It’s important to realize that there are “levers” you control regarding profitability. To make more money, improve and target marketing, increase customer service/satisfaction, improve throughput, improve your team, and increase capacity for work. To keep more of the money you make, there is only one answer, controlling expenses. These are not mutually exclusive lists. Many approaches to lowering expenses create time, helping with the profit levers.

As business people we tend to measure success in terms of revenue. Dollars in the door. Kind of the old pants pocket accounting system. As long as we have cash we’re OK. The question then becomes how much of that cash are we keeping? We may shovel all kinds of money on the front of the trailer. But, if we don’t make sure we have the tailgate up more may be slipping off the back of the trailer than you might imagine. We’re going to visit today for a few minutes about making sure the tailgate is as tight as possible.

To prepare this article three sources of ideas were researched. We spoke with a number of shops who have proven to control their expenses. We did a deep dive of information available electronically. And we looked at a number of sources providing data relative to shop financial performance. Keep in mind I am not an accountant or legal professional. And, for some of the ideas that follow you may need/want their advice.

Taking a look at the hard numbers is tough. Shop size, location, services and more all affect shop profitability. But generally speaking, the typical shop is generating 3% to 6% profit after officer salaries. According to some in the business of operational consulting it is possible to increase this substantially. Increase sales while controlling expenses and working on thru-put. We’ll work on the expense side of the ledger.

“You can’t cut your way to growth, and while cost-cutting may create a short-term win by improving EBITDA or net income, it’s not sustainable in the long term.” Source: Inc. Magazine

I have included the quote above for a simple reason. Too many shops pay little attention to their expense structure when times are good. Then when business goes soft, the first place the owner goes in an attempt to save a bad year or a business failure. With this I offer you the following warnings:

• Watch your costs when times are good. You’ll just make more money and at the same time be positioned for softer markets bound to come in the future.

• As a butcher friend likes to say about controlling costs, you want to trim away fat, not the meat. And if you see the bone, something went very wrong. So carefully trim fat in such a way that customers never know. Otherwise they’ll start getting antsy that you may be hurting which makes them more likely to look at competitors.

• START NOW!

As a reference, according to many who study the market, the ranking of major expenses for most shops are as follows:

1. Staffing costs
2. Building/location including taxes and utilities
3. Tools & Equipment
4. Inventory of supplies and parts in the shop

With all of this in mind, let’s look at many places to look for cost control. While we make our way through the list, consider the short list above for where the most money gets spent and as a result offers the greatest return. Here goes:

• We begin by suggesting the rest of the list is far more effective if you understand your current expenses. Your accountant can lend a hand here. Can’t tell if you’re making any headway if you don’t know where you started.

• Knowing the current expenses, set a goal quarter by quarter for the next year in terms of how much expenses will be reduced then chart out the goal and actual.

“…..use the SMART model for goal setting: Specific, Measurable, Achievable, Relevant and Timed. These are specific characteristics used in successful goal setting.” Source smallbusiness.chron news

So far, we’ve looked at the base data required to be successful in setting goals. Now, from a number of sources, here is a quick summary of real actions others have taken, experts recommend and help you create a specific amount of expenses to cut:

• Automate business reporting. It is always amazing to learn the amount of time spent by shop owners to create the many reports needed to run a business. There are software packages, cloud applications and templates for use with your current system. If none of those are attractive, enlist the help of your accounting office. In any event, it’s time to save money by getting off the keyboard and manage your shop.

• Use technology wherever possible that will simplify your job, or someone else’s, and save time (time = money). Have a sit-down with your IT providers to discuss, or possibly hire an IT consultant for a short time to assist.

• Utilize more online marketing, less of the more expensive types. Print is expensive, as are phone book advertisements. If they work for you, great, but with a good mobile and direct mail campaign you’ll reach only those folks who want, can pay for, and value your service offerings. Again, a good IT consultant will know pros that specialize in this area, and then manage the IT so you’re not stuck always writing copy, etc.

• Review your office supply costs and usage. If you’re like me, a look in the supply closet quickly highlights everything we had to buy and never used. Save time by skipping the office supply store and order online for delivery to your shop. Compare prices.

