Cutting Costs, Efficiently
Every business is trying to be as profitable as they can be. That’s especially true in the quick lube industry. Operating on tight margins, the difference that even the smallest change makes often determines whether a shop is profitable or not.
Stacy Kildal, founder of Kildal Services and expert in QuickBooks Online, has worked with clients in the auto industry for 18 years as an accountant. She’s helped many shops navigate their bookkeeping to allow financial freedom for whatever their goals are.
So, from her experience, where should a shop look if they’re trying to cut costs?
Kildal’s first professional client was an auto repair facility. She’s worked with others in the industry ever since. Kildal has helped those clients find extra savings in their business, whether it’s to maintain the shop’s profitability or carve out some extra space to finance renovations and improvements. The challenge has been how to cut costs without compromising the quality of the business.
Make payroll more efficient.
No two shops are the same. The location, size and customer base will always be different, so there isn’t one solution that is going to work for every shop. But the first place to start is payroll, Kildal says.
This doesn’t mean laying off workers. Sometimes it comes to that, but often it doesn’t have to. The important thing is making the current payroll you already have more efficient. Kildal’s rule of thumb is shops should be spending twice as much on labor as they are on parts. If the numbers aren’t hovering around that 2-to-1 ratio, then there’s room to become more efficient.
If bloated labor costs are the issue, make sure the productivity levels and efficiency levels are where they want them to be. Shops should track those stats if they aren’t already. There may be opportunities to tighten payroll costs by reducing the amount of labor during slow times and ramping it up during busy times.
Always shop for the best price.
It’s easy to get complacent and buy parts and products from the same suppliers. Kildal remembers one of her auto clients was spending way too much on parts. Turns out, he was buying from a supplier that went to the same high school. That relationship became comfortable and kept the business from being as profitable as possible.
So be diligent about shopping around for prices. If you normally buy from CarQuest, check with Napa, or vice versa, to confirm you’re getting the going rate.
“Make sure you’re not just doing something because that’s how it's always been done,” Kildal says. “You want to make sure you’re not falling in love with the status quo.”
Pay attention to what you’re spending every month. Kildal had a shop’s parts bill skyrocket over several months. After investigating, they found one of the employees was buying parts from the company account and working side jobs out of his garage.
This can expand further than just the parts you buy. Follow the same pattern for the company’s overhead. Is the shop on the right phone plan? Is the shop management system matching the exact needs? Asking those questions and browsing all the options are easy steps to find savings.
Create a separate bank account for taxes.
Understanding the shop’s books is vital for its success. One of the biggest things that trips shops up is taxes and whether or not the company will have enough money to pay sales tax, Kildal says. With every client, especially those in the auto industry, Kildal recommends opening a second bank account that is dedicated specifically to taxes.
“Whatever sales tax they collect, we will actually create a separate bank account and transfer money every week from their operating account to that tax account so that when that tax is due, they know that they still have the money,” Kildal says.
This avoids costly late fees that come from missed payments on sales tax. It also clearly defines what money needs to be saved for taxes and what can be used to reinvest in the shop.
None of these solutions are going to single-handedly keep a shop out of debt or save a floundering business. But making strategic and small moves can lead to a little extra money for investments, better pay for employees or replenish the rainy day fund that likely took a hit from the pandemic.
Every shop's financial outlook is different. There is no catch-all solution that can be applied to every business to save money. If you’re looking at trimming the budget, first look at the payroll and see how you can make efficiencies. Then look at the cost of parts and products. Make sure you’re getting the best price. Finally, look at your overhead. Are there luxuries that don’t need to be in place, even if it’s for a few months to save for a project?