How to maximize profit margins

How to maximize profit margins

PDC Auto profit margins

How to maximize profit margins

 

First things first, your service advisors must believe in the value they deliver to customers. When your team knows the importance of recommending appropriate repairs and services, then they feel good about their role in helping customers and are motivated to achieve goals that align with improving the bottom line.

How can shop owners and managers ensure their service writers are on board? Meet with them regularly and train them to understand your shops financial goals and the important role they play in meeting targets; better yet, create a compensation plan to reward them for achieving goals.

Also keep in mind

• Big ticket items will have a lower parts margin, but you’ll make more dollars per hour for the service

• While advisors have flexibility with respect to product pricing, ensure you have a product pricing matrix (see previous blog on this topic) in place as a guide; with your software rules settings turned on to automate the process

• Create incentives to discourage too much discounting, again bonus structures here can motivate service advisors to stick with your pricing matrix

• Focus on the sale of benefits of service v.s. listing parts and labour pricing to customers

• Minimize comebacks by selling customers the right service; this is a great team incentive to motivate technicians to diagnose correctly and rely on service advisors to book the next service

Ultimately, we can develop pay incentives and bonus structures to motivate service advisors and technicians to work together as a team toward a common goal, resulting in Increased Profit for the shop.

How to set and meet successful revenue and profit goals

I always recommend starting from the ground up. Working backwards to ensure we know the minimum gross profit required to cover the fixed expenses.

From this “floor” gross margin dollars amount, we can look at the net profit required to hit the company’s targets and how much more gross profit is required to meet this goal; whether it’s a plan to purchase new diagnostic equipment in the coming year or part of a longer strategy to increase share value for a sale of the business in 3 years’ time.

This information combined with best-in-class industry benchmarking, results in a “recipe” for average product margins, effective labour rate, and labour sales targets; carefully devised to produce a desired and realistic annual income statement result.

An important and often overlooked key to achieving success to hit your targets requires that Service Writers are provided with goals towards a specific mix of service types and parts sales.

Achieving the perfect combination of high margin service work blended with parts and labour sales delivers reliable gross margins to cover your fixed expenses and leave a healthy net profit to re-invest back into your shop.

Take the guess work out of goal development and build predictable forecasts that become your shops roadmap.

We work with clients across the country

If you want to work less in your business and focus on working on your business to make it more profitable, easier to run, and positioned for a sale, contact us and see how our team can change your life.

Contact Us

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PDC automotive accountants

Office Location

1593 Ellis St,
Kelowna, BC,
V1Y 2A7

CONTACT INFO

PHONE: 778-721-0536

FAX: 236-420-4184

EMAIL: milene@pdcauto.com

Find extra cash in your shop.

Find extra cash in your shop.

find extra cash in your shop

FIND EXTRA CASH IN YOUR SHOP

Going into the busiest quarter for tire shops means an opportunity to do some planning that can deliver more cash to your bottom line.

I always start with the low hanging fruit and typically that involves setting up rules in the existing shop management software or point of sale system.

Looking at your annual average parts gross margin % on your financial statements gives you the average points you earn on parts. But you have time now to dig a little deeper, so I suggest you extract a report from your software that shows the total parts sales for your whole year; include the cost, sales price, quantity sold, etc.

Now you can export this in excel and start experimenting with applying varying “levels” of points goals across ranges.

Customers typically won’t question the lower prices on a quote from a shop, so you need to ensure you’re achieving the highest amount of points on these low-cost items to balance out the high-cost items (like transmissions) where you’re limited to the number of points you can achieve.

When you go to the movie theater and spend $30 on popcorn and pop for 2 people, you’re experiencing the product price matrix markup on low-cost items. Theaters make their money on the coke and the popcorn. The concept is the same for your shop, you need a price matrix that ensures you attain higher points on low-cost items to balance out the lower points earned on high-cost items. However, too often I see shops “afraid” to charge a fair amount of points on even expensive items.

