6 April 2022
If you have been in business for your own account for about ten years or so, you are no doubt keenly aware of the fact that the car repair industry is becoming increasingly knowledge based. If on the other hand, you have recently started a repair business or are new to managing one, you are likely not fully aware of just how much knowledge you need to become and remain profitable, and how much time and money you need to invest to obtain, retain, or upgrade the required knowledge.
We all understand that continuous investment in a modern car repair business is vitally important in order to remain in business. What is sometimes less clear to newcomers to the independent repair industry is that to survive in a very tough industry, it is necessary to clearly identify or define the areas in your business that require investment, and to devise strategies to fund those investments without affecting your cash flow negatively, or pricing yourself out of the market. Both situations could sink a new workshop in very short order, so in this article, we will take a closer look at some ways to fund necessary investments in both new and established workshops, starting with this question-
What counts as business investments, exactly?
Since no two workshops are the same, no two workshops will require the same levels of investment, or the same levels of investment in the same areas. Nonetheless, from our perspective as workshop owners and/or managers, business investments could be defined as any expenditure of time, money, or energy to make it easier to manage our businesses, while maximising profitability and improving customer satisfaction levels, at the same time.
At first glance this might seem like a very tall order, but it is in fact relatively easy to achieve high marks in efficiency, high customer satisfaction levels, and profitability. All it takes is to take a step back, and to revaluate you internal systems, procedures, and management practices objectively. We do realize however that managing a busy workshop with a high daily vehicle count can sometimes cloud one’s objectivity, but let us look at few examples of how a few clever investments in your business can take (some of) the pain out of managing your business, starting with this-
Invest in the skills of your technicians
There is no doubt that the car repair industry is getting more and more dependent on available knowledge with each passing year, and therefore, we would all employ only master technicians if we could. However, if you have been in business for a decade or so, you will no doubt know that there simply are not enough master technicians in the country to go around, so what do you do?
You could of course import a master technician from abroad, or, more practically, you can make your own master technicians, in a manner of speaking. Nonetheless, often any mention of the fact that workshop owners/managers need to invest more in skills training is almost immediately countered with the question of where the money for this will come from, so let’s discuss a possible funding source, such as-
Using your labour rates
Since all your financial records are in perfect order and filed properly, it should be an easy matter to determine how much you spent on staff training over the past say, three years. To get an accurate picture, this determination should ideally include all the money you had spent on training apprentices, technicians, service writers, and/or other front-office staff.
You may be surprised at, a), just much money you’d forked out for training, and b), you may wonder where you’d found the money at the time. As a result of what you learn you may be reluctant to spend a similar amount of money over the next three years, but the good news is that you may not have to, since your customers will each contribute a few dollars. Here’s how to do it-
If your workflow has been relatively constant over the past year or so, you simply take your total number of billable hours, and divide it by the average amount of dollars you paid out for training over the past three years. Use this averaged amount as a guideline going forward.
For instance, let’s assume that you arrive at an average figure of say, $22000 per year, and that you had billed a total of 4 300 hours over the past 12 months. Now divide your total number of billed hours into 22 000, to yield a value of 5.11. This value represents $5.11, which is the amount you need to raise your labour rates by to provide you with the money to fund staff training over the coming year.
In a previous article, we explained the need to establish three different labour charges for the main types of work we do, these being basic servicing/maintenance work, a higher rate for electronic diagnostics, and a still higher rate for advanced resetting/reprogramming jobs.
It is important that we mention this, because if you determine how many of your total hours billed over the past 12 months were billed for each type of job when you do this calculation, you get a clearer picture of how much money you have available to spend on different levels of training. At this point, you can take one of two approaches; you can simply place the required labour charge increase into one (separate) account, or you can apply the percentages that represent the different types of work you do to the required increase, and establish three separate accounts.
In the latter case, and if we use our example value of $5.11, you can perhaps raise your basic labour rate by $3.00, and split the difference between diagnostic and reprogramming work. Note that this example is purely illustrative, and different values, considerations, and circ*mstances will apply to each individual workshop. Nonetheless, the practical advantages of using percentages is that a), no single hourly labour charge will increase much, and, b), that you will know exactly how much money you have to spend on advanced training, and how much you have available to spend on schooling your less experienced mechanics in the things they were not taught in trade schools.
