How much did you make last year!? That’s rhetorical… of course, and should be a simple question, but you’d be surprised how many people can’t provide the answer. It’s not that they are running their business poorly, in fact many of them excel at operations (probably because they have to!), but instead, are simply not paying close enough attention to the most important metric… their true earnings!
Over the course of our 25 years, and more than 1,300 Auto Businesses sold nationally, we’ve seen a wide spectrum of owners. Some owners detailing even the minutest detail on their income statements, broken down to the cost of every type of blinker bulb, and others, working out of shoeboxes with hand-written receipts. Clearly this is a wide range, but there is a happy medium between the two, that won’t cost you a pile of money or drive you crazy.
Having a competent accountant is the first and most important step in the right direction. As your company grows, your needs will change, but at all stages of growth it’s critical to be involved in the process. With your guidance, your financial statements can go from cooking cutter to the finely tuned tool that you need it to be.
I’m sure many of us know this already, but income statements are your report cards… and we should all read them in such a manner. If you aren’t able to decipher which activities make you the most money, or what you could be doing better to make more money…. You won’t! There are a number of tools that can help us take immediate action when our costs rise. By using them we can address the issues by figuring out why, and coming up with the best methods to attack before they affect our bank accounts.
I’ve had an owner tell me once, after asking how his business performed, quote “I’ve got money in my bank account, so I’m doing fine.” I tried to explain in a gentle manner that this type of mentality was extremely risky, but he was comfortable with his way. This gentleman had all the tools at his fingertips, and never used them. Five years later I analyzed his business along the course of possible sale and I was the one who had to tell him (to his surprise) that he was losing money! This was a multi-unit operator… and unfortunately, his mistakes caught up with him.
I recently had the opportunity to speak at AOCA’s Owners’ Summit in Phoenix on the topic of Financial Management. I’ve found over the years that the great majority of people that attend events such as these, and the conventions, are deeply involved in their businesses success and have mastered many of these topics. But it’s always good to get a review.
Below I’ve included some of the key points to that presentation in bullet-point form. Many of the items are of a general nature, due to the wide audience of operators, but please feel free to call me if you would like to discuss further. I truly enjoy talking shop and make myself available as a general resource to all business owners.
- Income Statements
- Regularly basis – Monthly & Year to Date
- Separate your Categories – Clearly break down your categories and compare them as a percentage of your total net sales for each period. Month-over-month & Year-over-year.
- Total Cost of Goods (Large cost items such as oil and filters, should have a separate line)
- Labor and Benefit
- General & Administrative
- Occupancy (rent, CAM, real property taxes)
- Owner Pay / Benefits / Personal Expenses
- Should be clearly separated in a distinguishable category with sufficiently descriptive labels
- Annual & monthly projections.
- I’d be happy to share some examples, feel free to give me a call.
- Compare your performance / Make adjustments to meet your goals.
- Be proactive! Set goals for employees/tie bonuses to hitting those metrics
- Leverage your POS to capture as much data for you as possible.
- Good Accurate Inventory Information
- Complete on a regular basis!
- A good blended approach:
- Oil levels (and other key fluids ) on a weekly basis,
- Full inventory once a month
- If you are a franchise, your Franchisor may recommend a method that works best for you.
- POS data
- Track Sales / Cars / Tickets on a monthly basis
- Compare it to last month, last year
- Are their differences (better or worse) why?
- For Franchises
- Not every Franchise system has an “Item 19” in their FDD, but if your franchise does, compares it to the performance of the system as a whole!
- Talk to other franchisees and see how they are performing.
- Speak with your area coach on a regular basis. They are there to help!
- Cross-Referencing Delivery & waste oil pick-up amounts. Oil-in Oil-out
- This is another good metric to track and compare back to the POS
- If the waste oil amounts don’t match (noticeable difference) the POS car counts… well, that’s one of many you can handle without me.