By Stacy Bartnik, Contributing Editor
A business plan can help you guide your shop to meet and exceed potential. Use it to set expectations with your employees—who are the key to reaching your objectives. Do you plan a budget for your household? If so, is it beneficial? Do you also have a business plan and budget for your business? As the manager of a collision repair center, you must plan your business and budget to the plan. A business plan is an essential tool for success and growth. When I hear a collision repair center manager says that he or she is having a poor month, my first question is “What did you plan to do this month?” If you did not have a plan for what you hope to acheive in monthly sales, then how do you know you are having a poor month?A business plan that includes marketing, operating procedures, personnel and financial data is the best way to know where your business really stands.
Just what is a business plan? It is the strategy and tactical plan to achieve a financial and business objective. This includes a marketing plan, operating procedures, personnel and financial data. Included in your business plan is the budget, or the financial goals of the business, for a planned period. Think of the budget as a scorecard—the planned budget against the actual numbers at month’s end. If your actual was at budget or better, how did you achieve this? Understanding how you accomplished your goals will help you to continue to do so. Some of the things to look at are your estimate closing ratio, average repair order, efficiencies and employee attendance. If your actual was below budget, looking into these areas will help you know where you need to focus your attention in to meet goals and improve.
You must create a business plan that is achievable based on your facility. There are many factors to consider when creating a business plan, including: staffing, available hours, facility size and layout, number of productive stalls, equipment, business mix and local market. All of these things will affect your business.
TABLE 1: Capacity Calculator SampleNumber of stalls: 10 3Number of stalls per tech: 2 = 5Number of techs for capacity: 5 XNumber of hours available per day: 8 = 40Number of available hours: 40 XTech’s overall efficiency: 170% = 68Potential hours per day to sell: 68 X Average days per month: 21 = 1,428Potential hours to produce per month: 1,428 XLabor rate: $40 = 57,120Potential labor sales per month:$57,120TABLE 2: Capacity Calculator Number of stalls: 3Number of stalls per tech: = Number of techs for capacity: XNumber of hours available per day: = Number of available hours: XTech’s overall efficiency: =Potential hours per day to sell: XAverage days per month: = Potential hours to produce per month: XLabor rate: = Potential labor sales per month:Start by looking at your facility, the layout, number of stalls and equipment. What capacity is your facility capable of producing? Do not set a goal that is unattainable. It still amazes me when a business owner does not understand why the collision repair center manager cannot have sales in excess of a given amount when the facility does not have the capacity to produce that volume of work.
Capacity is the relationship between the number of technicians, stalls, available hours and overall efficiency. To calculate your shop capacity, you must track some Key Performance Indictors (KPIs). Knowing your overall efficiency and utilization will help you determine if you have reached the full potential for your facility. If you calculate your capacity based on two stalls per technician and an overall efficiency of 170 percent, you will have a good basic guide to potential labor sales. Table 1 shows the potential labor sales based on these guidelines.
Use Table 2 to calculate your potential labor sales using your current number of technicians and your current overall efficiency. Your “potential labor sales per month” should be what you are currently achieving. Now complete the capacity calculator again using the benchmark of two stalls per technician and an overall efficiency of 170 percent. By using this calculator you can see your potential change as you adjust the number of technicians and/or your overall efficiency.
Remember to always set realistic goals as a starting point. For example, if your overall efficiency is 130 percent with 10 stalls and two stalls per technician as in Table 1, your potential labor sales would be $43,680. If you increased your efficiency to 150 percent, you would increase your labor sales to $50,400.
Once you have determined the capacity for your facility, you may then create your budget and business plan. The business plan is a forecast of what you plan to happen in your business based on your set goals, current situation, facility, equipment, staffing and insurance relationships.
Prior to creating your business plan, first set goals and objectives. When setting your goal, ask yourself, “In a perfect situation, what could I achieve each month?” Based on your goal, create an objective that will take in any constraints that may affect reaching your goal. Now you can plan. What are all the things that need to be done to get you to your objective?