You see, you have to cover the costs of rent, utilities, and all the other shop expenses just to keep the doors open; so you have to have a fair minimum markup even on a very expensive part.

Set this up in your system and follow it religiously, with no exceptions and you will see returns in the form of increased bottom-line net profit.

Conversely, if there are items you have worked with suppliers to negotiate amazing prices on, then you need to ensure you still receive the “extra benefit” for this and not pass it on to your customer.

So there are exceptions to every rule, but only when they work in your favour.

Another example, if you can get a dealer part for $200 from your supplier and your pricing matrix markup on that dollar value is 50 points then you would charge your customer a price of $400; however, if the dealerships sell it to the customers for $1,000 then you need to mark up more than your price matrix and charge something like $800.

Below is a product price matrix example:

Cost rangePoints
$0.01 – $1.0090
$1.01 – $2.0080
$2.01 – $4.0075
$4.01 – $1070
$10.01 – $3065
$30.01 – $12055
$120.01 – $20050
$201 and up44

If you’d like a free consult please set up a 15-minute phone call and we can see if we are a good fit to work together.

We work with clients across the country

If you want to work less in your business and focus on working on your business to make it more profitable, easier to run, and positioned for a sale, contact us and see how our team can change your life.

Contact Us

11 + 6 =

PDC automotive accountants

Office Location

1593 Ellis St,
Kelowna, BC,
V1Y 2A7

CONTACT INFO

PHONE: 778-721-0536

FAX: 236-420-4184

EMAIL: milene@pdcauto.com

Sell your auto shop, keep more of the profits.

Sell your auto shop, keep more of the profits.

sell your auto shop

Sell your auto shop, keep more of the profits

You’ve invested so much into your shop over the years. Now it’s time for that hard work to pay off.
You’ve built up your business. You’ve devoted your energies to staying on top of automotive innovations, creating a strong network of reliable suppliers, and developing a loyal customer base. Your employees are happy, your clients are satisfied, and your reputation is great.

It’s the perfect time to move on to your next chapter.

But selling your automotive repair shop is not always straightforward. It can be complicated and surprisingly expensive.

Let the tax experts at PDC help you save thousands of dollars on the transaction by ensuring that you qualify for the Capital Gains Exemption.

Structure is the key.

All business owners want to structure their investment with an eye to the future. Alas! At PDC, we find that many of our automotive clients (when they first come to us) are not actually set up in the most beneficial way. With our comprehensive experience and advice, however, we are able to redirect their holdings in a manner that could, ultimately, save them tens of thousands of dollars on the eventual sales of their repair shops.

The Lifetime Capital Gains Exemption (CGE) is one of the most advantageous tax “gifts” available in Canada, and it’s easy to access with proper organization.

The CGE is a tax shelter available to all Canadian business corporation owners as a means of protecting your capital gains and lowering your taxable income. It allows individual business owners to sell shares of their company and pay no taxes on up to 50% of the resulting net income (to a maximum of $860,912, as of 2019). The exemption is cumulative over a lifetime, you can reach the maximum over the course of many years and many transactions.

It’s also important to note, especially with privately-owned aftermarket repair shops and tire shops, that your final, non-taxable profits can actually be much larger. For example, if you and your spouse jointly own your shop, you can each claim the CGE when you dispose of your shares, which means your total tax-free gain can be as much as $1,700,000.

The exemption is definitely worthwhile. A tax expert can help.

Do you qualify?

There are three key considerations for CGE eligibility:

  • Your company must conduct most (more than 50%) of its business in Canada, and at least 90% of your assets have to be actively used in your business. This is usually an easy qualification to meet for owner-operated repair shops.
  • The sellable shares of the business must be owned by individual owners or a Family Trust (a “private corporation”).  Shares held by holding companies can still be used to shelter profits, but careful consideration must be taken to clarify exactly how those fit into the business structure.
  • Any business structure –or restructure– aimed at collecting on the CGE must have been in place for at least two years prior to the sale of the business. This is why early planning is important!

