How’s the health of your business?
Is your business idling, accelerating or stuck on the hard shoulder?
Published: 10 December, 2018
In my line of work I meet a lot of great garage owners. Dedicated men and women, all committed to repairing their clients’ vehicles to a high standard. They’re intelligent, hard working and persistent people many of which have been in business a good few years.
With all of this in their favour you would imagine that they would be spending their free time pondering the length of their next yacht, or whether they should winter in the Alps or Rockies? Unfortunately this is often not the case, and it’s not uncommon to be asked “How can I increase the financial success of my business?”
We all know that an unfeasibly large income doesn’t buy you happiness, far from it. But I do know this. A healthy business is a profitable business, and a profitable business not only buys you less stress, it buys you choices and options on how you spend your days. Would you like more options? If so read on.
Back to that question. “How can my business be more financially successful?”
‘More’ is a dangerous word and it’s often not attained. A better question would be “What is the maximum revenue, profit and personal income that my business can generate in its current form?”
It is something that a lot of business owners haven’t contemplated. But you really should. Only when you know this, can you decide if your current business is performing at it’s best, and is the vehicle to get you to where you need be financially.
The good news is you don’t need to be an accountant to calculate your maximum net labour revenue. Just using the available hours to sell your labour rate and the number of technicians your employ will get you a long way in the right direction. Take an average hourly rate of £55. It could probably be higher but we’ll come to that in due course. This will yield a maximum net income of £422,000 a year from labour sales with four technicians. If your garage is reaching that level of income (£105,000 per tech) at that labour rate, then you should give yourself a rather large pat on the back. Nice one! Not reaching that? That’s incredibly common. In fact if your garage has a net labour revenue of around 54% of your maximum, then you’ll not be alone as that’s the average for a business when we start to work with them on our business development programme.
Why so low? Why are business owners leaving £50,000 per technician on the table? There are a plethora of reasons but I find the most common answer is one of focus. They’re just focusing on the wrong things.
It’s natural. In fact it’s perfectly understandable why a garage owner focuses on the technical aspect of their business. You know that if you don’t fix the cars in a timely manner to a high standard that your income will suffer and your customers won’t return. So of course you’re interested in technical tools and the latest workshop wizardry that’ll enable you to complete a job that you couldn’t without it, or the same job in less time. But let’s be honest (we’re friends after all) is this laser-like focus healthy? Are you too focused on the next tool, the next gadget, the next BIG THING to the cost of your business? All too often I find that a garage owner is and it’s costing you.
If you’re not measuring it…
All that is required is a change of focus. The success of your business is in the data, and if you would like to claw back that £50k per technician (or at least a large chunk of it) then learning how to measure the right data and use it to your advantage is essential. After all: If you’re not measuring it, you can’t improve it.
So, you want to increase your income and profit, what should you be measuring? Here are a couple of metrics to get you started.
- Technician efficiency – Are your techs completing the work in the allotted time?
- Technician utilisation – Are you selling and using all their available hours at work?
- The good news here is that you don’t need complex systems or expensive software to see some amazing gains in both these areas. With the aid of a piece of A4 paper (not sexy but very effective) we help many garage owners raise their net revenue north of 85%. This means that for no additional cost each tech will earn your business an additional £32,000 a year. What’s not to like about that? Not a lot!
Can I have ‘more’ sir?
Still not enough? OK, I get it. You’re a business owner and naturally you want to make the most out of your investment. Where do you put your focus next?
How about increasing your labour rate? What do you mean “our customers won’t pay it”?
I often ask how busy a garage is, and I’m often proudly told that they’re booked up two weeks in advance. “Well done” I retort. I then ask what their hourly rate is. “£50” comes the reply, sometimes followed by “we’re the dearest in our area.” Why don’t you raise it to £60, or £65, or £75? I ask You know what’s coming don’t you? “Our customers won’t pay it”...
How do you know they won’t pay it? What data do you have? The “they won’t pay it” card is often subjective. Here’s a question for you. How many times are you asked what your labour rate is? Not how much a repair costs, but how much your labour rate is? I’d guess not often. As an experiment ask your front of house team to make a note of how often they’re asked, measure it for a month and let me know how you get on.
Raising your labour rate by £10 will increase revenue (at 85%) by another £16,000 per technician each year. Certainly not to be sniffed at.
Don’t get me wrong. I understand your hesitation. Raising your labour rate should be carried out with a systematic plan, and the first part being an increase in the number of customers, or more accurately, more of the right kind of customer.
