by Rachel James, Torque Financial Group
A shift is coming in the land of collision shops. The feeling has been around for some time, but there is a sense that we are upon a paradigm shift: should shops consider hiring a Chief Financial Officer (CFO)? This conversation has been coming up recently.
Shops are likely to hire a bookkeeper who manages the charter of accounts and organizes the spending and income based on predetermined buckets. QuickBooks is the likely software for the job. There is also a CPA/accountant who assists with annual tax filing. Sometimes, the role of bookkeeper and CPA are combined, but we often hear from shop owners that they want to get more from these professionals. Many feel they need more consultation on what needs to be done to better their KPIs. The truth of the matter is that these professionals have limitations on the scope of their work: their function is to provide you with the data and file your taxes. That is what is expected of those roles. Sometimes, you may be able to find a professional who goes beyond the traditional scope and offers more perspective, but in many ways, it’s like asking your estimator to also go out back and spray a deck lid!
Collision shops can hire paint company consultants and industry coaches to do benchmarking and provide great raw data for the shop to analyze and disseminate. These reports and the service provided can be so helpful for the organization to navigate future decisions, understand where they are falling short in terms of profitability, work on shop culture and more.
On the other hand, financial planners typically focus on long-term planning, succession planning, retirement strategy, employee benefits and engagement. There is some depth to these conversations, but again, there is a limit to how far they can immerse themselves into your week-to-week operations.
Dealerships seem to have gotten this one right in a sense by having separated the functions of their business and putting managers in place to grow the different segments: sales, service, parts and collision. They also have a C-suite of managers who oversee HR, finance and operations. Not to say that the small mom-and-pop operation needs a C-suite and segment managers, but we can still take notes from the dealers’ playbook.
If we are craving more information and guidance around understanding all these data sets, who is managing it? Who in your organization has ownership around setting up budgets, understanding gross profit performance and identifying if the business can afford the new spray booth? Who can wear the hat of “CFO?”
No shop is built the same. Some are one person operations, while others are considering adding business lines like rental and calibrations. Some collision owners are debating the idea of adding a second, third or fourth location. For the shops that are smaller in size, the role and ownership of being the CFO will fall on the business owner.
Randy Bottella from Reliable Collision Repair of Rhode Island and president of the Auto Body Association of Rhode Island (ABARI) offered insight on the subject. “It’s basic, but at the same time, it is important for shop owners to know some important figures. The first step is to start job costing and understanding how much they are making per job, and then they will see immediate results to help with identifying weak areas in parts, labor and estimating performance. Secondly, whether shops get this information from their bookkeeper or their accountant, shop owners need to identify their overhead costs so they can determine what their cost of business is on a monthly or weekly basis. This gives shop owners the target to know what they need to do to break even and keep tabs of that to the monthly profit and loss statement.
“It’s important for shop owners not to wait until the end of the year to know how they have performed because, at that point, it’s too late to change it. Look at these reports quarterly or preferably monthly. In most accounting programs, a profit and loss report can be printed in seconds and only takes a few minutes to review. Shop owners then have a report card to know how they did each month. Shop owners or managers not getting this financial information is the equivalent of trying to repair today’s complex cars without accessing any of the vehicle manufacturer’s data or structural measurements.”
The easy – and annoyingly difficult – part of this is having the discipline to do it. For a smaller operation, owners should be setting up monthly or quarterly mandatory CFO meetings with themselves to review all the data from all the resources they have coming in. This is a chance to review the profit and loss statement, reports from CCC and the analysis received from their business coaches and consultants as well as a chance to map out budgets and look for any outliers.
During your CFO meeting, here are some questions to ask yourself: What are our biggest strengths? What are our biggest weaknesses? What is our blind spot? Where could we improve the most? Are there any opportunities out there that we are not exercising? What are the high-level takeaways from the data you see?
For shop owners who have brought their revenue beyond $1 million by expanding into multiple locations, the role of CFO might be something to delegate to a team member within your organization.
Casey Lund, owner of Collision Leaders with eight locations in Missouri and Kansas and president of the Missouri Auto Body Association (MABA), has been actively thinking about this for the last year.
“As owners and managers, it’s easy for us to get tunnel vision in our businesses,” he suggested. “Stepping out of the day-to-day operations helps give us clarity to build a strategy for the future. For shops that aspire to grow, it’s important to have someone watching our blind spot (coaches, consultants, etc.) and someone helping us build the roadmap for the future. I view this CFO role as the ‘strategy bridge’ between the data and implementation by the operations team. Admittedly, I wish I had brought on a CFO much sooner and would encourage other shop owners to consider who is helping build their strategy for the future.”
Whether this is another job description for the shop owner, a part-time employee or a full-fledged Chief Financial Officer position, it’s time to start considering who will be taking the accountability. This could be a hybrid role with other responsibilities for the shop. It could be a family member, or it could be an extension service of one of your existing trusted partners. Whether that person is you or someone on your team, the value offered by a CFO is priceless.
Habits of successful CFOs
• Schedule dedicated time to review data.
• Schedule meetings with consultants, bookkeepers, accountants and partners.
• Roadmap the future of the business.
• Look at trends.
• Set budgets.
• Analyze data.
• Project and forecast.
• Identify areas for budget cuts.
When done right, the CFO is the one who collects all the varied information, ties it all together and provides insight into what it all really means. Who in your organization can own this function?
Torque Financial Group is a member of AASP/MA’s Vendor Affinity Program.
Want more? Check out the October 2023 issue of New England Automotive Report!