Auto Repair Shop Owners Understand their Monthly NumbersMay 03, 2021
Understand Your Monthly Numbers by Rick White, President 180BIZ
Now I will finish up with KPIs. It's the difference between direction and destination. It's knowing where you're going, exactly. And then it's plotting the course. Once you get to the destination, that's no longer your focus. Your focus is on the process or the tasks that are going to get you there. Your focus needs to be on KPIs or key performance indicators. They are a great way to see how you're doing. In life, every one of us is held by two rubber bands. You're held to what you're afraid of. What scares you. There's a rubber band wrapped around that in you and it's holding you back.
Then you have another rubber band that’s wrapped around where you want to go, who you want to be, what you want to achieve. Intentionally make sure that the rubber band pulling you towards where you want to go is bigger and stronger than the one holding you back.
The other thing is, not only are KPIs a great ruler, not only do they show you if what you're doing is working, but they also show you when you're stalled. They show you when you're not moving anymore. Now I'm going to use myself as an example, I've been on a journey to get healthier. I don't need a six-pack set of abs. I got a six-pack in the fridge. That's all I need, but I want to be healthier.
I want to be fit. I want to be able to run around and chase my grandkids. And I am lighter. I am a lighter today than I have been in 20 years. But I also have hit a plateau. In other words, what I'm doing or not doing isn’t working anymore. And the reality is I haven't been doing a whole lot lately. I'm kind of flattened out and I need to see that is feedback. When I'm looking at my KPIs, which is weight, that is feedback. So those KPIs, sometimes they show us if we're moving forward right in the right direction, they show us how fast we're moving. They show us if we're heading the wrong way and they show us when we're not moving at all. So, I think that's really important.
We've talked about daily and weekly numbers. Now let's talk about monthly numbers and then annual numbers. We basically want to look at three things.
- We want to look at expenses and net profit on a monthly basis. That is when everything's been all put together. These are the expenses that you incurred in order to get the sales that you did. And then we have net profit. Now net profit is what's leftover after we subtract expenses from gross profit. What I really hate is the fact that net profit is what's leftover. I am a huge fan of the Profit First mentality. We practice it at our business.
- You want to look at cash flow monthly. There's a difference between profit on your P & L and what ends up in the bank. How many times have you had an amazing profitable month and you only saw your bank go up a wee little bit? How frustrating was that? It's the difference between profit and cash. You must look at your cash flow statements to see what's happening to the cash. If you had $15,000 in profit, but you put accounts receivable to 20,000, you have a negative cash flow of $5,000. Yikes! So, need to be watching that.
- The other to be watching monthly is the balance sheet. Your balance sheet is your thumb on the pulse of the financial health of your business. It’s very dynamic; it changes all the time.
Once we get the balance sheet figured out, there are really only three things to look at annually.
- Look at inventory turns. How much inventory do you have now? For the most part, that's not an issue anymore. It used to be, but most shops don't keep much inventory like they used to back in the day. So that's actually a good thing,. Regardless, you must watch your inventory turns and make sure you're getting the turns on the inventory. Make sure money isn’t wasting away on the shelf.
- The second thing we're going to look at is Return on Equity. In other words, every year, we want to step back and say, “Hey, did it make sense to have this business? Did I get a better return on this business than I would have if I were playing the stock market?” And the answer we want to see is yes. I want to see a 20% return on equity every year.
- And then the last thing to look at on an annual basis is your Customer Attrition Rate. How many new clients did you have come in versus how many clients you haven't seen in the last year? Make sure that the database is growing. You'd be amazed at how many shops don’t know that their database is shrinking. You're losing 17 to 21% of your client base every year. So, you must have a strategy and measure that every year. I actually monitored my customer attrition rate monthly. Make sure your customer attrition rate is positive.
The only thing that's going to keep you from feeling like same stuff different day is either something happens externally, a situation or an event that you're going to react to like the pandemic, or it's going to be something you're pushing forward, which is going to be a destination. Are you reacting or are you growing? I want to see you grow. You're a third of the way through the year. Now, if your goal is a million dollars in sales, you should be at $333,333.33. Are you? If not, why not? If not, what's the plan to get there? You got this.
My name is Rick White, and this is my Just One Thing. God, bless, stay safe and go make some money.