Sweat equity should pay off, too

We know that there’s so much more to operating a successful business than just loving what you do. You have tangible assets, like the building, tools, and inventory, but you also have valuable knowledge and strong relationships, accumulated over years of hard work. All of the time and effort you put into your business is worth something! You deserve to get that money out again when you sell.

Don’t make the mistake of waiting until you’re on the brink of retirement to learn what your options are!

Smart, strategic planning (beginning at least 2 years before you anticipate selling) with the support of a qualified tax advisor can significantly increase the amount of money you have in your pocket after the sale of your shop. And that means a much more comfortable retirement for you.

If you’re considering selling your automotive business in the not-too-distant future, now is the time to make sure you have your company set up to make you money. PDC’s experienced tax accounting team knows how to structure your investment and holdings to take advantage of the Lifetime Capital Gains Exemption.

We are happy to answer any questions you might have (we’ve heard them all!). Contact us to learn more.

Our main office is located in Kelowna, but we work with clients across the country

If you want to work less in your business and focus on working on your business to make it more profitable, easier to run, and positioned for a sale, contact us and see how our team can change your life.

Contact Us

3 + 3 =

PDC automotive accountants

Office Location

1593 Ellis St,
Kelowna, BC,
V1Y 2A7

CONTACT INFO

PHONE: 778-721-0536

FAX: 236-420-4184

EMAIL: milene@pdcauto.com

Ensure your shop succeeds. Focus on profit.

Ensure your shop succeeds. Focus on profit.

ensure your repair shop succeeds

ENSURE YOUR SHOP SUCCEEDS. FOCUS ON PROFIT.

Being an entrepreneur takes courage and deciding to open your own shop is no easy feat.

The repair shop industry is complex, requires an understanding of mechanics, financial information, parts inventory, and labour management.

It’s no wonder that many shops simply fail to thrive.

Now, more than ever, with the potential of a looming recession and so much uncertainty, shop owners need to focus on profit first. Going into the busiest quarter for many tire and repair shops, those particularly in regions where inclement weather guarantees most folks will be swapping to winter treads. While business is quiet, owners can take advantage of this time to plan for success in the coming year.

What I like to focus on is net profit and work our way up the income statement.

First, you need to know what your current net profit works out to, simply take that bottom line net income number and divide it by your total sales, that is your net profit (don’t include wages to yourself you’ll want to add those back if they’re on an expense line).

I recommend most owners aim for 10%, if you’re sitting any lower than then you are in need of a tune-up and we can help!

First of all, I encourage you to look at all the expenses beneath your Cost of Goods Sold (COS) and Gross Profit (GP = Sales – COS) as fixed expenses. Fixed expenses are simply related to the cost of operating and you don’t try to decrease them; unless of course there’s something really out of line, but for the most part, these are fixed.

There is one fixed expense that I want you to consider however and that is your labour expense, I know you might be thinking “that is NOT a fixed expense, that’s a labour cost and it sits in my COS”.

Do you let go of technicians in July, January, and February? Of course not! You simply keep your team at the level it needs to be to handle the volume through your busy times.

It is industry standard and all measures and ratios are based on this fact, so if you have your labour sitting in COS you’ll need to do a little creative arithmetic to rejig the quantitative figures I provide.

You can however calculate your labour as a ‘percent of gross profit’.

Take your total shop labour (do not include yourself the owner or your bookkeeper and admin staff) and divide this by your gross profit (remember you’ll need to back out labour from that gross profit calculation if it’s sitting in COS).

If you’re sitting with labour as a ‘percent of gross profit’ greater than 40% then you’re not earning enough to justify all the wage costs (unless it’s a slow month then maybe look at a smoothed out average over a period of 3 months or even your year to date).

