Greenwood On Management: 10 Common Shop Management Mistakes

Non – Profitable shops across Canada, that is, shops that actually lose money or owners who buy themselves a job, have 10 common Management and Mind-set factors that keep them in their situation and lifestyle.

Consider the following items and check off the ones where you are guilty. Make a resolution to yourself to correct these matters this year, and then watch your bottom line turn around. With determination, discipline and execution, you could have a whole bunch of positives within your business one year from now. With positives taking place in your business, your stress level comes down dramatically, and the fun comes back into your business world all over again.

1. Accounting is Boring: Shop owners who do not have at least a quarterly visit and professional relationship with their Accountant are most likely watching their business bank account to measure their numbers. When the bank account balance is up, they feel good, and when the business bank account is down, they feel uneasy. They also probably think their computer program tells them enough about their profit and they don’t need an Accountant, except for once a year to prepare a Formal Financial Statement and file their government returns. That sounds like they bought the story the software sales person gave them. Ever wonder why your statement doesn’t equal the one your Accountant prepares? Don’t think it is “accounting stuff”; it is because your software is “technically incorrect”. How can you run a business on a guess? You need the right relationship in place with your chosen Accountant to really understand the numbers of your business.

2. Ignore the Real Competition: Shop Management has never studied how the real competition is going after your best customer/clients. These shop owners think price is the almighty important equation to creating profit. If that is so, then, if you are “priced competitively”, then why is your net profit not going through the roof? The real competition, that is, the Car Dealerships, are after the best customers/clients from the Independent sector. If price is the issue, then why are GM Car Dealerships frequently $10, $15, $20 or $25 higher in labour rates then the local Independent shop and winning back market share? Don’t say their overhead is the reason for the spread in rates because the Independent sector needs such things as more equipment and more training because the Independent sector works on all vehicles, not just one vehicle make. It’s the Independent shop Management mind-set that is the problem. The best customer/clients in the marketplace are looking at the Quality/Service equation. What “Value” do you bring to the table for your customer/clients? Define this in writing.

3. Take on any Partner: These shop operators found a ” friend” who could raise some money also, so they thought they would go into business together. They figured that if they “do it right” they would do just fine. They never sat down and discussed, before they went into business, what each other wanted out of life, never talked about the duties each other were responsible for and how they should be carried out, never talked about what if one wants out of the business, what would the process be, and they never spent time with a good lawyer to put together a proper legal partnership agreement. They were friends and “we know what they are doing” was their approach to business. The fact is 95% of all partnerships in the Independent sector fail in the first five years because it wasn’t done right, which in turn brings financial hardship on each other not to mention two good friends who now do not talk with each other any more.

4. Start Up or Expand Without Enough Money: These shop owners seem to do everything on a “shoe-string” cash management system. The fact is they never sat down with their Accountant to “crunch the numbers” and see what’s it really going to take, and cover all the “what if” scenarios. These shops are now “cash strapped” and trying to get by, because they know they are in no position to go back to the bank.

5. Bomb With the Bank: These shop owners do not have a relationship with their account manager at their bank because they feel the banks change the account managers so often, so how do you strike up a relationship? Although banks run account managers like revolving doors sometimes, the important thing these shop managers don’t pay attention to, is the facts about the business that is in the banks file. Your business file always remains with the bank and each new account manager must review his or her files. What is in your bank file? Are you distinctly different, or is your business just thrown into the pot as a “generic automotive garage”? To sustain success and grow your business today, one needs a proper business relationship with the bank.

6. Why Pay Tax: These shop owners play the games of “going underground” and steal as much as they can, and clutter up their business with all kinds of expenses like their snowmobile, riding lawnmower and/or even their boat. It’s amazing how proud these owners are that they do this. They actually brag about it. They think they are winning the game, but they really don’t have a vision for their business at all. They focus so much of their energy in trying to save “20 cents in tax”; imagine what could happen to their life if they took the same energy and applied it to building the “80 cents in profit” they get to keep? Their business is worth “nothing” because “nothing” appears on the Financial Statements when one goes through their tax returns. Any good businessperson knows you never buy hearsay; you buy facts as reported to the government. No profit equals no goodwill buyout. “Due diligence” by an Accountant in evaluating the “worth” of a business is confirmed by “past reported matter”, not “matter that you currently verbally report”.

