The Corporation for Enterprise Development did a survey of over 900 companies with five or fewer employees to take a look at business financial needs. They found that fifty-five percent of those surveyed indicated that they could only cover a single month’s business expenses with their savings. Just under forty percent of survey respondents said they sometimes lacked the cash on hand to meet their business expenses. Unfortunately, what they found lines up with what small businesses owners everywhere already know – most small businesses are full of hard-working people who aren’t rich and aren’t expecting to be rich five years from now.
That makes cash flow all the more important. Having highly variable cash flow, or a poor handle on your cash flow, has some obvious effects. It affects how much you can plan on being able to get the supplies you need. It affects your employees’ perceptions of their job safety. And just as importantly, the added stress this puts on the business owner reduces what you’re able to accomplish each day – a major negative effect.
There are hundreds of sophisticated tips to build a better cash flow management system, but we know that most automotive repair shop owners don’t have time to spend their entire working week on cash flow management. With that in mind, here are a couple of tips to improve cash flow at your shop:
Make sure you’re measuring what’s coming in the door. Different shops use different metrics – select a few that seem to matter the most to your shop, set some targets, and make sure that everyone on your staff is invested in meeting them. Here are a few of the most common:
- Car count – how many cars are you seeing in a week?
- Productivity – how many of your technicians’ hours are being billed to someone for labor?
- Efficiency – if you bill someone for two hours of labor for a job, how many hours does it take your technician to complete it?
- Parts vs labor – of the money coming into your shop, how much of it is low-profit part sales, and how much is high-profit labor?
If you have a monthly goal, and you’re measuring, posting, and talking about your progress towards meeting that goal, you’ll have far better odds of achieving it. Remember that you don’t have to totally transform the way your shop is doing business in order to track a few of these and aim for continual improvement.
Build your recurring revenue base. It’s much easier to plan for success if you’re getting a good amount of recurring revenue. This comes from your established customers, the ones that predictably come in for regular maintenance. Regular maintenance is critical for many successful repair shop businesses in the modern era. The big, expensive parts in cars – engines, transmissions, camshafts – are lasting longer than ever before. But this “regular maintenance” customer doesn’t just bring in more revenue, they bring in more reliable revenue, which is more valuable than the unexpected great profitability that the big repairs can bring your way.
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