“How many support employees do I need to support the production of labor in my shop?” “Which support organizational structure is best for my shop?” “How can I determine that all the tasks needing done are getting done?”
These are some of the toughest questions a business owner must ask. And it seems that every time a business owner thinks these questions are resolved, the business results change, forcing him to re-think the entire business structure.
But this problem doesn’t have to be as complex as we sometimes make it. As a matter of fact, the most complex part of solving this problem is actually taking the time required to properly analyze what needs done and how much time is required to complete each task.
A Solid Foundation
Determining how many employees are required to support the production of labor is a fairly simple process — especially when you consider that every collision repair shop has to perform the same tasks, such as writing estimates, ordering parts, collecting money, paying bills, etc. The main variable is the time required to perform each task. The other variables involved in determining your support-staff structure include pay (how much you compensate your support staff) and the type of production methods used.
Over- or under-paying your support staff limits the company’s ability to grow, while having an unconventional production system — teams, for example — supported by a conventional support-staff structure simply won’t work.
If you know all the tasks that must be performed in your shop, the volume of time required to perform those tasks, how much of the shop’s income can be budgeted toward support salaries, and how to match the support-employee positions to your budget and your shop’s production system, you can structure a support organization that encourages the production of labor and allows the shop to yield a profit.
The formula for calculating this is:
Task required x volume of time required to complete the task = total time required.
Total time required divided by average support-staff hours worked (weekly or monthly) = number of support employees required.
How can you determine the tasks that have to be performed? How can you determine the amount of time required to perform each task? How can you determine the volume of tasks that have to be performed?
Here’s an eight-step process to assist you in answering these questions:
1. List all the tasks that must be performed.
2. Determine positions responsible for each task and time required to perform each task.
3. Identify current personnel expense and support-staff head count.
4. Establish an ideal budget for personnel head count and salaries.
5. Compare current personnel expense and head count to ideal budget.
6. Re-assign task responsibilities to match ideal budgeted positions.
7. Prepare new/revised list of individual employee job descriptions.
8. Prepare revised/new job descriptions.
Let’s look at each of these steps in detail.
Prepare a list of all the tasks that need to be performed in your business. It helps if you break these down into daily, weekly, monthly, quarterly and annual tasks.
Also, you want to reflect on the method you used to determine your current staffing levels. Was it planned growth or did your current structure simply evolve? Before you choose a new support-staff structure for your business, ask yourself, “Am I currently selling and producing all of the labor available every day? Is my production system the best one for my facility?”
Three common production systems are being utilized today, including the typical structure, the typical evolved structure and the advanced structure.
• Typical Structure: This structure is normally the outgrowth of a start-up business. In a typical structure, the basic business functions that must be performed, such as office cleaning, bookkeeping, etc., are sublet to outside vendors. As the business grows, these services are moved in house.
Pros: This structure gives the owner/manager complete control. Every decision that has to be made goes directly to the manager.
Cons: Over time, this structure has a tendency to “ball and chain” the owner/manager to the business. Because of this, he must be available 100 percent of the time to make decisions.
• Typical Structure — Evolved: As a business grows and evolves, technicians become specialized. Usually, the first support position added is an estimator. An estimator is needed before a bookkeeper because of the need to generate additional sales to keep the additional technicians busy.
Pros: This relieves the owner of the need to manage every decision, as well as the need to manage every sale. Also, this structure frees up the manager to focus more time on the business.
Cons: The estimator is responsible for sales but has no authority to ensure sales promises are kept, such as time completion, repair procedures, etc.
• Advanced Structure: This advanced structure is an evolution of the conventional structure and places the authority and responsibility with the same person. This structure gives the assistant manager the authority to make customer commitments and the responsibility to see that those commitments are met.
The customer-service representative acts as an assistant to both managers. He makes appointments, orders parts, tracks supplemental payments and functions as an estimator’s assistant.
Pros: This increases employee and customer satisfaction by placing responsibility and authority in the same position.
Cons: This structure requires advanced management systems and techniques, which can be expensive to learn and implement.
The type of production-system structure you choose will affect the type of support-system structure you’ll need.
