Make your Automotive Repair Shop Management Software Work for You
At PDC Accounting Evolved, we have many automotive small-business clients that we see only once a year. They tend to rely on our year-end meeting to discuss their fiscal success, when it’s too late to make changes that could impact their earnings in real time. We’d like to change that approach, and to help you, our clients, increase your company’s financial potential.
We encourage our automotive clients to adopt a shop management software system, in order to monitor (and adjust) their income and expenses throughout the year.
Is your management system being underutilized?
If you’re already using a sophisticated software program, such as COSTAR, then you likely have far more functionality than you’re currently taking advantage of. COSTAR is a great product with numerous useful features, but we find that many of our clients don’t make the most of its capabilities.
What should I be measuring?
Shop management software systems are multi-faceted backend bookkeeping platforms that can track everything from online orders to customer vehicle history, purchasing, pricing, inventory, billing, and more. Some of our clients find the accounting aspects of the software a little bit intimidating for their bookkeepers. There is a learning curve, to be sure, but once your accounting manager becomes familiar with the software, these programs really do make it easy to track and report your company’s most valuable information.
Follow the numbers that matter
These systems allow you to generate reports on almost anything, but in order to minimize expenditures and maximize profits, it’s critical to monitor the following information:
- Average gross sales per month
- Net profit percentage (Labour)
- Net profit percentage (Parts)
- Labour efficiency
- Average repair order (year-to-date)
- Repair orders monthly average
- Overhead as a percent of sales
At PDC, we typically recommend that our clients set initial benchmarks in line with industry averages for these important statistics; you’ll find you’ll need to raise the bar as you get better at reaching (and exceeding!) those goals.
Why settle for average? Some shops are making 60% gross profit on auto repair! You can, too.
Monitor your overhead
There’s more to profitability than income. Always keep in mind your fixed costs. These are the numbers that don’t fluctuate with the volume of business, e.g., salaries, rent or mortgage, monthly outsourcing costs, etc. Measure your sales as a percentage of your overhead, and strive to keep that number below 35% to ensure that you aren’t over-spending on these fixed costs. Information regarding revenue ranges and expected average percentages is readily available. With a focused search, you should be able to determine the right numbers for your business.
Key numbers to track in your shop
When we talk to clients about Key Performance Indicators (KPI) we mean, “These are the numbers to watch for.”
A KPI is simply the ratio of any two numbers that relate to your company’s financial health. At PDC, our accountants use these ratios to track the relationships between the most important points in every business. This, in turn, helps us determine the most effective strategy for your business, following the trends of your revenue, income, profitability, growth, and capital.
For example, monthly payroll costs (excluding the owner’s salary) divided by monthly total sales will help us to determine what percentage of your total monthly expenditures goes to your employees. The target for payroll costs is generally 24%.
It is important to consider this relationship as a KPI (rather than just straight numbers on your statements), because it’s a great barometer of how you are actually doing. $100,000 in labour costs is not a concern if your sales are $500,000 – that’s a 20% payroll cost. However, if your monthly intake is only $250,000, you’re putting more than 40% of your revenue into payroll, which leaves very little for the rest of your expenses (not to mention profit!). By following the KPIs, you’ll know when and how to refocus your spending. Is efficiency the problem? Are you under-quoting on jobs?
If you don’t know where you’re losing money, then you can’t fix anything, and your company can’t grow. As a business owner, you need to regularly monitor and measure your company’s performance. Regularly assessing your KPIs can help you patch up and “profit leaks”, and ultimately, earn more from your business.
The experts can help you make sense of it all
Even with a shop management system and accurate, pinpointed reporting, you may find you need help teasing the right information from your company’s data. An accountant familiar with the automotive industry can assist you. The team at PDC works very closely with many aftermarket car and tire shops to ensure their continued financial success.
Don’t wait until year-end to figure out your finances, crossing your fingers that the results will be good! Utilize your shop management software to generate the information when you need it. Knowing how your company is performing throughout the year can help you fine-tune your business practices and help your profitability to grow.
Let us help you keep on top of all of your numbers. Contact us to set up a consultation.