This month, Andy Savva stresses the importance of closely managing the financial side of your garage business.
Andy Savva is a former multiple independent garage owner who boasts over 30 years’ experience in the automotive repair sector. In every issue of PMM he’ll be sharing his advice with workshop owners who want to improve their business’ bottom line, but simply don’t know how to go about it.
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. Bookkeeping 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 times have changed. In a world of compressed and declining margins, what was good enough for our predecessors will not be good enough in 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. 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 critical.
Not knowing exactly where you are every month, every week or even every day for that matter, with regard to margins, mark-up and ultimately profit, is economic suicide. It still surprises and worries me immensely when I visit garage businesses where it is the norm for stakeholders not to understand their numbers.
Realistically, without having a firm grasp on 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. Now, why should we know our numbers? A large number of garage business owners up and down the country started out as good technicians who had the necessary skills to repair vehicles, when all of a sudden they find themselves in charge and owning the garage.
Most don’t have the skill set, or the business acumen needed, to run an operation like this, not to mention a grasp on marketing, customer service, operational management or reception management. And why should they? There is no qualification needed, unlike Germany, where you would have to undertake a three-year graduate programme before you can manage or own an independent garage business.
Consequently, it is critical to any comprehensive and substantive discussion of any garage business, regardless of size, that we take a moment to both explore and analyse what we need to know and why we need to know it. 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. 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 that 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, but 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.
So, 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, our magic number, is decided upon by plucking it out of thin air.
Consequently, garage owners who don’t realise or understand the value of the products and services they provide are subsidising the cost of repairs with unrealistic, low prices.
Almost every problem this industry faces – acute shortage of trained qualified technicians; the lack of interest in automotive services as a viable profession as youth chase those whitecollar jobs; the technological advances in vehicle design; and the absence of succession planning or exit strategies – is the result of an inadequate revenue stream for both the garage owner and his or her employees.