Last month we launched a short series on ideas to make 2018 the most profitable year ever for you and your shop. Today we focus on cutting costs. I will admit that some of these may come under the heading of “Duh.” However, if you are like me, being reminded once in a while and pausing to consider the idea may just open new profit avenues for you.

We’ll be looking at a variety of operating categories. But I’ll bet if you look at your overall gross margin and expenses after parts, your No. 1 expense by a mile will be people, after parts costs. Wages, benefits, intangibles all play in here. So that’s where we’ll begin:

On one hand, truly successful businesses recognize that their crew is their most important asset. They are the face of the business, the people who interact with your customer, innovate, cost you money or save depending on their decisions and so much more. In a typical dollar on the invoice, 46 cents go for parts, and nearly 20 cents for people. That’s 20% of your total sales!

Needless to say, cutting wages for existing employees isn’t likely to be a hit. But, for the future, it will pay you to structure wages for new people relative to experience, training and expected productivity. As long as the new person understands there is an opportunity to earn more in the future, and that there is a logical process, this approach proves to be successful.

Benefits

Health insurance: This month’s original subject was to be the “new” health insurance. As of this writing, a lot is still up for grabs. However, new options and approaches to the challenge for small businesses have become available as regulations have been loosened. Companies are offering more group options. And, there are unique ways to handle the premiums. It may be important to consider the possibility of a high deductible health plan with an attached Health Savings Account. There may be problems with this in a young group you need to consider. As soon as you finish this article, you may wish to call your insurance pro for an appointment to discuss cost saving options.

Retirement: More businesses than ever have added retirement plans of some sort. The good news is that there are many different possibilities out there that make these plans increasingly simple. As for cost issues, the key is in controlling the plan expenses. It is important to talk with the plan rep and find out, in detail, how much the fees are and who pays them. Many employees start out with reasonably modest savings. This means if their assets are shouldering the plan expenses entirely, much of their gain may be eaten up. On the other hand, you must balance your costs as the employer and sponsor. Lastly, this will be a much easier process if you are using a payroll service and not trying to handle the contributions yourself.

Vacations: Structure vacations based on years worked. Too many shops get in trouble when they start becoming lax in their vacation program and there is no logical way to anticipate what is available. A lot of very successful shops do allow some number of “personal days” that are paid to cover illnesses, family emergencies, etc. Beyond this program and vacation, it should move into unpaid leave.

Training: It’s a two-edged sword. You pay any class expenses PLUS employee wages, including overtime if appropriate. As a result, make training a reward for excellent work or development. Target the employees who will or are “making the crank go around.”

Hiring & Recruiting: One of the toughest things to do in our industry is find, hire and keep good people. As Don Anglin (Undercar Digest’s now retired historical author) likes to remind me, there isn’t a shortage of people, there’s a shortage of good, trainable people. We discussed this a bit in the last articles, with more to come. But if you are serious about attracting younger people, you must consider referral marketing, candidate referral services (e.g. Indeed, Monster and others) and social media. These folks just don’t read the printed want ads anymore. Older employees, on the other hand, do still read the want ads. However, referral marketing and working within your existing group is likely more effective. And while we’re here, do not forget your nearby tech colleges and the few high school auto shop programs that remain.

Worker Compensation: This is a huge expense that is often only considered once a year. In truth, if you do not make safety and injury prevention an ongoing constant in your shop, not only are people at risk, so is your mod rate. And Lord help anyone breaking a 100 mod rate anymore. Not sure what you are hearing, but shops tell me their rates and the injury scrutiny have both increased markedly. We’ll talk about this area later this year. In the meantime, be sure you are continuously providing safety training, proper safety gear, and enforcing the use of the gear.

Supplies,Tech

Next on the list is what the accountants like to call the S, G & A expenses. We’ll take a look at these areas.

Technology: this is an amazingly large expense area. Computers obsolete themselves quickly, new software is always available. Things like invoices or paper for invoices seem simple, but are not a small outlay. There are some proven ways to tame these monsters. 

• Use an IT firm that understands small businesses, and hopefully, your shop business. We are often our own worst enemies in this area. We all like new, faster, better stuff. But, as my IT firm likes to tell me, “Back off the cliff Tom, what you have is fine.” They can also make sure everything you have works together properly and provide quick, cost-effective-repair solutions. If the hourly fee you pay them seems too high, maybe you should really be looking at your own! Sorry, had to do that.

