President’s Message
Knowing Your Cost of Doing Business
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Increases in inflation and the Consumer Price Index (CPI) have been out of control for the past year. The CPI has increased by 6.2 percent since a year ago, the highest it’s been since December 1990. Fuel cost has risen by 59 percent, used vehicles cost over 25 percent more, and the price of new cars is up by nearly 10 percent. The price of parts for vehicles (assuming you can even find and buy them) has increased by at least five percent, though some sources suggest that number is close to 25 percent. Water, electricity, milk, bread…everything we need costs significantly more than it did in 2020. If you’re not sure why you should care, then you’re exactly the person I should be talking to! All of these increases factor into a shop’s expenses; without these costs, we can’t run our businesses, and if you don’t understand your cost of doing business, you can’t know the amount you should be charging! But make no mistake: Just because an insurance company tells you, “It’s a cost of doing business,” that doesn’t make it so.
Generally Accepted Accounting Principles (GAAP) identifies overhead and direct costs. Burl Richards Overhead basically means all the fixed costs ABAT President your shop has to pay, even if you don’t have a single repair lined up. Direct costs are related to sales; it’s the goods and services the shop produces, and it’s absolutely impacted by inflation. When the price of parts and materials increases, your direct costs go up as well. Paying a technician to perform a procedure on a vehicle isn’t a cost of doing business. Obtaining an OEM certification isn’t part of your normal cost of doing business. Those are costs of doing a specific repair, and because that repair costs your shop, you should consider sharing that cost with the bill payer by charging for it on your final bill. If you’re running a shop – especially if you want it to be profitable – you need to look at your costs every month so you truly understand YOUR cost of doing business, because every shop’s costs vary. And these changes are happening frequently. Without looking at the monthly numbers, shops can go months or even years before realizing there’s been an increase in their paint costs. They’re only aware that they don’t make as much money as they once did, and while that may drive them to raise their rates, that’s some pretty backward thinking! We need to be more proactive as an industry. Think about it: When suppliers charge more for gas, the local gas station doesn’t wait a year before deciding to raise their prices. Consumers see that increase immediately. Of course, it’s a little different in our industry. That doesn’t mean you can’t immediately adjust your rates, but you’ll have to charge the customer the difference unless you wait for the market to adjust. Unfortunately, our system is set up on the broken “prevailing” system – I call it broken because this system compared a fiveman operation with a paint booth and no specialized equipment, certifications or training to another shop down the road that HAS invested in all those things. It’s like comparing apples to computers; they’re not even remotely the same! You need to continually look at this information. Ask your jobber to advise you every time there’s an increase so that you’re aware of it. Look at your P&L each month so you know if you’re making or losing money. Proactively calculate your cost of doing business. The Variable Rate System (vrssystem.com) is a great resource I’d recommend to any shop owners who are struggling to figure out their cost of doing business. Pay attention to your business, because if you don’t, you’ll look up one day to realize you can’t afford to pay your bills or buy new equipment. burl@burlscollision.com
TXA 4 JANUARY 2022 Texas Automotive
