Find out why following the trends in your business can help you start maximizing your profits.
In Part One of this two-part series, I offered a list of seven basic measurements that you should monitor each and every month. In Part Two, the list continues with eight more. When you combine the points, your office time should become more productive as you manage your business to a new level of net income.
Current Ratio: Is the business getting more liquid? Can all the bills be paid when due?
Age of the Receivables: How long is it taking to collect the average receivable from the client? Is progress being made to eliminate receivables? What is the true net profitability of each account, factoring in the number of days to get paid?
Age of the Payables: Am I paying all bills when they’re due and taking advantage of discounts offered for prompt payment? The discounts, when embraced, go directly to net profit.
Labor to Total Wage Package Ratio: Am I using this to help measure the effectiveness of management’s ability to make the shop productive?
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?
The Shop’s Sales Mix of Aftermarket Parts to Dealer Parts: What is the breakdown that, when properly analyzed, can tell which type of client base patronizes the shop and can inform competent management decisions on the type of staff, equipment and training that are needed.
Inventory Turn/Earn Index: Is the shop carrying the correct level of inventory in each category, or is it under, or over, stocked? Cash is king, and you want to make sure it’s working properly for the business.
Shop Efficiency: This seems to be the most misunderstood term in the industry, but inefficiency is the largest cost-per-hour factor in running a shop. Is the shop meeting the right site-efficiency percentage for the clients it’s serving?
Those are a number of important measurements to be examined, and measured, in a shop each month. Math does not lie. It’s a very precise science. By following the trends in your business – always analyze the year-to-date numbers – one can start to maximize profitability, enhance business relationships and move the shop to the level that’s required to ensure you do not buy yourself a job. This allows you to enjoy your career.
Make time to learn business management techniques and get focused on your future. One of the biggest factors in the success of any automotive repair shop is the courage to understand. So spend a couple of days in a class to start the process of understanding your business.
Industry-specific management courses are available, but you must take the initiative to investigate the content and participate for the future profit opportunities that are available.
The next three to seven years in the independent sector of the automotive aftermarket industry are going to be far more profitable than the past 10 – but only for the select few who understand it. Have you bought yourself a job, or are you enjoying a professional business career?