• Consider adopting one of the many computer cloud-based fax, phone and internet providers in lieu of your own fax and the like. We found that per-use costs were much lower. We saved time since we didn’t have to hover at the fax to make sure something went through. Faxes and more were sent right from our desk. Using the fax for me often meant chasing something other than what I was working on since others took the opportunity to talk everything but shop. I like talking with people too, but when $100+ per hour is on the line and the shop is backing up, having a tech share a fishing story may be better some other time. Talk to your IT guru about what’s available to you.

Office Supplies:

• Keep an inventory of office supplies, cleaning equipment, etc. Update every six months or so. Seems like overkill. But, research suggests that you will save time, avoid “emergency” buys that are generally more expensive and save dollars on duplication of purchases when things cannot be found.

• Another obvious but often overlooked area is tracking things like uniform, shop rag, floor mat and other services of the like. You may save dollars or be able to negotiate more frequent changes for the same money.

Buying Hints:

• Look at options such as local retailers or warehouse stores that will sell in bulk. For example, we save about 20% on toner by buying in case lot from a local office store. Just be careful. I was fond of buying case lots of things where it seemed like an amazing deal. Only problem was that I had a 50-year supply that I couldn’t possibly use! Buy bulk where bulk makes sense. Generally these are consumables.

• Buy in early summer and late fall. Avoid back-to-school and tax season when things are more expensive.

• Be sure to check local thrift and second-hand stores before buying new office furniture, counters, tables, etc. I especially like the store operated by Teen Challenge. By disclosure, I do volunteer. But, it’s a great way to get unique furniture for home or office while doing good. Restore, Goodwill, St. Vincent, Salvation Army, Habitat for Humanity and a host of office furniture places that also offer second-hand are also good options. My favorite write-up podium came from a Restore. It started life in a church. It was a fraction of the cost of new, was solid wood with hand carving, and added a really special presence to the lobby area.

“A simple fact that is hard to learn is that the time to save money is when you have some.” – Joe Moore

Parts and Such

Lastly, for this article, we’ll look at parts and related shop supplies. As noted, of your sales dollar, parts make up nearly half. We’ll look at everything from hard parts, including sub work and chemicals.

• For your office supplies, parts intake and outgo, parts in on terms or consignment, chemicals and other consumables, uniforms and whatever, have only one place to find each. Label the shelves clearly as to what belongs there. Then make sure employees know how it all works. According to a variety of sources, and depending on how many cores and returns you are losing now, you will save anywhere from 5% to 20% on your parts and supplies. That’s a lot!

• Buy bulk only if it makes sense. We have a joke around here that, to save two cents a gallon on gas, people will drive 40 miles round trip! So much for the savings! Well, as business owners, we can be guilty of the same if we buy 100 of something that we only use five a year.

• Keep a VERY good inventory of your parts and supplies in stock. Make it obvious for all to see. Ever watched a filter or can of brake cleaner sprout legs and walk? Happens by magic I guess, but it’ll cost you. Or it may be something as simple as a part used but not noted on a work order. Either way you are losing big dollars.

• Watch out for the part-cabinets deals that come with terms or on consignment. Make absolutely sure of what can be returned, whether the inventory levels can be adjusted to a reasonable level for your shop. Know the terms. Include these parts in your inventory. Generally, folks I interviewed, such as accountants, tell me you don’t want less than a three-time turn on stocked parts. That means ideally every part should sell out every four months. Otherwise it’s costing you money.

• Make arrangements with your part source(s) to take back returns and cores at least weekly. Longer and they may suffer from the same magic legs disease noted earlier. I hate to point fingers, but it wouldn’t exactly be the first time a tech ordered a part for their own or another vehicle and then picked it up on the return shelf. Without obvious controls in place there can be a huge expense if only one person is cheating your business.

Finally, for this month, a thought. I know we have buying opportunities all over the internet, catalogs, and different suppliers locally. In my business we always prized the loyalty of our customers who realized they might be able to go elsewhere for less occasionally. We also believed in extending that same loyalty to our vendors unless something huge happened to change things. It’s amazing. Yes, we paid a bit more sometimes. But we had amazing service, a great relationship, first crack at good deals, quick delivery and more. A little loyalty will go a very long way.