with Mike Anderson
This month, we “ASK MIKE” for his thoughts on financial strategies that could help shops grow their profits. We at Hammer & Dolly hope you find the following exchange useful, and we encourage you to reach out to us if you have a question for Mike on this or any industry-related matter that he can answer in a future issue.
Hammer & Dolly: We’ve had several conversations over the past three or so years about how the pandemic has affected this industry. That said, how would you categorize how shops across the country are doing these days financially?
Mike Anderson: Based on what I’ve seen, most people seem to be pretty busy. A lot of people I’ve talked to – whether it’s the OEMs or paint companies – did see a decline in sales this past July and August, but I think that was due to some repair facilities slowing down to go on vacations. Right now, a lot of shops have work for three weeks to three months. I was in Northern California a couple of months ago, and a lot of shops there said they didn’t have much of a backlog of work, but that’s mostly because it was back-to-school season and people had other priorities. Overall, everybody seems to be doing pretty well – but shops need to be careful about getting a false sense of security. Facilities’ sales may be up while they’re repairing fewer cars due to more parts per job, Labor Rate increases, or calibrations, but they need to avoid thinking they’re completely safe. Shops need to keep marketing their business and not let up on that gas pedal.
As shops begin to put together their budgets for next year, they should talk to their vendors about any equipment maintenance or upgrade needs they have. They should also talk with their IT [information technology] people about any recommended improvements. These are things you should investigate to help you better determine your budget for 2024.
H&D: If the last three years have taught us anything, it’s that any business – whether it’s an auto body shop or an ice cream parlor – sometimes must deal with things out of its control. At the same time, businesses need to adapt to whatever changes come their way. What are some financial considerations that shops should keep in mind today that would have been completely foreign to them three years or even 12 months ago?
MA: A lot of shops are really trying to get their processes dialed in with closing ROs [repair orders] on time. The facilities I’m working with are closing their ROs when the vehicles leave, and they’re staying on top of their receivables and parts credits.
It’s also important to make sure that you’re good on cash. Somebody once told me, ‘It’s not what you make; it’s what you spend.’ Just because you’re having good sales doesn’t mean you can put off building a nest egg.
H&D: Employee recruitment and retention is a topic that never seems to go away. Over the past couple of years, we’ve seen shops offer sign-on bonuses for new employees. Are you still seeing that, or has that evolved into something else?
MA: I still see that going on in a lot of areas. People are offering sign-on bonuses, but they should think about offering retention bonuses for people who’ve been with them a long time. I have a shop client who gives his employees a $500 retention bonus for the first year. If an employee’s been there for two years, they get $1,000. After three years, they get $1,500, and so on. At that shop, the retention bonus maxes out at $5,000. At another shop I know, a technician receives a $1 retention bonus for every hour of labor they produce – but they don’t get it until the following year. That sort of thing encourages employees to stay with you.
H&D: There are always those “little” expenses that everyone tends to overlook. Often, business owners don’t realize there’s a shortfall until those expenses pile up over time.
MA: Yes, and that’s why they need to look at their profit and loss every month. Their bookkeeper should be analyzing that and telling them if anything is higher than usual. They should monitor their expenses, profits and losses every single month.
H&D: As we look toward 2024, what are the big investments that shops need to make today to make sure that next year is profitable for them?
MA: As we move into electric vehicles, people need to weigh whether they’re going to invest in that equipment and training and put together a budget. Also, going back to your question about retention, shop owners should think about ways they can improve their facility for their employees. I have a client who spent $300,000 to air-condition his shop to make it a better environment. Think about whether your offices need updating or whether your employee bathroom needs to be nicer. These are all things that matter and are worth the investment.
H&D: What about tools to bring customers to your door – whether it be an app or another kind of marketing strategy?
MA: There’s a company called 3P Marketing that does a lot with geofencing, which basically puts your shop within an invisible fence around a specific GPS coordinate to market your business. There are also out-of-the-box marketing ideas like advertising on Netflix or Hulu.
H&D: It’s always easy for a business owner to focus on the negative and dwell on the areas where they’re not making money, but let’s flip that around. What are some of the biggest financial opportunities for this industry in 2024?
MA: That’s a good question! Nissan is in the process of rolling out a rebate program for people who buy OEM parts. That’s one opportunity. On a larger scale – and I’m not an investment broker by any means – but if you have cash, you shouldn’t just let it sit there. Put it into a short-term investment strategy so that your money’s working for you.
Want more? Check out the November 2023 issue of Hammer & Dolly!