Do I have a problem with technician productivity? Or is my pricing out of line with my costs?
Do I have an issue with my parts pricing? Or do I have parts walking out my back door?
Am I not making enough money to support my business? Or am I stripping every dollar out of my business myself?
The age old saying, “numbers don’t lie,” is true; but the people reading the numbers and trying to draw conclusions from them often do. The sad reality is the people that are closest to the numbers are the primary offenders, and the ones that stand to get the most benefit.
To understand why business owners lie to themselves, let’s look at a classic example of labor rate and profitability analysis. Let’s say that you are working with your team and you notice that your labor gross profit is lower than you desire. You analyzed your total sales and divided it by your labor rate and noticed your techs are not producing enough work. So you set up a meeting and berate your team only to find out that they are actually 100% productive. Did your numbers lie to you, or did you lie to yourself?
Your Bias is Showing
What I see a lot of shop owners do with their financial decisions is the same thing that we see in other areas of our life: confirmation bias. What happens is you have an idea of what is going on in your shop, and then you find the numbers that will justify your reasoning. If you look hard enough, there are plenty of ways that you could be doing this without even knowing.
Did you know that when you look at the financials of a shop where each tech is only running at 50% productivity, it can look exactly like a shop that’s undercharging or constantly discounting labor rates? Both situations eat away at profits the same way—it just shows up differently on paper. If you are frustrated with perceived lack of production on your team, you are bound to find answers to justify your position. Just like the other shop owner might look at those same financials, assume it’s a pricing issue, and confirm that suspicion.
Meet in the Middle
Even understanding this aspect of human nature isn’t going to help you better understand your finances, but it highlights a very important piece that you can fix: data (or a lack thereof). People do not want to be wrong and sometimes people decide that ignorance is the best way. If you think you are the best business owner in the world, why would you look at your financials to give you data that could tell you otherwise?
I always joke that when financials go out to clients there are generally two schools of thought:
“These financials look so good that I know everything! What more could I glean from these?”
“These financials look bad, so Hunt and his team must have messed them up. Why would I want more data to confirm what I already know? I am making money; my financials are wrong.”
Neither of these groups has an excuse not to look at their financials and try to get as much data as possible. Even the best shop has areas for improvement. Do you have 10-20 points to gain in key areas? I would really hope not, but a 2-3% improvement in a shop doing $100k a month is $30-$40k a year. I challenge anyone to show me a shop that doesn’t have a 2-3% potential improvement and a shop owner that still says the financials aren’t worth their time for $30-$40k. I’d argue that financials are even more important for a successful shop than for one that’s struggling - and here is why:
Know Your Financial Benchmarks
Let’s say that you have a shop that is still not covering its overhead. You know that the sales have to be $75k a month at your current rates in order to be cash flow positive. I am going to have a hard time arguing that you should spend a ton of time reviewing financials for months that show sales of $40k - $50k. It doesn’t matter how well you did on parts or how much you charged for shop supplies if your sales are 30% lower than your requisite break even. I could go and look at those financials and get even more data that could be useful information, but the most useful data has already been received. I can’t make this work unless my sales are at X level, so until then we have to have a single focus and that’s sales. Sure, you could improve your parts by 2% or your overhead by 1%, but in the long run it doesn’t matter if you lose 17% or 20%. Neither are sustainable.
On the other hand, successful shops tend to be the ones that can put their financial analysis on autopilot. They have built and run a strong business, and because of that success, they don’t feel that there is any useful data that would be “worth their time”. I have a client that owns a successful tire shop who thought the same way, until a wakeup call forced him to take a hard look at his numbers.
What he found shocked him. No major issues but many smaller ones: losing cores, frivolous discounts, some petty cash walking. But none of these were large enough to show themselves without proper analysis. What did he realize? Well, he realized that these small issues were costing him roughly $4-$5k a month. His managerial hubris made him think that his eyes and “feel” were all the data that he needed to run his business, but that choice cost him a lot of money over the years.
A Goldmine of Information
At the end of the day, we live in a world where data is becoming one of the most valuable commodities out there. Tech companies pay billions of dollars for access to our data so that they can advertise to us. Meanwhile, you already have a goldmine of data sitting in your own business and most shop owners aren’t even using what they already have. Plus, it’s all free!
Next time you look at your numbers, I challenge you to ask yourself: What if I am not right? What are some other options and what other data can I gather to make the right decision? Your gut has brought you this far, your financials are your key to the next step.
If you want even more data on how your shop compares to other shops across the country, please check out our most recent Benchmark Report here.
