Analyzing Your Business Correctly

Too many shop owners spend all their time working “in” their business and not “on” the business. There really is a difference. One method is well known as “working hard”, and the other method is known as “working smart”.

Each month a good operator will sit in his/her office and really analyze their business. This time spent will “make the shop money” if the information is prepared in a fashion so the owner/manager can compare the operation to targets set to maximize the profits of the shop.

The question that many people are asking these days is what should I be measuring in order to ensure I am maximizing productivity and profits of my shop.

The following is a list of items for consideration to be measured each and every month. Keep in mind that “if you can’t measure it, you can’t manage it”. Get focused, measure your business properly so you can make competent management decisions to move forward and achieve what you want to achieve.

1. Labour Rates

Maintenance rate and the diagnostic rate. What multiple are you achieving between the amount paid hourly to the technician and the rate charged to the customer/client?

2. Effective Labour Rate

What are you really achieving in your labour rate after it is measured against the shops potential?

3. Number Of Invoices

Written each month. Are you controlling your volume or are you missing potential revenue?

4. Average Labour Hours Per Invoice

Are you measuring productivity or just sales?

5. Average Sales And Gross Profit Per Invoice

What are you really making on that average sale in your shop? Is it growing or shrinking?

6. Average Labour Produced Per Technician

Are your people above or below average, and are they improving as their knowledge increases?

7. Daily Operating Expense Of The Shop

What does it cost to turn that key in the morning? Are you giving more thought to the “common sense” expenses of the shop?

8. Current Ratio

Is the business getting more “liquid”? Can the bills be paid when due?

9. Age of the Receivables

How long is it taking to collect the average receivable from the customer/client? Is progress being made to eliminate receivables? What is the true profitability of each account?

10. Age of Payables

Are we paying all bills when due and taking advantage of discounts offered for prompt payment?

11. Labour-to-Wage Ratio

Helps measure the effectiveness of management’s ability to “make the shop productive”

12. Gross Profit By Revenue Category

What is the contribution to our business of each revenue category. Are we focusing on the important issues that drive “net profit”?

13. The Shops Sales Mix

What is the breakdown which, when analyzed properly, can tell what type of customer/client base is in the shop? Can competent management decisions on the type of staff, equipment and training can be made?

14. Inventory Turnover

Is the shop carrying the right level of inventory in each category, or are we under or over stocked?

15. Shop Efficiency

This seems to be the most mis-understood term in the industry and yet “inefficiency” is the biggest cost per hour in running a shop. Is the shop meeting the right percentage for the customer/client it is serving?

These are a number (but not all) of important measurements to be examined, and measured, in a shop each month. Math does not lie; it is a very precise science. By following the trend in your business, one can start to maximize profitability, enhance business relationships, and really move their shop to the next level; the level that is required to ensure you do not buy yourself a job and allow you to enjoy a career.

Make the time to learn Business Management techniques and get focused on your future. One of the biggest factors in success today of any automotive shop is the courage to understand something. Instead of taking 1 week for fishing or 10 days for hunting, invest in a couple of days of training. Enroll in a class and really start the process of understanding your business. Industry specific management courses are available, but you must take the initiative and participate to take advantage of the future profit opportunity that is here, and getting stronger. The next 10 to 15 years in the independent sector of the automotive aftermarket industry are going to be far more profitable than the last 20 BUT only for a select few. Have you bought yourself a job, or are you enjoying a career?