I’m going to close this entry here because this gives you the assignment to look at just 2 figures on your income statement to see how you’re measuring up.

If you struggle to get this information easily, worry that it is not correct, or need help reallocating your mapping in your software then call us and learn how we can help you stay on top of this and take the worry off your plate!

We work with clients across the country

If you want to work less in your business and focus on working on your business to make it more profitable, easier to run, and positioned for a sale, contact us and see how our team can change your life.

Contact Us

1 + 1 =

PDC automotive accountants

Office Location

1593 Ellis St,
Kelowna, BC,
V1Y 2A7

CONTACT INFO

PHONE: 778-721-0536

FAX: 236-420-4184

EMAIL: milene@pdcauto.com

How management software can really help your business

How management software can really help your business

HOW MANAGEMENT SOFTWARE CAN REALLY HELP YOUR BUSINESS

HOW MANAGEMENT SOFTWARE CAN REALLY HELP YOUR BUSINESS

Make your Automotive Repair Shop Management Software Work for You

At PDC Accounting Evolved, we have many automotive small-business clients that we see only once a year. They tend to rely on our year-end meeting to discuss their fiscal success when it’s too late to make changes that could impact their earnings in real-time. We’d like to change that approach and to help you, our clients, increase your company’s financial potential.

We encourage our automotive clients to adopt a shop management software system, in order to monitor (and adjust) their income and expenses throughout the year.

Is your management system being underutilized?

If you’re already using a sophisticated software program, such as COSTAR, then you likely have far more functionality than you’re currently taking advantage of. COSTAR is a great product with numerous useful features, but we find that many of our clients don’t make the most of its capabilities.

What should I be measuring?

Shop management software systems are multi-faceted backend bookkeeping platforms that can track everything from online orders to customer vehicle history, purchasing, pricing, inventory, billing, and more. Some of our clients find the accounting aspects of the software a little bit intimidating for their bookkeepers. There is a learning curve, to be sure, but once your accounting manager becomes familiar with the software, these programs really do make it easy to track and report your company’s most valuable information.

Follow the numbers that matter.

These systems allow you to generate reports on almost anything, but in order to minimize expenditures and maximize profits, it’s critical to monitor the following information:

  • Average gross sales per month
  • Net profit percentage (Labour)
  • Net profit percentage (Parts)
  • Labour efficiency
  • Average repair order (year-to-date)
  • Repair orders monthly average
  • Overhead as a percent of sales

At PDC, we typically recommend that our clients set initial benchmarks in line with industry averages for these important statistics; you’ll find you’ll need to raise the bar as you get better at reaching (and exceeding!) those goals.
Why settle for average? Some shops are making 60% gross profit on auto repair! You can, too.

Monitor your overhead.

There’s more to profitability than income. Always keep in mind your fixed costs. These are the numbers that don’t fluctuate with the volume of business, e.g., salaries, rent or mortgage, monthly outsourcing costs, etc. Measure your sales as a percentage of your overhead, and strive to keep that number below 35% to ensure that you aren’t over-spending on these fixed costs. Information regarding revenue ranges and expected average percentages are readily available. With a focused search, you should be able to determine the right numbers for your business.

Key numbers to track in your shop

When we talk to clients about Key Performance Indicators (KPI) we mean, “These are the numbers to watch for.”

A KPI is simply the ratio of any two numbers that relate to your company’s financial health. At PDC, our accountants use these ratios to track the relationships between the most important points in every business. This, in turn, helps us determine the most effective strategy for your business, following the trends of your revenue, income, profitability, growth, and capital.

For example, monthly payroll costs (excluding the owner’s salary) divided by monthly total sales will help us to determine what percentage of your total monthly expenditures go to your employees. The target for payroll costs is generally 24%.