If you’re in business then you’re in sales, and to make sales you need to find customers. That’s right. FIND customers. The whole “build it and they will come” business model just won’t cut it in today’s world, so you’ll need to become a competent marketer to ensure you have a steady stream of the right kind of client through your doors.
Fish where the fish are!
Marketing should be considered to be a long term investment in your business that is carried out continually and increased when required. Definitely not a reactive “I’m short on work let’s do some flyers” take on this critical element of your business.
Like every critical aspect of your business it’s a skill, and once honed will deliver consistent results. Just like angling though you need the right bait for the right fish, and this is where it often goes wrong for a garage owner. They can’t decide which fish they’re aiming to land.
A carefully crafted marketing campaign will have a very clear picture of the customer. With the customer at the forefront of your mind, a sales message can be crafted that ticks all of the customer’s boxes and leads to them lifting the phone and making a booking. Anything other than a planned campaign is akin to trying to catch tuna with maggots. You may get one or two that leap into the boat but that success will not be repeatable long term.
At the top of this article I asked “Is your business idling, accelerating or stuck on the hard shoulder?” and it’s an important question. Like the saying goes: If you’re not moving forwards then you’re going backwards. And it’s with this in mind that I urge you to consider what’ll you do to change this. It doesn’t take much to change. Just one step in the right direction followed by another and another can have an unbelievable impact on your business. Regularly monitoring and improving the key metrics mentioned along with finding new clients is a pretty good place to start for many. Doing this for the rest of 2018 could well have you set to accelerate your business into 2019 and beyond!
- Do you have a business or a profitable job?
It’s a favourite of mine, and one we ask of all garage owners that join the Auto iQ business development programme...
“Do you have a business or a profitable job?” Not sure which one you’ve got? Carry on reading.
That question is a doozie and is often met with a few seconds of silence followed by a mixed range of answers whilst the questionee arranges their thoughts. The question is designed to be thought-provoking and entice the garage owner to work through the differences between the options.
Different sides of the coin
What’s the difference between a profitable job and a business? It’s a fine line with a BIG difference.
Quite simply if you have a profitable job the income from your work (where you spend your hours in the day) reduces when you’re not doing that work. You might be able to get away from the business for a week or two but longer than that will have you sweating, you’ll wonder if your techs are efficient without you in the building, concerned that your numbers are going south.
A business on the other hand will run without you being there for a significant length of time. Which one do you have?
I can feel the tension elevating as some of you may be rising from you chair ready to give me a good talking-to. Hang fire though and hear me out. In no way am I saying that having a profitable job is wrong. Quite to the contrary. If that’s what you set out to achieve then who am I to say any different? Here’s the deal though. Most garage owners don’t embark on this amazing journey to be ‘self employed,’ they do it to build a bigger and better future for their families. They did it to have more time with their loved ones, the funds to allow this and probably have early retirement thrown in with the business providing the income. Can a profitable job do this or do you need a business that’ll run without you? I think you know the answer.
What’s the difference?
So you’ve decided that a business is preferable to a profitable job. But is there really that much of a difference? Let’s take a look. It often comes down to nothing more than a state of mind that separates these different sides of the same coin.
Let’s compare the owner with a profitable job and the business owner. At first glance I’d challenge you to notice the difference. They’ll both have a business that they’re proud of and rightly so, they’ve worked hard to build it. More often than not they’re both skilled technicians, have the respect of their team as well as their customers. Then how can it be that one earns significantly more than the next. One word, focus.
Our owner with the profitable job will be very focused. He’s focused on his own ability to fix the vehicles in his workshop often working shoulder to shoulder with the technicians. The technicians respect him because of his technical ability and work hard alongside him. All admirable qualities.
Our business owner also has a laser-like focus, his target is a little different though. His gaze is firmly fixed on a vision of the business he’s building and knows that long term success requires not only focus but patience. He’s acutely aware of the one thing that will bring freedom and the time with his family (the reason he started this venture) is the team he builds and trains.
This isn’t to say that he doesn’t roll up his sleeves and lead from the front when required, it’s just that his daily focus is on the strategic functions of the business that drive success, rather than the day-to-day tasks that so many owners get caught up in. There’s a huge benefit to this as well. You get to keep the skin on your knuckles.
Dominant thoughts
It’s a proven fact that we all move through our day in the direction of most dominant thoughts. What does your typical business owner ponder?. Now I can’t read minds (how cool would that be?) but I do know that these are the questions that need to be answered:
- The Garage Inspector - Training dates
The Garage Inspector a.k.a industry consultant Andy Savva has announced a number of one-day business training course dates.
- TechMan helps In Town Automotive scoop ‘Technology Double’
In Town Automotive – one of the largest independently owned vehicle servicing and repairs garages in Northampton – has rounded off 2018 in style, after taking home its second prestigious technology award of the year.
