WHAT YOU DON’T KNOW CAN PUT YOU OUT OF BUSINESS

By Terry Keller

Should you spend time reading this article?  Answer this: Are my net operating profits trending down over the last 3 years?  In other words, am I bleeding and don’t know how to stop it?

The Numbers Don’t Lie

Growing or shrinking profits and cash flow in your shop don’t lie. They are growing because you are doing enough of the things you can control right, or they are dropping like a rock because you aren’t. There should be no mystery in this. It’s science based on finite, predictable principles.

Formula for Success

I first became a certified master tech in 1974. That same year I bought my first shop. Prior to this in automotive school I discovered three of the most important things I have ever learned about repairing automobiles and about running a business. The principles are: 1) measurement; 2) comparison to specs; and 3) determining best corrective solution. Good techs know this process and instinctively use it in every repair they perform. When it comes to business the vast majority of owners do not understand or do not master this simple formula for success.

Real Life Examples

Many of us as techs learned to inspect a rod journal on a crankshaft and became aware that we must take several measurements at different points on the journal to understand its size, shape and condition. We immediately realized that this knowledge alone did not reveal all that was needed to determine serviceability or proper repair procedure. Comparing our measurements to the precise specs and tolerances was the only way to do this. Once the comparison was made the proper repair procedure could be selected and employed as indicated.

The same process holds true for diagnosing a bad fuel injector. After following proper procedure and you arrive at the point of testing the wave form of the injector, the pattern is observed. Then it is compared to the known good pattern. The comparative finding then determines the recommended repair or next step in the diagnostic process.

Applying This Process To Managing Your Shop

After running my shop for nearly 40 years and helping hundreds of other shop owners grow their business I am still in awe of the power of this simple process. I have been on a life-long quest to determine the most significant indicators, develop the easiest to operate measurement tools, find the most valid specifications and standards, and identify the best repair solutions. Here is an overview of my top recommendations on how to protect your shop and make it more profitable starting right now this month!

Comparing Apples to Apples

We all know that gross profit is important. It’s what we use to pay our overhead and ourselves. How do you calculate it? What categories should you measure? What percentage should it be to sustain a solid operating profit? How do you fix it if it’s off target?

You must determine how the benchmark or target you plan to use is calculated. For example, if you measure labor gross profit based on a “non-loaded cost” (not adding in other employee benefits) you’d better be sure the target you are trying to hit has been derived using that exact formula in all participating shops in the sample making up the average benchmark. Otherwise you are comparing apples to oranges. You must also use a sample of shops with similar sales mixes, markets and demographics. Comparing your small, general service shop numbers to a high-end European shop is pointless and could be dangerous.

Ease, Accuracy and Consistency of Reporting

The reports you use must be easy to read and analyze. We all have computer programs that produce reports. Which are most important to review regularly? What do they mean? How should you organize them to tell you what you really need to know?

Unless your data is displayed in a way that you can see the big picture and the trends, as well as easily discover a seemingly small bit of data that is a key indicator of a problem, pages of reports can lose their value very quickly. Comprehensive analytical summaries and graphing are the best ways to absorb and understand the data you want to review.

Inaccurate measurement or misunderstood data most times results in a misdiagnosis. And if the measurement process is too difficult to sustain, it’s just a waste of your time and money to even begin and then let it fizzle out.

“The Present” – Having Instantaneous Knowledge

If you don’t know something is wrong today, or what to do about it today, how can you fix it today? Use of “To Date” numbers, “Averages,” and “Projections” are vital to understanding what is wrong – TODAY. The Present: If you think about it, the only time you can physically do anything to fix your business is in this instant called NOW! You can analyze and learn from the past and you can plan for the future. But you can take action only in the present. If you don’t have accurate current data in the present how can you determine or take the best corrective action today? This is the single biggest cause of procrastination to change by shop owners – the lack of reliable, up-to-date information when it is needed most! If we aren’t sure what to do, we do nothing!

What Does It Really Mean?

We have all been confused and maybe overwhelmed at the amount of data we can pull from reporting systems. But, what does it all really mean? You must have a way to instantly see what it will cost you on a monthly basis (at any point during that month) if you allow any profit or production area of the business to slide. I have seen dozens of shops lose thousands of dollars a month from ignoring even the most basic benchmarks due to not understanding what it was really costing them in hard dollars. Looking at some low percentage or number is one thing, but feeling the heat of a stack of $100 bills on fire is another!

Taking and Sustaining The Right Corrective Action

Once you have the most significant accurate data to date and have then compared it to benchmarks personalized to your shop, you can begin to understand where you are burning money and take the best corrective action. The only way to sustain change and improvement is through your team. Knowing “how” to fix something and actually fixing it for good are two different things. I know certified master techs who passed the tests but can’t fix cars – so do you!

If all of your team members are not engaged and genuinely enthusiastic about improving their performance and the profitability of the shop, you must empower them and get buy-in from them to do just that! Empowerment includes:

• teaching the “what,” “why” and “how” of every expectation;
• committing them to those expectations;
• ongoing training including instant access to self-coaching and solution tools;
• daily reporting of performance;
• accountability to return and report their assignments including any variances;
• regular performance reviews, incentives for hitting the targets you want;
• personal coaching as needed;
• and when necessary disciplining or replacing unacceptable employees.

An empowered team will want to sustain change and improvement.

Which Category Are You In?

Where are you in your own growth process as the leader of your business?

1. Don’t know how to fix my business and couldn’t fix it if I did.
2. Know how to fix some things but can’t make them stick.
3. Know how but have only been able to make a few things stick.
4. Know how and get ‘er done everyday!

From my experience with hundreds of shops, less than 1% fall into category 4! What you don’t know and what you don’t make stick can put you out of business!

Most Important Decision

The next decision you make could be the most important one of your business career.  It could determine whether you succeed or go out of business! Do you have the information you need to make it? Consider the following:

1. Am I measuring the right indicators in my business using the right formulas?
2. Do the benchmarks (targets) I am trying to hit match up with my type of shop, my market and my demographics?
3. Does my reporting system give me current, accurate data and easy to understand analytics so I can make adjustments and measure the results? Does it map out trends and projections so my team and I can learn from the past and see into the future?
4. Do we have instantaneous access to solutions and self-coaching tools that provide a step by step roadmap so we know the “what,” “why” and “how” of each needed change?
5. Is my reporting and solution system built on principles that create empowerment, buy-in and accountability within my team so they make solutions and new processes stick?

There are many old ways of doing business that have become so cumbersome it’s impossible for them to work anymore. And recently I have seen some new theories introduced into the auto repair market that are just plain dangerous under most circumstances for most shops. How do you know the right way to go? Who should you follow?

Whomever you choose to access or guide you must have hands-on, current experience in working with shops in similar markets and demographics as your shop is in. They must have extensive experience in the full spectrum of shop management and not just in some specialization or one-faceted area of focus – because they simply will not understand how all the other areas of the business affect each other. And if they don’t have any of their own money in the game, if they don’t currently own a shop and successfully remote manage it you have to wonder if they understand today’s problems and if they are teaching things that are effective in today’s economy and business environment?

It’s up to you to make good decisions and to make them stick. No one can do that for you. And you must quickly and carefully measure the effectiveness of all changes. How will you know if you have done the right things? How will you know if you’ve stopped the bleeding before it’s too late? The numbers don’t lie!