It is important to consider this relationship as a KPI (rather than just straight numbers on your statements) because it’s a great barometer of how you are actually doing. $100,000 in labour costs is not a concern if your sales are $500,000 – that’s a 20% payroll cost. However, if your monthly intake is only $250,000, you’re putting more than 40% of your revenue into payroll, which leaves very little for the rest of your expenses (not to mention profit!). By following the KPIs, you’ll know when and how to refocus your spending. Is efficiency the problem? Are you under-quoting on jobs?

If you don’t know where you’re losing money, then you can’t fix anything, and your company can’t grow. As a business owner, you need to regularly monitor and measure your company’s performance. Regularly assessing your KPIs can help you patch up and “profit leaks”, and ultimately, earn more from your business.

The experts can help you make sense of it all

Even with a shop management system and accurate, pinpointed reporting, you may find you need help teasing the right information from your company’s data. An accountant familiar with the automotive industry can assist you. The team at PDC works very closely with many aftermarket car and tire shops to ensure their continued financial success.

Don’t wait until year-end to figure out your finances, crossing your fingers that the results will be good! Utilize your shop management software to generate the information when you need it. Knowing how your company is performing throughout the year can help you fine-tune your business practices and help your profitability to grow.

Let us help you keep on top of all of your numbers. Contact us to set up a consultation.

We work with clients across the country

If you want to work less in your business and focus on working on your business to make it more profitable, easier to run, and positioned for a sale, contact us and see how our team can change your life.

Contact Us

13 + 11 =

PDC automotive accountants

Office Location

1593 Ellis St,
Kelowna, BC,
V1Y 2A7

CONTACT INFO

PHONE: 778-721-0536

FAX: 236-420-4184

EMAIL: milene@pdcauto.com

Marketing in the digital era.

Marketing in the digital era.

 Marketing in the digital era

MARKETING IN THE DIGITAL ERA: SIMPLE, AFFORDABLE, EFFECTIVE

Do you have a loyal Facebook following? Everyone over 30 is on Facebook. So much so that the kids joke that it’s the “old people’s” social media. Because the kids these days are all latching on to other social media platforms that us “oldies” can’t figure out.

And to that, I say ‘Hoorah!’, because when it comes to marketing and communicating to possible customers, we only care to get in front of people with buying power, so this truly makes it simple.

Not only is it simple, but it’s practically free.

Ask your kid to set up your Facebook page. Heck, offer to pay them a weekly allowance to post and update content. If they have good writing skills and some understanding of your business they’re possibly in a great position to help out the family business in a meaningful way!

Get going by inviting all your friends and family to like your page. Then, make sure you send customers a ‘thank you for your business’ email and invite them to like your page.

I’m sure you’ve been invited to participate in contests to win free things by “like our page and share” types of contests. Go ahead and have one of your own. Imagine the results of one campaign in October to offer free winter tires by liking and sharing your page!

Once you have a mass of consumers who have liked your page you can start posting relevant information on a regular basis. Content should be designed to capture their attention and motivate them to make an appointment or purchase from your shop.

For example, you might want to post a link to “The Old Farmer’s Almanac” showing that the expected annual weather summary for your area predicts “above-normal precipitation and snowfall”.

Anyone who was considering trying to get away without buying a set of winter tires for their new vehicle (because consumer vehicle purchases have been strong for the 2018 and 2019 periods) might be persuaded to come by your shop before the busy season to order up a new set of rubber and rims for their vehicle.

The key is to recruit consumers to like your page and then regularly post engaging content that ties back to why they should buy from you. That surely is worth a little extra allowance, isn’t it?

Let us help you keep on top of all of your numbers. Contact us to set up a consultation.

We work with clients across the country

If you want to work less in your business and focus on working on your business to make it more profitable, easier to run, and positioned for a sale, contact us and see how our team can change your life.

Contact Us

11 + 2 =

PDC automotive accountants

Office Location

1593 Ellis St,
Kelowna, BC,
V1Y 2A7

CONTACT INFO

PHONE: 778-721-0536

FAX: 236-420-4184

EMAIL: milene@pdcauto.com