TOM’S TALES
CRUNCH TIME Put pressure on those bleeding costs
BY TOM BISSONNETTE
B
ack in 1986, I worked at Parr Auto Body as the shop manager. I was in way over my head—a 2,230 sq. m. (24,000 sq. ft.) facility with a rent cost of $12,000 a month was just one of the insane overheads that the business had. I worked six days a week, 10 to 12 hours a day to keep the place solvent. Even so, as a 30-year-old with just four years of experience in the autobody business, things did not look good. I was fortunate enough to have the sense to do two things. First, I reached out to our paint supplier— Reineking Paint—for help and they introduced me to the guys at Regina Auto Body. Chris, Greg and Mike have been mentors and friends from that day forward. I’ve learned so much from them and cannot thank them enough for their guidance. On Chris Mario’s advice I flew to Vancouver in the fall of 1986 to attend a body shop management workshop, sponsored by 3M, called ARMS, or Auto Repair Management Seminars. The 3M ARMS event was a turning point for our business. Up until that time I was trying to overcome the challenge of running that shop with sheer energy and hard work. The folks at that event were the first people that ever told me about the numbers of the business. I had no idea up until that point that there was a formula for financial success in the body shop business.
They explained that there are targets to hit in the four main income areas of a body shop and, if you added them all together, you would find that after you paid all of your production costs—labor, parts, materials and sublet—you should have about 40 percent of your sales leftover to pay fixed costs like rent, taxes office staff etc. It was clear that you did not want your fixed or operating costs to exceed 30 percent of your sales, thus leaving you a tidy little profit of roughly 10 percent. I went back to the shop and started doing the math. We were averaging about 33 percent gross profit overall instead of 40 percent, and our overhead was 35 percent of sales. No wonder we were bleeding to death! So where do you stop the bleeding? The first thing I did was start job costing each and every job. I tracked our sales and cost of sales on each and every job. This can seem like an enormous project, but it can be done manually. The easiest way to do it is to have a shop management system and actually use it, then let the computer do that work. If you do not have a shop management system you can do it manually using the aforementioned Job Costing Template. To track employees’ time, I asked everyone to document how much time they spent on each job every day. If they were not working on a paying job, they had to write down what work they were doing; maintenance, estimating cleaning the shop etc.
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It was clear that you did not want your fixed or operating costs to exceed 30 percent of your sales, thus leaving you a tidy little profit of roughly 10 percent. Example: Sales $100,000 Cost of Sales -$60,000 Gross Profit $40,000 Overhead -$30,000 Net Profit $10,000
