News: Consolidator Report
There’s a hole in your shop floor representing your expenses, and the only way to fill it is to generate gross profit. And that’s the key to success: increasing sales while controlling expenses.
A wise man once said, “You can only cut expenses so much, but your ability to increase sales is unlimited.” This is a very true statement, yet I’ve seen many shop operators focus on one and ignore the other.
Like many other things in life, having a balance is very important. Your business is no exception. There are two very important sides to successfully operating any business: you need to be able to increase sales to their maximum capacity, while at the same time control your expenses without focusing totally on them. While it’s true that your expenses or your ability to control them is limited, it is important to pay attention to them and revisit them on regular intervals. The focus of part one of this article will be the expense side.
A Huge Hole
Imagine this: at the beginning of every month, there’s a huge hole in the middle of your shop floor. This hole represents your expenses, and the only way to fill this hole is to do business and generate gross profit to fill the hole. Even though this hole is in your imagination, it actually does exist; it’s just not as visible as an actual hole in your shop floor. In the fast-paced world of a body shop, it’s easy to lose track of your expenses, and it can get out of control quickly. The hole can become bigger and wider than it needs to be if you don’t pay close attention to it.
Many times when arriving at, or beginning to manage, a new location, one of the things I ask to see are the daily bills. I ask to see anything that won’t be billed directly to a specific repair order. It’s especially easy to lose track of expenses when all bills go to an accounting office, especially if that office is off site. The larger the organization or the more units in the network, the more watered down your ability becomes to keep a tight grasp on expenses. One thing I’ve always done as a shop manager is request that a folder be prepared for me each day with all of the bills received that day not directly charged to repair orders. At some point during the day, I would review and initial each of those bills. This system, although simple, was invaluable to me because it gave me a mental picture of what we were spending. After a certain amount of time and review, the picture became even clearer in focus and I was able to begin to see areas I was able to improve on.
The reason that reviewing expenses not attached to repair orders is important is because expenses attached to repair orders are already critiqued naturally. Any expense directly attached to a repair order should already have been scrutinized by the parts department, the estimators and the insurance company. On the other hand, these other expenses may not be getting looked at by anyone except the person paying the actual bill. Accounts may have been set up a long time ago or by former owners or employees who are no longer employed by the company. This is definitely an area where statements such as, “Well, we’ve always done (paid) it that way,” are hiding.
You may not think you have the time to do that, or that the expenses can’t amount to much. However, I can assure you they do. Let me give you some historical examples:
Uniform expenses. When was the last time you checked your uniform bill? You might be surprised to see employees on there who haven’t worked for your company in quite some time. Unfortunately, people are quick to get on your uniform list, but no one seems to remember when someone leaves and it’s time to take them off. Should I believe that the uniform company representative doesn’t notice that so-and-so’s uniforms never move from the rack and have three inches of dust on them? Of course he notices, he just doesn’t care. And it’s not his problem, it’s yours. In addition to employee uniforms, also beware of uniform company incidental charges. Without knowing, you could quickly be paying for rags, hand soap, rugs and air fresheners. These are a few easy examples of how a uniform bill can get out of hand before you even realize it.
Software programs. These include but are not limited to estimating software or unibody measuring programs. A few years ago, I was reviewing bills and came across multiple invoices for estimating companies whose programs we weren’t even using. At some point in the past, someone had signed us up for these programs, but had never cared to cancel them once the accounts were changed or lost. So, in theory, you could be paying for programs for years without knowing it. Also, software contracts have automatic renewal features that can get you if you don’t catch them before the date.
Uniforms and software aren’t the only kinds of accounts for which you may be paying for services that are no longer needed or wanted. That’s why it’s important to review your bills regularly to see what you’re actually getting charged for.
OK, it’s pet peeve time. While uniforms and software really get under my skin, the cream of the crop for me is third-party vendors. You know, the trucks that pull up to the shop selling clips, detailing supplies, etc. At times, these individuals walk through your shop as if they own the place, and scenarios like these can quickly get out of hand.
If you allow it, these vendors will come in without a call or request, “refill” your stock and push a bill in someone’s face to pay. Typically, no one is looking or checking on what these salesmen are doing.
Here’s another true story: I come into a shop that has more bins and clip drawers than I’ve ever seen in my life. One day, I need to find a simple clip for a customer’s car. I go out into the shop and, one by one, I start going through the drawers to find this clip. After 10 minutes of going drawer to drawer, I find every clip known to man except for the one I’m looking for. Later, I looked up my bills from the clip vendor and found that I had been billed $500 per month to keep these drawers filled with clips that were, at times, useless. Again, I had never seen so many clips in my life, yet I could not find the one I wanted. Nothing was being charged for on the estimates, so every clip or handful of clips were going straight to the loss column. I quickly instructed the vendor not to come back, and I’ve not needed to call him back. I further instructed our technicians and estimators to write for the needed hardware up front so we can get it from the beginning and get paid for it.
Another story concerns detailing supplies. For a few weeks in a row, I noticed a detailing company truck pull up. The salesman would go directly to the detailer, bring product in and leave a bill with the office manager. This was all done as if it was his right, without ever asking permission from anyone. Who knows how many thousands of dollars were wasted this way. No company should have access to spending your money except those authorized to do so. How many of you are having this happen right now under your nose and don’t even realize it?
Another big item that’s potentially being overlooked is your utilities. It’s important to know what your average utility costs should be. Unfortunately, if no one is looking, no one will care and money will be just thrown out the window. The shop must have adequate utilities to perform its normal course of business, but it shouldn’t be a free-for-all. Thermostats should be on timers, lights should be shut off when not in use and necessary booth cycles should be avoided.
You need to have your eyes on everything, and you should sweat the small stuff. If you don’t, you will be silently bleeding away money for no reason. Remember, though, that there is a limit to what you can cut. The unlimited portion is the sales side, which I will discuss in part two of this article.
Click here to view part II of this series.