Here is Part 3, remember some of the terminology might not feel right but the idea is to use this exercise to create a visual of your Profit & Loss.
Enjoy the weekend!
Cheers Gavin
Remember our 10 Dimes?
Now that we have $.50 of each dollar of our Gross Sales income left over after all COGS are paid for (our Gross Profit), where does that go to?
Well first we have our SGA (Sales, General, and Administrative) costs. We are going to divide up these costs into two categories in dimes #6-8.
Here we go, the next two of the last five dimes (#’s 6-7) OO or 20% are for operating expenses. Now write OPEX (operating expenses) in the next two dimes on your paper (just look at my cheat sheet 1st photo of course). Example OPEX expenses: estimating/management software, accounting fees, payroll taxes, vacation pay, IRA’s, shop supplies (EX: Shop towels), Blueprinting hardware bags, property taxes, copy paper, rent for the property (even if you own the property!), shop truck, lawn care, marketing expenses, phones, electricity, natural gas, IT service, credit card fees, equipment/paint booth and building maintenance, shop training, Alldata, OEM Certs and scan tool subscriptions, all training expenses, depreciation, loans, equipment leases and the list goes on.
Now you have only three dimes left (#’s 8,9 & 10) OOO or 30%. The third to last dime (#8) O or 10% is for administrative costs. This includes CSR’s, estimators, managers, bookkeeper, porters, janitors, most shops include their parts person in this category. If you have a detail person, they should probably go into technician pay, as they do have hands on cars finishing up the repair process. Your decision of course. This third to last dime, also includes your wages for what you contribute to the business. Otherwise, if you quit going to your shop and you had to replace yourself with whatever you do, say managing, estimating and hopefully you don’t have to work on cars at this point. If so, some of your wage cost needs to be allocated to technician pay.
Homework: Don’t lose your Dime exercise paper of course. Go through your P&L and see how this exercise works for your shop. Start with a clean sheet of paper with ten dimes. Fill in the dimes where your %’s actually fall for your shop. Unfortunately, some may just have part of the last dime left over for profit (see the bottom photo of an example shop with a low net profit of only approximately 5%).
If that is your shops case, you are the one I want to help for sure to fix this!!
