A 10-Step Plan to Profitability - BodyShop Business

A 10-Step Plan to Profitability

A set of procedures that are very helpful for analyzing the operational and financial health of body shops.

As a certified management consultant in the
field of body shop management, I’m called upon – all too often
– to breathe life back into a dying business. Having done this
for more than 15 years, I’ve developed a set of procedures that
are very helpful for analyzing the operational and financial health
of body shops.

The following 10-step analysis helps implement
procedures to get a shop – your shop – profitable.

Note: Turning around a business requires
two things: skill and motivation – which make up the formula for
success: Skill x Motivation = Results. In order to save a sinking
ship – or shop – you must have equal amounts of skill and motivation.
In this article, I’ll address the skill side of the equation.

Step 1

Conduct a financial analysis. Are sales sufficient
to support the cost of doing business? Are gross profits (the
amount left over after paying technicians and for parts, materials,
subletting, etc.) sufficient to cover the cash required to keep
the business afloat? If not, from where will the cash come to
sustain operations?

Step 2

Perform a SWOT analysis by answering these
questions:

  • Strengths – What are the business’ strengths? Is it
    location, employees, DRP programs, length of time in business
    or some other reason?
  • Weaknesses – What are the business’ weaknesses? Is
    it a bad location, poor management, lack of systems and procedures,
    or poor quality work? What’s wrong about the business?
  • Opportunities – What opportunities exist in the business
    or its market that aren’t being taken advantage of? Is the facility
    underutilized? Are its potential DRP programs going untapped?
    Are estimates not being followed up?
  • Threats – What threats exist that might take out the
    business immediately or in the near future? Are payroll taxes
    up to date? Are the receivables within at least 90 days? Are any
    liens or judgments pending?

Step 3

Is a marketing plan in place? If so, is it being followed? I find
that many people confuse marketing with advertising; advertising
is only a small portion of the marketing plan. Good marketing
plans should include facility image, exterior colors, reception
and waiting areas, signs, shrubs, etc. A current customer’s visual
impression of your business speaks much more loudly than a television
or billboard ad.

Step 4

Estimate tracking is the key to turning around a poor-producing
shop. I find that highly profitable shops close between 60 and
80 percent of every estimate they write and that shops losing
money close between 15 and 30 percent of the estimates they write.

Obviously, many factors contribute to lost sales, but if your
facility looks nice and your estimators do a good job selling
the potential customer on the virtues of your shop, then you should
be getting your fair share of work. However, if you’re not measuring
the number of estimates written every day and comparing estimates
written to estimates sold, then you don’t have a clue as to how
well your shop could be doing.

Step 5

A DRP action plan is an essential ingredient for the success of
a shop today. If you don’t have a direct-repair or preferred-provider
program with the major insurers in your market, then you’ll be
forced to fight for the crumbs that are left over.

Getting on these programs takes time and commitment to providing
superior-quality repairs; you’ll probably have to become I-CAR
Gold Class certified, as well as employ ASE-certified technicians.
This level of training and commitment makes good business sense
whether you’re seeking DRP relationships or not. Remember, customers
will always demand the very best repair job they can get, and
the shops willing to provide it will always come out on top of
their markets.

Step 6

Production is the single largest problem facing this industry.
Body shops are manufacturing plants that require labor to produce
finished goods, so nothing irritates me more than to walk into
a body shop at 8:45 a.m. and see no one working.

Shops everywhere are losing thousands of dollars each day because
of poor production scheduling of technicians. In a shop with a
$30-per-hour labor rate, one hour of lost production costs the
shop more than $100 in lost sales. A five-technician shop that
loses two hours per technician per day is losing $1,000 each day.

A good production scheduling system tracks jobs sold, parts ordered,
technician clock hours versus technician flag hours and customers’
vehicles through every phase of the repair process so everyone
knows the status of the vehicles. Also, good production scheduling
systems should deliver at least 170 percent shop proficiency.

Step 7

Parts are the second most important link in the production chain.
In order to keep your technicians producing at peak capacity,
you need the right parts in the right place at the right time;
this requires a parts-ordering system, an order-status tracking
system, a parts-receiving system, a parts cut-in system and a
parts-staging system for the technicians. (Many shops just pile
their parts outside the body shop office, then let everyone look
through the pile when they need something.)

Parts are an integral part of your production process, so it’s
imperative that management controls every phase of the parts process
– from ordering to final installation. Remember what it costs
when a technician loses one hour of production time? Think about
this: Every minute your technician is standing around waiting
on a part – e.g. waiting for you to find it in your storage room
or for it to come back from the paint shop – it costs you $1.70
in lost sales. And these sales are lost forever – you cannot make
them up tomorrow!

Step 8

Materials are another important link in the chain. I find shops
going to both extremes here: They’ll either lock up everything
and make everyone wait on management to get a piece of sandpaper,
or they’ll pile up materials all over the shop – all over the
floor, benches, in customers’ cars, everywhere.

I suggest you give each technician a supply cabinet with whatever
supplies are needed, and then maintain an inventory-use sheet
to compare use by technicians to determine if excessive use is
occurring. Also, maintain a paint-mixing register and compare
it to finished repair orders to make sure you’re making a profit
on each job.

Step 9

Organizational structuring is simply making sure you have the
proper number of support staff members to technicians. My guideline
is one support employee for every three productive employees.

Do you have pay plans in place to achieve your desired business
objectives? Pay plans should be developed to reward employees
for achieving the performance required to make the shop profitable.
In other words, when the shop is successful, the employees will
be successful in earning the level of pay they desire.

Have you defined all procedures, from writing estimates to collecting
money from the customer? Have you tracked paper flow on a flowchart
so everyone knows how jobs flow through the shop? Procedures and
processes must be documented. A shop cannot afford to support
employees who are constantly standing around waiting on instructions.
By committing your processes and procedures in writing, you can
eliminate most of the

confusion.

Step 10

Controlling expenses is the key to producing profits. You simply
cannot pay out more money than you take in and expect to survive.
Profits are the lifeblood of any business; they provide the capital
for new equipment, training, better facilities, etc. Without profits,
a business withers and dies.

The following is a set of guidelines that I’ve developed from
the top profit-producing clients with whom I work:

Labor profit = .65 cents of every dollar

$$$

Parts profit = .35 cents of every dollar

$$$

Materials profit = .53 cents of every dollar

$$$

Sublet profit = .10 cents of every dollar

$$$

Gross profit = 45 percent of total sales

$$$

Support salaries = 45 percent of total gross profit

$$$

Semifixed expenses = 20 percent of total gross profit

$$$

Fixed expenses = 10 percent of total gross profit

$$$

Net profit = 25 percent of total gross profit, or

$$$

Net profit = 15 percent of total sales

Do I hit these numbers in every shop? No. But I do make these
my goals and strive to achieve them.

The 10-Step Plan

Whenever I’m asked to work with a shop that’s losing money, I
use these 10 steps as a diagnostic tool. Although I’ve found through
15 years as a management consultant that there’s no single road
map to success, I have learned that if I can get all 10 of these
areas working smoothly, the owner has an excellent foundation
on which to build a highly profitable, highly successful business.

Writer Larry Edwards is a certified management consultant and
president of Edwards & Associates Consulting, Inc. in Charlotte,
N.C., which specializes in body shop management consulting and
is the exclusive consulting and training provider for the ICI
Autocolor Partnership Plus Body Shop Management Training Program.
Edwards & Associates can be reached at (800) 979-9904.

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