7. Be Trusting with Accounts Receivable: Their receivables are out of control which puts these shops into a line of credit with their bank, paying interest, while their receivables are “out there” interest free. These shops can’t even pay all their bills in full when due which causes supplier relationship problems not to mention stress and an uncomfortable home life due to no cash in the business to pay themselves properly. These shop managers have never done a “profitability study” of each account that they deal with.

8. Put All Your Eggs in One Basket: These shops have never done a profitability study of their commercial accounts. They think these accounts “keep the guys busy during slower times, so they are good to have”. Someone has got to get to these shop owners and show them how to do the math on these accounts, as well as, one must ask “what would happen to their business if one commercial account went bankrupt or decided to take their business somewhere else?” How do they replace that business overnight? These shops are totally vulnerable. These shops run their business based on activity and sales. They are not net-profit driven shops which in essence means their “days are numbered” in this industry.

9. Advertise Until It Hurts: These shops have no advertising concept other than “special price” ads. These shop managers just spend money for the sake that they can say they are advertising, yet they can not tell you how much business specifically came in from the specific ad, at what gross profit return, and what was the customer/client retention rate. They just copy everyone else out there. Keep in mind everyone else out there can’t answer the right questions either. “You’re not a cow, so don’t follow in a herd mentality.”

10. Cut the Communication: These shop owners do not have a professional relationship with their staff. They do not involve the staff in their business, as they perceive it is confidential information. Your Balance Sheet is confidential, however, all staff must understand the sales, gross profit, and expense make-up of a shop. If they don’t understand this, they pe
rceive that if you are paying me $20 per hour and charging out a $70 an hour labour rate, then you are making $50 an hour “off my back”. Nothing could be further from the truth, but Management is not bringing the staff into the loop. The staff perceives they have a job, not a career. Want proof? Would you lose a good person in your shop over a $3 to $4 an hour raise offered by someone else, or do they see where they can earn unlimited income potential in your shop, in a working environment, and atmosphere, that can not be matched anywhere in town?

As one can appreciate, it is amazing what is common in our country. When I go to the East Coast they like to say, “It’s different down here.” When I go to the West Coast they like to say, “It’s different out here”. When I go to smaller communities they say “It’s different here, we are not a big city”. Can everyone in our industry get over this? Too many shops have many of the above problems from East Coast to the West Coast, from large cities to small communities. It has nothing to do with location, and everything to do with Management’s ability and the desire to manage their business. This is why many shops close in financial ruin. When a shop closes in financial ruin, you can be assured, 98% of the time, it creates family ruin too. This, in our sector of the industry, should be unacceptable…so fix it!!

Robert (Bob) Greenwood is President and CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has over 27 years of Business Management experience within the automotive industry, counseling individual shops in Ontario. E. K. Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive industry, preparing analytical operating statements for Management purposes, personal and corporate tax return completion, Business Management consultation and Business Management and Employee Development Courses. Visit E. K. Williams & Co. on the Internet at www.ekw.ca and sign up for their FREE monthly management letter sent to you by E-mail. Automotive Aftermarket E-Learning Centre Ltd. is a company devoted to developing Automotive Shop Business Management skills through the E-Learning environment over the inter-net. Students learn at their own speed, and at a time, and place, that best suits their needs; available 7 days a week 24 hours a day. Visit Automotive Aftermarket E-Learning Centre Ltd. on the Internet at www.aaec.ca

Bob can be reached at (613) 836-5130, 1-800-267-5497, FAX (613) 836-4637 or by E-mail; greenwood@ekw.ca or greenwood@aaec.ca