Part 2: Plan Your Best Year Yet
Last month I shared with you that there are three basic—yet very powerful— steps in developing a great business plan. Let’s take a moment to review.
In the last column, I introduced the SWOT analysis to use as a tool to evaluate past performance and the current state of affairs in your business. In step one of planning, you must determine not only your current condition, but also what you are starting with and where you are starting from. Oliver Wendell Holmes famously said, “When I want to understand what is happening today to try to decide what will happen tomorrow, I look back.” I am going to assume that you ran through the exercise and hopefully, you found it to be productive and enlightening.
Once you have a firm grasp on your current “state of affairs,” step number two of creating a bullet proof business plan is to fully understand your financial needs so you can see and understand what success will look like. The greatest athletes in the world talk about visualization as the secret to successful actions. World champion fighter George St-Pierre once said of visualization, “The key to (success) is to create the most detailed, clear and vivid a picture to focus on as possible. The more vivid the visualization, the more likely, and quickly, you are to begin attracting the things that help you achieve what you want to get done.”
I have found the WIN drill to be an excellent tool in helping to calculate and visualize all the components, targets and goals to reach financial goals. So, how does the WIN drill work? Much like the concept of visualization, the WIN drill helps you determine what success will look like and then works backward to help you understand all of the operational elements, or actions, that will be required to support your WIN (number). So, let’s compare the typical sales down model planning to the WIN method.
Many shop owners start with a revenue or top-line sales goal. Sometimes there is a logic to the goal and other times, it is simply a number that sounds cool. Maybe you took last year’s result and added in a measure of growth, or possibly you read some articles on what a shop your size should be able to do and decided that was an appropriate target for your shop. However, the traditional repair shop fiscal and profit model is what I like to call “trickle-down economics.” In this model, top line sales revenue is the starting point. From sales, you pay for the cost of goods (COG), which is anyone or anything directly involved with the sale. In this model, COG is cost of parts, cost of tires, cost of sublet, freight, discounts and loaded cost of technicians and service advisors. Once COG is subtracted from sales, you are left with gross profit dollars. Gross profit dollars must now pay the fixed expenses, and of course, anything left over would represent net operating profit (or loss). The only problem with this model is net profit is a result, ie., simply what is left over or the hope there-of.
|Top Line Sales (follow equation down)||Revenue (follow equation down)|
|- Parts-||- Cost of Good|
|- Techs Loaded||- Cost of Good|
|- SA Loaded||- Cost of Good|
|- Tires||- Cost of Good|
|- Sublet||- Cost of Good|
|- Freight + Discount||- Cost of Good|
|= Gross Profit Dollars||= Gross Profit Dollars|
|- Fixed expenses||- Expense|
|= Net Profit (or Loss)||NOP/NOL|
A true leader and fiscally responsible owner shouldn’t build a model or make plans around, “let’s start here and I hope there will be some left over.” For business planning purposes, the best-practice is to work and plan the opposite direction. Start with a focus on the profit you need, desire and deserve and then build the model down to the top line sales revenue goal that it will take to support it. Why leave things to chance? Think about the WIN drill, like GPS for your business goals and planning. You simply start with in your destination (desired profit) in mind, and the GPS (WIN drill) plots the best possible way for you achieve your goal.
|Desired Net Profit (follow equation underneath)||NOP (follow equation down)|
|+ Known Fixed Expenses||- Cost of Good|
|= Necessary GP Dollars||- Cost of Good|
|/ Necessary GP Dollars||- Cost of Good|
|= Necessary Top Line Sales||- Cost of Good|
Once you know the math and your WIN sales number, you can then drill down through the labor sales stream to determine needed billable hours (productivity model), needed car count (car count and marketing model), needed technician and sales staffing levels (Staffing and recruiting). I know this is a bit math heavy, so for the purposes of keeping our business planning momentum moving forward, I have made an excel copy of the WIN drill available for download with instructions.