Determine which positions are responsible for performing each task you’ve listed and how much time is required to perform each task. See the sample chart to the right. Note: The chart is for one task only. You’ll need to prepare a separate chart for each group of tasks.
When filling out the chart, remember that you’re trying to work out theformula task x volume of time required to complete each one = number of employees needed. The more effort you put into identifying every task your business must perform and how much time is required to perform each task, the better your end results will be.
Identify your current support-personnel expense and head count. You want to gather this information so you can compare what you’re actually spending to an ideal budget. Remember, you only want to compare support employees and support budgets. Technicians wouldn’t be included in this nor would absentee owners who are taking a salary but aren’t working in the shop every day. Consider a support employee to be anyone who doesn’t produce billable labor.
Compare what you’re actually spending to an ideal budget for both payroll and number of support employees. Ideally, your support-staff salaries shouldn’t exceed 45 percent of your labor (only) gross profit. Labor gross profit is the labor dollars left over after you subtract technicians’ direct wages. This 45 percent also includes taxes and benefits for technicians as well as support staff.
The formula for calculating an ideal support-staff budget is:
Labor sales – direct cost of labor (technician wages) = labor gross profit.
Labor gross profit x 45 percent = ideal support-salary budget.
Next, you need to determine the ideal number of support-staff employees you should have. Our guideline for collision repair shops is one support employee for every three production employees.
Production employees divided by 3 = ideal number of support employees.
Compare your current personnel expenses and head count (Step 3) to an ideal budget expense and head count. Specifically, you want to see if you’re over or under budget on personnel head count. When making these comparisons, you may find you have:
• Too many support employees;
• Too few support employees;
• Underpaid support employees;
• Overpaid support employees; or
• Any combination of the above.
This exercise tells you where you’re out of line and what needs to be done to achieve an ideal budget. Remember, this is an “ideal” budget. Business conditions, employee commitment and many other things may prevent you from achieving the ideal staffing right away. So when you start planning, you need to allow sufficient time to achieve the ideal support organization.
When working with a shop owner on his support-staffing structure, it’s not unusual for one of our consultants to plan the needed changes over a two-year period. Personnel changes shouldn’t be taken lightly. If changes need to be made, allow plenty of time to work the changes in slowly over extended periods. We refer to this as “evolutionary” change. Changing everyone’s pay plan, job duties and your head count all at once is “revolutionary” change.
Re-assign support-staff employees and job duties to match your budgeted positions. This is the point where you re-organize your support-staff structure. Don’t worry about who you’ll let go or hire. Instead, concentrate your efforts on developing an ideal structure. Then use natural attrition and/or business growth to implement your ideal structure on the business changes.
Prepare new or revised individual employee job responsibilities. In Step 6, we reviewed out-of-line items and determined what was required to achieve an ideal budget. The best way to assure your planning was correct is to document all of the tasks to be performed by each job position. Use the information previously gathered to assure that each new revised position is given sufficient time to perform each task. Task suggestion: Prepare new task sheets for each position and run the formula tasks x the volume required to perform to determine if sufficient time is available to perform the tasks required.
Prepare new, revised job descriptions. Now that you’ve analyzed each task, this is an ideal time to prepare new job descriptions for each employee and position.
When preparing job descriptions, include:
• A description of the position.
• Objectives the position is expected to accomplish.
• An overview of job duties and responsibilities.
• The reporting structure of this position.
• Salary ranges for this position, including the lowest expected salary and the highest expected salary.
• A schedule of daily, weekly, monthly and annual tasks.
• The date prepared and, if you’re revising a job description, the date it was revised.
• A place for the employee to sign the acknowledgment.
Supporting Your Business
Proper organizational structure is absolutely essential for any business to grow and be profitable. But to structure your organization properly, you have to know every task your business must perform and how long it takes to perform each task.
Simply allowing your support staff to evolve based upon short-term demands or needs without analyzing where you are today and where you want to be in the future is the formula for failure. A solid foundation doesn’t happen overnight, but it also doesn’t happen by chance. You need to make it happen.
Writer Larry Edwards, CMC, is president of Edwards & Associates Consulting, Inc., located in Charlotte, N.C. For more information on structuring your body shop support organization, call Edwards & Associates Consulting at (800) 979-9904.