Financial understanding in the garage business

Andy Savva has joined Aftermarket as a new regular contributor. In his first article he asks how many garages really understand finance

Published:  16 July, 2018

Once upon a time, conventional wisdom suggested that if there was money in the bank account at the end of the month, things were going reasonably well. Book-keeping and accounting were fine, but only for accountants. Servicing and repairing vehicles was for garage owners and technicians – people like you and me.
    That was then and now is now. In a world of declining margins, what was good enough for our predecessors will not be good enough for the competitive and ever challenging business climate you and I face today and certainly not good enough to sustain an efficient garage business in the future.
    In short, understanding your numbers – especially the key performance indicators (KPIs) that tell you at a glance just how well or not so well your business is doing – is crucial.

Know our numbers
Realistically without having a firm grasp where the numbers come from and what they are trying so desperately to show us, we can’t even begin to discuss our financial situation with our accountants. Why should we know our numbers?
    The demographics of most garage owners tells us something. Most are technicians first, businessmen second.  Up and down the country, the story behind most garages will involve a good technician whose core knowledge is based around repairing vehicles all of sudden, waking up to find themselves owning a garage business.
    Most don’t have the skillset needed, the business acumen, or knowledge of marketing, customer service, operational management, reception management etc. Then again, why should they? There is no qualification needed, unlike in Germany where you would have to undertake a three-year graduate programme before you can manage of own an independent garage business. The garage business, like most other service businesses ,is all about raw materials and finished goods. It’s all about commerce – the exchange of goods and services for the compensation of one kind or another; In our case revenue. It’s about creating value, adding value, and creating services and products that we can sell for more than what they cost us, in order to make a profit. Isn’t that what business is all about? Is profit something to be ashamed of? Is it a dirty word?
    As mentioned earlier, the problem with our world is most garage owners and managers lack an understanding of automotive management, especially the labour side of service, given that this is the only commodity that a garage sells, labour. Some may argue that we also sell parts, well we may do. However, we don’t have control over these purchases. These are by-products of what and how much labour we sell.
    More to the point most garage owners and managers fail to recognise the value they add to the process in terms of service, skill, competence, quality, reliability and ability to respond to customer wants, needs and expectations. What happens is that garage owners set their labour rates because it’s the going rate in the given area. The only thing we sell, our only revenue stream – call it what you want – and we decide the value of it by picking a figure from the sky.
    Our numbers come from all the costs and all the revenue associated with operating your garage business. Whether we like it or not, to be successful in our business, understanding the numbers is a good place to start. My experience tells me most of us refuse to take the time or make the effort to really understand what the numbers represent and what KPIs have the biggest impact of our garage.   

Adapt
What do we need to know? I believe you cannot manage a garage from underneath a vehicle in today’s increasing competitive marketplace. You have to adapt to managing the business rather the business managing you. You almost have to be emotionally involved with those numbers to be successful today. Of course, our business is all about repairing vehicles and most garage owners or managers expertise is in this area. However, it is your responsibility, not your accountant’s or book keeper’s, to monitor and manage your numbers. Having the ability to reflect the health and strength of your business at any given time or a specific period is crucial for your success.
    You can only get out of financial reporting what you put in. Your accountant will only advise you on the information you provide. Everything about your garage will depend on the quality of that information the accuracy of those numbers. The numbers are yours, the business is yours so make sure your reporting and analysis are timely and as accurate as possible.
    Your numbers and accounting are only useful if they are used as a means to an end, a catalyst to change your behaviour, your processes, your attitude in order to change the direction of your business for better financial performance in the future. Remember this: All financial data is historic – it has already happened. Time spent gathering and analysing it is massively important so you can draw the benefits of this process. I urge you to monitor your KPIs daily, weekly and monthly and everything else will take care of itself.

Cruical
It wasn’t really very complicated for me even in my early days, as I realised how crucial to my success to stay on top of my day to day data capture was. I made sure it was complete and relevant to what I was trying to measure, whether it was productivity and utilisation of my technicians, the labour and recovery rate, or the fact that every labour hour we sold gave us approximately. another £18 profit on parts.
    Think about how much time you spend learning and understanding and what they are trying to tell you. Determine whether or not your financial professional is helping you to understand these numbers more clearly than you do right. Start the journey right now and I can assure you, your garage business will benefit.  

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