Now for the fun stuff. When it comes to understanding our business’s Profit & Loss statement, we have many roads we could go down. Be open-minded, the whole point of this series with Greg is to share how he learnt to read his Profit & Loss from top to bottom and the absolute necessity of knowing and understanding his numbers, after all, these are the drivers of your business. It is not necessarily stating that this is how your P & L should be configured, however it is extremely close to what we consider to be an industry standard. Regardless of where you are globally, it is a great example of understanding a profit and loss.
Enjoy Part 2 and we would love your feedback. Thanks Gavin
For this discussion, as the saying goes, “Keep it simple, Simon!” So, we are going to look at our collision shop P&L in a very visual and simplistic form.
We are going to break it down into six categories for now.
1. Gross Sales or all income.
2. COGS (Cost Of Goods Sold) ‘Parts, Paint & Sublet’.
3. COGS Technician Labour.
4. OPEX (OPerational EXpenses)
5. Admin Payroll
6. Net Profit.
Ok, here we go. THE TEN DIMES. When I was first taught about the 10 Dimes years back, it was a very big eye opener. It is just a very visual way to look at where our income goes in our P&L. For every $1 of gross sales or income = ten dimes ($.10 x 10 = $1.00) O O O O O O O O O O.
Stop now and go get a big piece of blank paper and a pen/marker. Now turn the paper sideways and draw ten big circles on it. Five circles across the top half and five across the bottom (Just look at my primitive cheat sheet photo below). Fill in each dime, as you read along here. The goal is to break down each dime of income and where it should be allocated to make a nice net profit in the end.
The first three dimes (#’s 1-3) OOO = Paint, Parts & Sublet cost. Otherwise, in this exercise the first 30% of your gross sales should go to pay for these COGS items (primers, sealers, basecoats, clears, sandpaper, compounds, antifreeze, tape, glues, drill bits, clips, all purchased parts, towing, sublet scans, outsourced alignment, OE procedures and so on). Write PPS (Paint, Parts & Sublet)’ on the first three dimes, starting at the top left of your paper going right.
The next two dimes (#’s 4-5) OO is for your technician’s payroll. Otherwise, in this exercise 20% of your Gross Sales should go towards paying for your COGS technician labour to repair the cars. Now fill in the next two circles with ‘TECH PAY’.
Now the goal is to have five dimes left or 50% of our Gross Gales to pay for overhead and Net Profit. The $.50 or 50% left over after we pay for our COGS for PPS and TECH PAY is called our GROSS PROFIT. I am sure some wheels are turning already and most everyone is saying, “my COGS for PPS is higher than 30% of my gross sales!” Patience, we will discuss this next time and this just a starting point. My goal in this exercise is to just make your P&L visual.