It must be stated though that raising labour charges to fund training expenses is a medium-, to long-term strategy that requires a substantial time investment on your part to implement and administer effectively. As a practical matter, you may not be able to utilise local training opportunities in the short-term, but once you have your system up and running smoothly, you will always have the money available to utilise all training opportunities that are relevant to your business and local circ*mstances, which brings us to the need to-
Continually invest in equipment
We all know that equipment can break and/or fail at any time, and usually at the most inopportune times, too. It has happened to all of us at some point, and while most of us have insurance policies in place to cover the loss, the downside of insurance is that sometimes, it can take longer than we can afford to wait to have claims paid out or equipment replaced.
Continuing, and meaningful investments in maintaining workshop equipment can make the difference between having a great month profitability-wise, and using bank overdraft facilities to make ends meet. Of course, running on such tight margins is never a good idea, but this a reality many workshops in Australia have to deal with on a daily basis, so what is the solution?
Well, a good starting point would be to shop around for quotations on the replacement value of all of your most expensive (and critically important) workshop equipment such as your hoists, lifts, air compressor(s), scan tools, etc, etc. Then calculate how many hours of labour charges you would have to sacrifice to replace say, a vehicle hoist, or a scan tool.
Once you have a value for each item, you can just like with training expenses, dedicate say, a dollar or two from each hour billed to a fund intended purely for equipment maintenance and/or replacement. Your first reaction might be to say that that is exactly what you are paying insurance premiums for, but can you really afford to lose a weeks’ worth of diagnostic time while you are waiting for your insurers to replace your scan tool?
The same is true for other types of equipment. Can you afford to have one service bay unproductive for a week or longer while you wait for your insurers to replace a vehicle lift, or can you really do without shop air for a week or more, given that tyre replacements form a large or significant part of your core business?
There are many other examples we could list here, but the point is that redirecting a small percentage of each hour billed to a dedicated purpose should not be seen as a hardship to bear, but rather as a direct, continuing, and affordable investment in your business to ensure continuity of business. At first glance, doing things this way might look like you are adding to your probably already hefty insurance bill, and while this is true, it is true only up to a point.
Look at it this way- once your dedicated equipment replacement/maintenance fund is strong enough to cover the most expensive item in your business, you can have it (or any other item) repaired/replaced immediately, and the money your insurers will pay you can be used to replenish your dedicated fund. The biggest upside is moreover that having your own money to repair or replace equipment without the need to touch your working capital translates into both greatly reduced downtime and loss of business, which brings us to the need to-
Invest in insurance
Many of us view insurance as an unavoidable evil, but the fact is that carrying adequate insurance is greatly less evil than it is necessary. In fact, carrying adequate business insurance is arguably the single biggest and most important investment in your business you can possibly make.
However, the sad fact is that insurance companies and their products are not created equal, and we have all heard horror stories of people going out of business because they were under insured against an unfortunate event. Destructive natural disasters, or a mechanic forgetting to tighten the sump plug on a hugely expensive, high-end Italian or German sports car come to mind, but there are other, less obvious risks of being in the car repair industry that newcomers to the industry may not fully appreciate.
Limited space precludes a comprehensive discussion on business insurance, but if wecan offer newcomers to the car repair trade some (unsolicited) advice it would be this: always carry sufficient insurance to cover you against the most expensive disaster that can befall you. This could be the total loss of your business (and your customer’s vehicles) in a fire, a mechanic destroying a Ferrari’s engine, or worse, a mechanic causing a major traffic accident with a customer’s vehicle, making you liable for all manner of damages.
However, since “comprehensive” insurance is not always as comprehensive as we think it is, choosing an insurer can be a minefield. One way of getting a round that is to invite all the major insurers to quote on a comprehensive business insurance package, even if you are currently insured against anything from a total loss through fire, to the costs of a tax audit, or losses caused by dishonest employees.
You may be surprised at how much you can save merely by switching insurers, but apart from that, business insurance must be seen as a cost of doing business, and therefore, this cost must be factored into your labour charges. This is especially true if you have a low-volume business that cannot bear the effects of a business interruption. Note also that it is possible to over invest in insurance- your equipment depreciates over time, so be sure to review your insurance policies every year to take advantage of the reduced equipment values.
Conclusion
While investments in staff training, equipment, and insurance are required to survive in today’s highly competitive environment, it is also true that trying to keep up with the proverbial Jones’ in terms of new equipment and over-priced gadgets is just as detrimental as not investing in anything at all.
We understand that local trading conditions and customer bases may not allow some workshops to invest as extravagantly as others do. Nonetheless, it is incumbent on all workshop owners/managers to review the internal processes and procedures of their establishments at least once a year in order to make the best of what they have at their disposal. While your investment may be small as compared to investments made by larger establishments, it is nevertheless an investment that could prevent damage to vehicles and equipment, serious, and/or fatal injuries to staff members, or a long-term business interruption that nobody can afford.
