How Service Managers Can Control Financial Statements
How often do you look at the gas gauge in your car? Most of us check ours daily so we will not end up stranded without the fuel we need to reach our destination. It would be absurd if a gauge only told us when the tank is full or empty. How would we gauge how much gas we had?
Financial statements need to be managed the same way we manage our gas tanks: we need to monitor our progress daily to make sure we do not end up on “E” at the end of the month. Financial statements are important tools for managers to use in tracking growth. However, getting what you want out of a financial statement takes more than just reviewing it at month end, it requires daily management.
When I consult in dealerships, I am amazed at how many managers are not given the access to Daily Operating Controls (DOCs) or other data they need to manage their operation. Information related to sales, gross and expenses must be shared with managers if they are expected to successfully manage department progress. On the other hand, some managers who do have access are not trained in how to use the data properly.
The profit that is lost daily in fixed operations is remarkable and can be curtailed if Service Managers focus on three areas of the financial statement: Labor Sales, Gross, and Expenses.
Labor Sales Management
For managing labor sales it is important to ensure that services are priced competitively for your market and that you control pricing within your department. To remain competitive in retail, I suggest clients conduct a quarterly market survey of maintenance, competitive and captive work to see where they stand across their market. They are often surprised to find they are below average for some services and can justify a reevaluation of sales rates and as well as an opportunity for increased profit.
Labor Sales also need to be controlled internally. In order to control internal pricing in your department consider charging retail labor rates to the new and used car operations. You will never make up the difference in lost gross from a deal you gave to the used car department. The sales department sells from cost and that should be considered before giving a discount.
I also find rather frequently that advisors have access to change sales rates. They might bump a few dollars off to give a friend a discount, or adjust labor sales to fix mistakes on estimates, or even to appease an upset technician by paying them more hours than charged for the job. Keep in mind that this is your money. By protecting your sales rates, reviewing sales rate usage, and requiring manager approval for any rate changes you will protect the labor dollars earned in your department.
Gross Management
A good rule of thumb for managing labor gross is to not settle for group average. You may be missing an opportunity to reach your potential. Cost of Sale (COS) is a key component that can help you reach your potential gross on the financial statement.
To manage COS take a look at what you pay technicians versus what you charge for the service performed. Are you making sure that your techs with a lower COS are the only ones performing routine maintenance?
In addition to assigning the right jobs to the right techs, it is important to monitor unapplied time. Unapplied time is an unsubsidized cost of sale such as an hourly tech not producing shop hours or technicians that are on guarantees. These areas can be a costly drain on labor gross. Take a look at tech productivity compared to cost to ensure you are receiving the return you need.
Expenses
Expense management is one of the most common areas where I see room for improvement. Managers need to focus on this area and approve every purchase related to operating expenses.
It is easy to have a productive department and still be out of touch with the expenses. The office handles millions of dollars every month and mistakes can happen, but it is the department manager's duty to control it.
Rick Tucker, service manager at Champion Ford Lincoln Mercury in Rockingham, N. C., keeps a close eye on his expenses.
“We have some of the best office people in the business, but everyone makes mistakes. It doesn't take too many errors to totally affect your bottom line,” said Tucker.
Tucker monitors his expenses daily and finds it gives him the advantage of fixing any errors he finds immediately. He also uses it as a way to forecast, “it gives you a much better handle on what your expenses are, a better idea of what bottom lines are going to be and what you need to pick up to increase the percentages.”
I recommend that managers question all charges coming through service; it will be worth the extra fifteen minutes a day. Your department generated the income and you should do everything you can to hold onto the highest return possible.
Approve all purchases and confirm all invoices related to service and track your daily expense details regularly – you might be surprised at what you find. In analyzing their invoices, some managers have discovered uniform charges for technicians that left years ago and others have found charges for services they never received. I have also seen increases in service charges from vendors that were not approved by management and charges that should have been expensed to another department. Mistakes happen and by monitoring your expenses you will catch and prevent any slips.
Labor sales, gross and expenses all influence the financial statement and ultimately your departmental profit. The key to getting what you want out of your financial statement is to work daily to monitor your growth. Just like you check your gas gauge, you need to maximize labor sales rates, monitor gross and manage expenses to protect the money that you have earned and keep your financial “tank” full.
Authored by Rachel Dillon, our VP of training who has published articles for Fixed Operations Magazine and specializes in the installation and sustainment of the JDC service advisor training initiative. To learn more about Rachel Dillon or John Dillon Consulting Inc visit: www.bestautopros.com or call: (614) 864-9308 or Email :
rdillon@bestautopros.com
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