a difference. One method is well known as working hard, and the other method is known as working smart.

Each month a good operator will sit in his/her office and really analyze his/her business. This time spent will make the shop money if the information is prepared in a fashion so that the owner/manager can compare the operation to targets set to maximize the profits of the shop.

The question that many people are asking these days is what should I be measuring in order to ensure I am maximizing productivity and profits of my shop?

The following is a list of items for consideration to be measured each and every month. Keep in mind that if you can’t measure it, you can’t manage it. Get focused, measure your business properly so you can make competent management decisions to move forward and achieve what you want to achieve. 

1. Labor rates — maintenance rate, diagnostic rate and re-flash rate. What multiples are you achieving between the amount paid hourly to the technician and the rate charged to the customer/client?

2. Effective Labor Rate — what are you really achieving in your labor rate after it is measured against the shop’s potential?

3. Number of Invoices/RO’s written each month — Are you controlling your volume or are you missing potential revenue because the shop is too busy?

4. Average Labor Hours Billed per Invoice —  Are you measuring productivity or just sales?

5. Average Sales and Gross Profit per invoice — What are you really making on that average sale in your shop? Is it growing or shrinking?

6. Average Labor produced per technician — Are your people above or below average? Are they improving as their knowledge increases?

7. Daily Operating Expense of the Shop — What does it cost to turn that key in the morning? Are you giving more thought to the “common sense” expenses of the shop?

8. Current Ratio — Is the business getting more liquid? Can the bills be paid in full when due?

9. Age of the Receivables — How long is it taking to collect the average receivable from the customer/client? Is progress being made to eliminate receivables? What is the true net profitability of each account? Should this account be retained or fired?

10. Age of Payables — Are you paying all bills when due and taking advantage of discounts offered for prompt payment?

11. Labor Billed to Total Wage Package Ratio — The wage package must include 100% of the shops wages, including management and all benefits and payroll costs. It helps measure the effectiveness of management’s ability to make the shop productive.

12. Gross profit by Revenue Category — What is the contribution to your business of each revenue category?  Are you focusing on the important issues that drive net profit?

13. The Shops Sales Mix — What is the breakdown that, when analyzed properly, can tell what type of customer/client base is in the shop? Therefore competent management decisions on the type of staff, equipment and training can be made.

14. Inventory Turn / Earn Index — Is the shop carrying the right level of inventory in each category or are we under or over stocked in certain lines?

15. Shop Efficiency — This seems to be the most misunderstood term in the industry and yet inefficiency is the biggest cost per hour in running a shop. Is the shop meeting the right percentage for the customer/client it is serving?

These are a number (but not all) of important measurements to be examined and measured, in a shop each month. Math does not lie, and it is a very precise science. By following the trend in your business (analyze the year to date numbers at all times), one can start to maximize profitability, enhance business relationships and really move their shop to the next level — the level that is required to ensure you do not buy yourself a job allowing you to enjoy a career.

Make the time to learn Business Management techniques and get focused on your future. One of the biggest factors in success today of any automotive shop is the courage to understand something. It is easy to book time off for fishing or hunting, but why not book two days off to enroll into a shop specific Business Management class and really start the process to understand your business. The industry specific management courses are available, but you must take the initiative and participate to take advantage of the future profit opportunity that is here and is getting stronger. The next 10 to 15 years in the independent sector of the automotive aftermarket industry are going to be far more profitable than the last 20 but only for a select few who understand how to gain the benefits.

Have you bought yourself a job, or are you enjoying a career?

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