The following objectives must be set prior to creating the budget for your business plan:
Labor gross profit percentage
Parts to labor ratio
Parts gross profit percentage
Paint and materials to labor ratio
Paint and materials profit percentage
Sublet to labor ratio
Sublet gross profit percentage
Total gross profit percentage
Semi-fixed to sales percentage
To help you determine your objectives listed above, use Table 3. This will give you a basic means to create a budget. Start by inserting your potential labor sales per month from the capacity calculator into the “total” column. Determine the facility objective for each measurement and insert in the column labeled “facility objective.” Use objective percent to calculate each sales and gross-profit category base on the labor sales amount. For example, if your labor sales are $57,000 and the labor gross profit objective is 60 percent, the labor gross profit would be $34,200. And if you have a 90 percent parts-to-labor ratio objective, the parts sales would be $51,300. Keep in mind that this is a basic chart to begin to budget. There are other factors as stated in this article, that when considered will give you a more detailed and complete budget.
Averages Facility
Objective Sales &
Gross Profit Totals Labor Sales
(based on capacity)Labor Gross Profit % 55-65% Labor Gross ProfitParts to labor ratio 85-95% Parts SalesParts Gross Profit % 25-35% Part Gross ProfitP & M to labor ratio 15-20% Paint & Material SalesP & M Gross Profit % 35-45% Paint & Material Gross Profit Sublet to labor ratio 3-5% Sublet SalesSublet Gross Profit % 10-15% Sublet Gross ProfitTotal Gross Profit % 40-45% Total Gross Profit
(sum of all gross profit above)Semi-fixed to sales % 25-30% Semi-FixedDepartmental Profit 12-18% of total sales Net Department Profit
(total GP-semi-fixed)
There are certain factors to consider when setting your business plan. The number of days in the month will affect available hours to produce, technicians’ vacation days or training days. This is why it is important to plan for several months out.
One objective that will determine if you meet your plan is your semi-fixed, expenses-to-labor ratio. Semi-fixed are those expenses that are controllable such as: personnel compensation, benefits, advertising, cost of re-work, uniforms, equipment maintenance, tools, supplies and training. All of these expenses are controllable. This is not to say that you need to stop spending money in some of the areas, but be mindful of what you spend. Spending money on equipment maintenance is important; otherwise you will be spending more to replace equipment. Training employees is essential to doing a quality job, but make sure you are sending the right person to the right training. Look at the number and quality of your non-productive staff. Are you staffed adequately to meet your objectives and goals?
One very important factor necessary for any business to meet its business plan and budget is the employees. Make sure all employees are accountable and informed of your expectations. If everyone at your facility is part of the solution to meeting the budget, you will have much more success in reaching your objective. You must manage a collision repair business as you would any other business. Do not try to close all jobs on the last day of the month, or every Friday. Remember, once you and your staff know what your monthly goal is, work at reaching it each and every day. You must sell, produce and deliver your given objective each day of the month.
The tables in this article give you the basics of putting a budget in place for a collision repair center. Keep in mind that once you know the capacity of your facility, you must look at capacity per month, as there are factors that will affect your capacity as stated above. Once you create your business plan, continually monitor it against your actuals and make changes as needed. As things change in your market or you obtain a new insurance relationship, adjust your plan. Are you ready to ramp up your marketing plan? How much business do you want and who are the customers to which you are marketing? Once again, look at your business plan and adjust accordingly. New equipment may mean higher overall efficiency; adjust your business plan. If you plan what you expect from your business, and set the expectations with your employees, you will be on the right track to success and growth.
The financial management of a collision repair shop is a foundation for success. Without strong financial control, you will not be able to achieve the performance you desire. Without strong financial awareness, you will not be able to use the data to improve performance. The KPIs that you track—labor gross profit, parts gross profit, paint and material gross profit, overall gross profit, operating gross profit, productivity, utilization, overall efficiency, recovery rate and estimate conversion ratio—provide information that allows planning, measurement and diagnosis. The use of these measurements will provide you with the data you need to be a strong financial manager.
