In a previous column, “Financial pitfalls to avoid that can bring down a shop,” I shared some of what Elainna Sachire, president of Square One Systems, Inc., sees as some of the major pitfalls plaguing many shops. Her company works regularly with about 450 shops (with combined annual sales of about $1.2 billion), helping them improve their financial performance. Here are a couple more of her insights into mistakes she sees shops make.
Not staffing correctly for the amount of sales you have. Elainna and I concur that most shop owners believe that increased administrative demands over the last 15 years in this industry have required them to add more people.
“But I can show you shops that actually have fewer people in relation to their sales than they did in the past,” Elainna told me. “That’s because their people are more efficient, the company has better processes. Process has become so much more important in this industry than it was 10 years ago. If you have the wrong processes, then sure, you need more people. But if you let process rather than people run the show, if you get the right people in the right places, you can match your headcount to your sales.”
She said she’s seen shops joining one of her company’s 20-groups realize they have three or four or even more employees compared to other shops in the group with the same total sales.
“It doesn’t mean your people are purposely not doing the right things,” she said. “It just means you have people duplicating efforts, stepping over each other’s feet, not doing the things that are best for the process and the profitability of the company. And I’m not implying that we work our people to death. We want people to enjoy what they are doing and have a quality of life. But at the end of the day, if I’m a $3 million a year shop, and there’s another $3 million shop with half as many administrative people as I have, there’s a problem. How’s he doing it with fewer? Peel back that onion and look.”
There can be reasons for having a higher head count than a comparably-sized shop, she said. A team system may require some extra staff that results in turning work more quickly, for example. You may be training people for a new shop you will be opening in six months.
“That’s a different ballgame,” Elainna said. “But nine times out of 10, when you look at sales per headcount, gross profit dollars per headcount, sales per technician, total gross profit dollars produced per technicians, sales per administrative staff, etc., you’re going to get a very good picture of your staffing against the benchmarks.”
When she asks shop owners about staffing, she said, they often rattle off a list of names by position. She suggests forgetting about the names and the current positions, and instead starting with a fresh sheet of paper. What exact positions do you need relative to your current sales? Then go back and see how your current staff fits with that headcount and the needed positions.
Not paying attention to the balance sheet. Although the percentage of collision repair businesses examining their profit-and-loss (P&L) statements has improved, Elainna says that probably fewer than 1 in 4 shops are paying attention to another critical document: the balance sheet.
“I don’t want to look at your P&L. I want to look at your balance sheet,” Elainna said she tells shops she’s starting to work with. “The balance sheet is very quickly going to tell me the health of the business.”
