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Spring Clean Your Finances

Now that tax season is behind us, it’s time to look ahead and see what you can do in order to have a successful year. The first step to leveling up your shop is making sure your finances are in order. And what better time than spring to “spring clean” your finances! The following list will help you get well on your way to ensuring you have the best year yet.

1. Get prepared – It’s been 4 years now since the pandemic began. If there is one thing that it taught us, it’s to BE PREPARED! How many of us were dependent on the PPP money and subsequent forgiveness? As we have always said, cash is king. Make sure you have enough money in the bank for not just a rainy day, but a global shut down. Granted, auto repair is considered an essential business and as long as people are driving cars, there is a need for it, but you just never know what will happen. There are no specific guidelines to being prepared, but you should have about 3-6 months liquid cash of operating expenses in a savings account (not investments). That way you have easy access to it should the need arise.

2. Get comfortable – According to a recent study, 40% of people are not comfortable dealing with numbers in their everyday life. That’s a lot! As a shop owner, it is imperative that you have a basic understanding of your shop’s financials. If you’re not sure what you’re looking at, or just need some brushing up, check out our Back-to-Basics video series here: https://paarmelis.com/back-to-basics/. Through these quick videos you can get a basic overview and understanding of your shop’s financial reports.

3. Get set up: Retirement Accounts – If you are not currently contributing to a retirement account, set it up now! If you do already have one, max it out. This is the single best tax deduction out there. One that pays you. Any sort of tax deduction always means you are spending money, but with a retirement plan you are essentially paying yourself. See our blog post on the best retirement accounts for shop owners here:
https://paarmelis.com/retirement-accounts-for-shop-owners/

4. Protect your business – Make sure you have fraud procedures in place. 28% of fraud in small businesses goes undetected! Why? Because there are no processes and procedures set up to follow the money. What can you do about this? First, analyze your financial statements (see #1 above!). Second, implement and follow processes and procedures. This will help you spot irregularities before any major issues can arise. Third, make sure there is a separation of duties. The same person collecting the money should not be the same person reconciling and depositing the money.

5. Find out your tech efficiency – Most shop owners think their tech efficiency is much higher than it actually is. Efficiency is hours sold vs hours paid. So if you pay someone $25 per hour for 40 hours per week, but they are only selling 20 hours of work, then they are only 50% efficient. Which means for every labor hour this tech sells, they actually cost you $50. Once you know the true efficiency rate, you can work on ways to increase it. Ask questions, set goals. By offering solutions, you are building a culture of teamwork and efficiency at the same time. Don’t over hire. It is better to have 3 techs at 90% efficiency than 4 techs at 60%. The higher the efficiency, the more you can pay the techs, thus motivating them to be more efficient! Watch Reed explain this in a very entertaining way here: https://paarmelis.com/reed-discusses-labor-inventory/.

6. Increase your labor rate – Our client Darrin Moncur, owner of Denny’s Auto in Riverton, UT, once said, “We as an industry are not charging enough for labor.” Darrin couldn’t be more right. In the recent past, we’ve experienced the highest inflation we’d seen in years and shops need to keep up. Especially if we want to attract, hire, and keep qualified techs. If your efficiency is high (see #5 above!) you’ll be able to pay higher wages or offer competitive benefits that other shops may not. A simple $2 increase in labor rate could allow you to afford to match your team’s retirement contributions. So, how often do you increase your labor rate and by how much? This depends on your shop and location. Small monthly increases to keep up with inflation are a good way to go. It won’t be hugely noticeable by your customers but will be on your total sales.

7. Revisit your advertising budget – The expense of advertising is meant to create value for the money you pay. Shop owners generally fall into two different categories: either you’re spending 3%-5% of your sales on advertising, or you’re spending 0%. In our shops it’s probably about 50/50. We work with plenty of shops with word-of-mouth repeat customers who have been there for generations and don’t feel the need to spend money on advertising. Either way, you must ensure that you are getting value from what you are spending. If your monthly budget is $1,000, and you can measure that this generates $10,000 in new sales, then the cost is justified with a strong return on investment. However, if you’re spending $1,000 per month to drive $2,000 in sales, you’ll need to reconsider your budget and strategy.

Bottom line – we are almost halfway through the year. If you can follow and implement even a few of these steps above, you’ll likely see noticeable improvements in your shop and be well on your way to having a successful 2022. Tax planning is right around the corner!

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