• Credit card expenses can chew up anywhere from about 2% to over 8% of your revenue. Look at usage and determine whether those with minimum fees or high transaction fees are worth having. If there is business activity on an expensive card, you may have to adjust your labor and pert pricing to reflect the loss. Otherwise, save the money.

• Lower your debt and renegotiate your loan terms. Interest rates are still fairly low, but still adds to your cost for money. I am not naïve. We all need credit lines; and often infrastructure and building loans. But do watch how much the rates add; and negotiate a lower rate if you are in good standing at your bank. Interest rates are negotiable depending on the level of risk you represent. Good risk = lower interest rates!

• Consolidate banks and accounts. Many businesses have what can only be called “squirrel holes”. Often when a bank change is made, money and accounts are left behind as well. Or, you may have one bank for one business, another for other operations. You will likely find that consolidating these in one bank will save you money in interest rates, lost interest in non-yielding accounts, lost money paying fees when an account doesn’t clear minimums and more. Besides, do you ever really balance all of those accounts??? Rhetorical question; no show of hands needed!

• Consider tiered-wages tied to skill set, productivity, assigned work, etc. A tech primarily doing lube work or similar maintenance items should get paid less than your drivability tech.

• Quit being so very nice! I am guilty of this myself. Sometimes you are hanging on to an unproductive employee or someone that is unhappy with their lot, in order to be nice and avoid an unpleasant task. No good saying you don’t! But these folks are adding scads of expense to your operation for very little return. Hard to do, and often they are friends, but you aren’t doing yourself, your business or your other employees any favors by using dollars that could and should be saved, possibly to upgrade tech, provide training and more.

• No work, no need to staff. Closely related to the above are owners who feel indebted to pay everyone even if it means providing expensive make-work if the shop is slow for an afternoon. First, understand why it’s slow. If it’s a holiday weekend and everyone is preoccupied with that, OK. If you start seeing patterns of slow times, better figure out why and take corrective action quickly.

• If you haven’t looked recently, there is a lot of competition for your part’s supplier business. Independent jobbers, “warehouses”, online, OE dealers, retailers and more. Your decisions here make a big difference. Successful shops choose a couple of sources and direct the business to them. Yes, the price for some things may be modestly higher, but some are lower. More important to your efforts are time in waiting, inventory support at the store and possible terms when you meet certain hurdles. Terms are important for a few reasons. Pay your bill promptly and maybe the month costs you 2% or more less for parts. You may be able to arrange terms for things you stock such as dating or consignment. The idea is no different than large companies. Using other people’s money, known as working the float, is generally a very cost effective way to lower costs and increase profitability.
Even things like training programs you would have to pay for otherwise, may be offered. But all of this is not likely unless you have a strong relationship, and show loyalty to your parts source.

• If you rent, renegotiate the lease terms. If you own, negotiate the interest rate on money owed, if any. Seems simple enough, but bankers and real estate owners tell me very few ever inquire about either. On one hand, selling a going automotive concern, especially one with fuel sales, can be tough if all of the environmental issues haven’t been addressed. On the other, property owners and banks want you to be successful BECAUSE renting to someone else or selling may be a difficult proposition, assuming you have a sound history of making payments on a timely basis. Doesn’t hurt to buy these folks a cup of coffee and investigate!

• Consolidate your insurance policies and if needed, your agent or agencies. Generally you pay much more for 5 separate policies than for one that includes all of the same coverage. You avoid 5 policy fees and the company chosen for the comprehensive policy likes it because they have more premium to work with, typically have a better understanding of the risk and know that the policy loyalty is higher. Pays to ask.

Well, I am out of space. I leave you with the thought that you can’t cut and hack expenses on your way to profits and growth. But, well aimed strategies that save you money, support your profit levers and are not lowering your employee morale or customer satisfaction are needed to improve your bottom line. And now, when times are good, is the very best time to begin. So put on your creative thinking hat and use 2019 as the beginning of giving your business a little more leverage!