What Does It Mean for the Industry?
The average independent shop across Canada is struggling with many business issues.
This has been a common problem for many years within this sector of our industry, and in the past, shops have managed to get through it and still remain in business. They were able to bounce back from adversities they faced; they were resilient.
The question today, however, is can the average independent shop owner see his way through the current industry business issues?
Let’s first define resilient. The Oxford dictionary defines it as “able to withstand or recover quickly from difficult conditions.”
What is unclear is whether the independent service provider still has the ability to return to former prosperity, based on a comparison of our December 2004 and December 2005 independent shop surveys.
More than 51% of independent shops only have a proper financial statement, with a balance sheet, prepared once a year. If it weren’t for income taxes — or the bank’s insistence –they wouldn’t do it at all. This means, in essence, the majority of shops today primarily watch their sales (parts and labour) and their bank account balance. When the bank account is up, they feel good, and when the bank account is down they watch all costs, say everything is too expensive, and pay extra attention to the cost of parts. This is not to demean shop owners, but it does make the point that the average shop lacks business acumen. These shops have only been taught how to increase sales, increase car count, and stay busy. They do not understand how the numbers of their business work, and what should be measured within their business to drive net profit. And they appear not to have the desire to learn. Without the right net profit, after tax, shops cannot sustain the right level of equipment, ongoing training, staffing, professional marketing, or grow their facility and their business.
Technical staffing levels have dropped by an average of 11%, and management time in the bays has increased, on average, by 39%. The average independent shop is understaffed by two people: one in the bays and one in the shop office. This forces management to work hard and not smart, which, in turn, results in them buying themselves a job. The average shop owner is, first, a licensed technician with a love affair for vehicles. Too many shop owners believe they cannot find, or afford, competent technicians in the bays, because they do not understand the numbers of their business. The owner now goes back into the bays, works longer hours, and overall shop productivity decreases.
When productivity decreases, profitability decreases.
The average shop business’s operating debt load, not including mortgages, has doubled in the past year. And there is no game plan in place to pay this debt back, other than a hope that the shop will become busy. Vehicle service levels have changed, but the average independent shop owner has not been taught how to adjust his business practices accordingly –not only to meet the new service intervals, but also how to profit from them. Too many shops rely on repair work rather than focusing on preventative maintenance. The average shop is producing 1.4 billed hours per repair order/invoice. This number, when proper maintenance levels are achieved, should average between 2.0 and 2.5 hours per invoice. Borrowing money to keep the business going, without a proper business plan in place to resolve the problem, can create a recipe for disaster.
Accounts receivable continue to be a major problem for the average shop owner. Shop owners have not been taught the real cost of having receivables and how to calculate the profitability of a receivable. Consequently, more than 60% of shop receivables are commercial accounts, paying on average in 65 days. The average shop perceives this to be good business because it keeps the bays busy during slow times, yet the average commercial account receivable does not create net income for an independent shop; it only creates a sale and gross profit. Having receivables at this level ties up all kinds of cash, cash that could be used to pay monthly bills in full, including the supplier.
More than 80% of independent shop owners confirm in our surveys that they have a personal self-discipline problem that does not allow them to effectively manage their own business. They have the best of intentions to implement the processes but they get caught up in the noise of their business and our industry, and fail to implement over the long term. A shop cannot straighten out its business processes and profitability overnight. It is, traditionally, a two- to three-year process. This type of dedication to the task at hand requires a tremendous amount of self-discipline.
What could be a solution to this problem? First, we need to fully understand the problem.
Our industry has always functioned under the assumption that its organization is set up as shown below.
Have you ever noticed how industry people always state that they have to get that information “down” to the installer, as if to say the installer is at the bottom of the industry?
I believe it is long overdue for our industry to correct its focus and understand that the service providers are the front line troops of our industry. It is time to realign our industry’s attitudes towards these troops.
The right focus for our industry should be an inverted pyramid, like this:
If the service provider continues to disappear because the consistent message, the ongoing support, and the directional pull from the rest of the industry is not being communicated or supported properly, many companies below the service shop will disappear.
However, if the industry starts consistently communicating business solutions, backed up with on-going support to the shop owner, over a short period of time things could dramatically change.
The information is out there; but it is not what you know that counts, but what you do with what you know.
If manufacturing reps, WDs and jobbers were all talking with shop owners about properly measuring shop labour profitability, productivity and efficiency, how to increase it, how to grow it, and how to build and retain a client base–coupled with understanding the importance of fit, form, and function of aftermarket parts–then things could move rapidly forward.
But if our sector of the industry continues to rely on the same old processes, the future does not look good. It is time for our industry to address the following two questions honestly:
1. How do the t-shirts, jackets, hats (clothing), sports tickets, and trips that we promote and provide at a cost to our industry in the millions of dollars a year in time and money, really address the current profitability and future success of shop owners’ businesses?
2. What specifically are we doing to ensure our shop customer base is profitable and growing, helping to ensure that they will be here seven years from now, running a financially successful service shop?
Resilient. It is an interesting word to apply to independent shop owners. In reality, perhaps we should really be asking how well it applies today to every level of the aftermarket industry.
Robert (Bob) Greenwood is President and CEO of E. K. Williams & Co. (Ontario) Ltd. and Automotive Aftermarket E-Learning Centre Ltd. Bob has 28 years of industry-specific business management experience. He has developed shop business management courses for independent service providers recognized as being the most comprehensive courses of their kind available in Canada. Bob is the first Canadian Business Management Consultant and Trainer to be recognized for his industry contributions when he received the prestigious Northwood University Automotive Aftermarket Management Education Award in November 2003. E. K. Williams & Co. (Ontario) Ltd. offices specialize in the independent sector of the automotive aftermarket industry preparing analytical operating statements for management purposes, personal and corporate tax returns and business management consultation. Visit them at www.ekw.ca and sign up for their free monthly management e-newsletter. Automotive Aftermarket E-Learning Centre Ltd. is a leading edge company devoted to developing comprehensive shop management skills through the E-Learning environment. Visit AAEC at www.aaec.ca . Bob can be reached at (613) 836-5130, 1-800-267-5497, FAX (613) 836-4637 and by E-Mail: email@example.com or firstname.lastname@example.org.
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