- TV’s Helen Fospero to host Top Technician and Top Garage Awards Dinner 2019
TV presenter and journalist Helen Fospero is to be the host at the Top Technician and Top Garage Awards Dinner 2019, being held on Saturday 22 June 2019.
- Bigger is better – right?
I was asked whether expanding a garage business to become multi-site was practical or, indeed, even feasible, which got me thinking.
Fundamentally, a business exists to create wealth, both as cash and as an asset. This then benefits the owner(s) and employees, or any shareholders.
The basic principles of the business are to provide goods and services to meet the needs of their customers, who pay accordingly. The turnover/cash flow generated then pays for the costs of providing those goods and services (employees, suppliers etc), leaving any surplus as profit, on which tax may be due. Therefore, in a logical process, the greater the turnover and the lower the costs, the greater the profit – simple!
So, if a business is working well, surely if you just keep replicating what it does in other locations to other customers then you would just keep generating greater profits? Here comes the ‘but’. This concept applies but only in certain circumstances.
Personal touch
If we look at a successful independent garage, it is often the enthusiasm, commitment and business acumen of the owner which creates the success, frequently based on good customer service at a personal level. The ‘brand value’ of the business is quite literally in the hands of the owner. It is therefore challenging to successfully replicate this if another branch is opened as this ‘personal touch’ is then split between two locations. If three locations exist, this becomes even more thinly spread and increasingly reliant on the quality and commitment of other staff to deliver the original brand values.
Therefore, a self-imposed ‘glass ceiling’ is created. It is felt that the maximum number of locations that can be successfully emulated is three. However, if you do plan to expand, how do you know when this should happen and what are the key issues to consider to enable you to create successful clones of your business?
The most important point is to identify the key benefit of your business that has created the foundation of your success – your Unique Selling Point (USP). Once you have identified this, it is then imperative that you understand how this can be replicated. It will be important that you can ‘stand out from the crowd’ as any new site will have to establish itself quickly from a standing start. Remember that marketing is not about winning the war to be the best product or service but about winning the hearts and minds of your customers. Additionally, do not be too cautious about setting your prices higher as most customers do not buy on price and carefully selecting your target audience should support your pricing level. Aim to be the leader rather than just another player in the marketplace.
So having identified what your new location will emulate, the next critical step is to understand the automated and integrated systems that need to be in place to allow your businesses to be effectively monitored and managed. This becomes increasingly important as any new site is created as your management time will become increasingly shared. You will not be able to rely on manual systems and the various elements of data will need to become ever more integrated. For example, wages, invoicing, workshop revenue, parts purchases and so on, need to be coordinated, otherwise, quite literally, your numbers will not add up. Any system that you do implement must also be scalable and have multi-user access, otherwise you will lose the support of your managers and staff at this critical time of an expanding business.
It will not be possible to retain your original ‘hands on’ management style and this will mean that you will lose visibility of the business as well as having to implement new legislative and policy requirements for new staff and premises.
From the purely financial perspective, new businesses rarely fail because of a lack of profitability but fail due to a lack of cash. Any new location will be a cash consumer until it becomes established, so this will require adequate funding and a clear visibility of cash flow from both your existing business as well as the new location as this starts to grow. The key financial elements should include:
• Direct visibility of the daily results
• Key Performance Indicators (KPIs) and management information
• Actual results versus budgets or forecasts
• Profitability
• Customer debts
• Supplier payments (due dates and values)
The better you can demonstrate the financial visibility, control of the business and achievement of your business plan, the easier it will be, both for yourself and when working with your bank.
A strong team
This then leads onto perhaps the most difficult element of growing any business – good quality managers and staff. This creates two immediate problems – firstly, who to delegate your existing business to and secondly, who to appoint to run your new business. In both cases, not only must this individual, or individuals (it could be that you appoint a single deputy and share the tasks) be professionally competent but they must also share your company ethos to ensure that what made your company successful in the first place can continue to be delivered.
Finally, if what you have is truly transferrable then ask yourself if it could be franchised.
My personal opinion is that this is unlikely unless your USP is based on a specialist niche part of the market. If this is the case, although this may create an opportunity, by definition, niche market sectors offer limited potential. You will also have to ask yourself if a potential franchisee couldn’t just do this for themselves without (quite literally) buying in to your franchise offer?
So, if you are considering expansion into other sites, ensure you have the right systems in place, that your existing business USP can be successfully emulated, have competent managers who share you ethos and then it is just a case of finding the right location(s) – which is another different challenge altogether!
