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Garage business really struggling

I have a client operating as a garage business, carrying out all manner of motor repairs.  They are really struggling and don't seem to make the kind of profits

that fit with the amount of work that they do.  They do offer credit, which has more to do with them not being able to get the bills prepared by the time that the

customers collect their cars than anything else (but is dire for cashflow).  They now have a credit card machine which really took some persuading.  

They seem to have issues with tracking billable hours.  I have devised a time sheet that includes all workshop employees and only covers one day.  This way they can see on a daily basis the combined billable hour figure, and identify problems as they go along.  Obviously, I am struggling to get them excited about this.  

So, I just wondered what other accountant's experiences are of garage businesses.  The premises is owned, so its not even as if their is rent to pay. 

I am also interested in what the average mark-up of parts is across the country.

This is my local garage - I need it to work!

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Job costing

Can't you knock up a worksheet for them to use with each job, where they record the time spent, who spent it, and the spares used?

You (or they) could calculate the effective hourly cost of employing each person, so they can easily calculate how much each job has cost them, the actual amount billed, and gross profit.

The daily timesheets should be checked against the job sheets. If they are busy but not making profits then something is very wrong ... it is just a case of finding out what it is!

This is quite a simple task, and if the client can't be bothered then they should already know what the problem is and are just sticking their heads in the sand (or already know but don't want you to!).

Garages are well known for cash jobs and 'two' sets of accounts! I have had people come to me wanting me to advise on purchasing a garage, and based on the accounts the price was extortionate but it was happily explained by a naive potential client as not being the 'real' accounts!

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Thanks for that, and I am aware of the cash issue, but judging by the state of the bank (and charges they are incurring), I don't think that there is much going under the mattress - of course I could be wrong.

They have a job card system, but my problem is getting that cross-referenced against time sheets.  Their problem is partly that they don't check employees time sheets regularly and its too late when they do. That was when I had the idea of a master daily time sheet, including all operational workers (only 4), and then signed off by the boss at the end of the day.   I think there are just some people that shouldn't be in business for themselves.  They do make a profit but not nearly as much as it should be.  The indiscriminate credit provision really compounds things.

I guess stock control is the next thing for me to look at.  

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... and charge out levels

In the mid '80's I went to a specialist car restorer in Surrey for a couple of weeks to find why they were teetering on the brink of insolvency.  In short, the books were impeccable, job sheets were completed and cross-referenced to billing records, there was no evidence of a "2nd till" ...  

It eventually hit us that the problem was of charge out rates being too low.  - In effect the more work they took on, the worse they did.  The directors felt "they couldn't charge too much" despite their clients being very wealthy and having classic Jaguars on which they were prepared to lavish cash.  

As an interim measure we suggested 

(1) All parts to be sold at retail (rather than arbitrary mark-ups on cost)

(2) All (gross) wages to be multiplied by three to get a charge out rate.

(3) All supervisors wages to be apportioned to specific job sheets (they were previously "admin costs" 

. . . The company survived for many more years and it's successor can be found on Google!

Have a look at your client's charge out rates. 

 

Edit, whoops, just realised ShirleyM already suggested this.

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Thanks for this, one of the reasons for my post was to try and find out how much parts are marked up by, in a healthy garage business.  I also think the idea of apportioning supervisor/admin hours per job makes a lot of sense.  

 

I think its a similar business to the one that you looked at where they take on some complex restorative projects (along with run of the mill stuff), and then I suspect they bulk at charging all of the hours that were worked on a job.

 

 

 

 

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Reconciliations are not difficult

"Thanks for that, and I am aware of the cash issue, but judging by the state of the bank (and charges they are incurring), I don't think that there is much going under the mattress - of course I could be wrong."

I don't understand. Isn't that more of a reason to think that cash has been omitted from banking?

You need to be able to reconcile the sales, time and materials from the job cards to the accounts. You can even reconcile it in total for a month.

If the client is useless why don't you do the reconciliation for one month?

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Thanks for that Peter.  

I probably didn't put that very well.  These are people who are very stressed by the state of their business, constantly going over their overdraft limit and very concerned by their bank charges.  They don't come across as having the comfort of a slush fund under the counter.  They strike me as very genuine, but not great at the business side.  Being a great mechanic doesn't necessarily make you the right person to run a garage business.  Its all family, and they seem to lose focus on the admin side of things, which is a real shame.  

I think you are right, I need to do a month's worth of reconciliations between timesheets, job cards, purchases/stock and the invoicing, to work out where things are going wrong, although I suspect it comes down to time-sheets.  I have been monitoring billed-out hours for the last few months and they lose loads of hours as none-billable, which then brings me back to timesheets and organisation.  

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I think this needs more than just a reccy

This was my forte, before starting my own practice.

It sounds like it could need someone to actually go into the business and do a full efficiency check and put new procedures and systems in place. It isn't always a low charge out rate that causes the problem. It could be lots of things, including a staffing problem, with staff helping themselves to spares, not putting any effort in, etc. A weak, or too trusting, proprietor can easily be taken advantage of.

 

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Job sheets

"I think its a similar business to the one that you looked at where they take on some complex restorative projects (along with run of the mill stuff), and then I suspect they bulk at charging all of the hours that were worked on a job."

Wouldn't the job sheets show this if they were completing them properly?

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Garages

Shirley is spot on that weak owners of garages are a major cause of them not doing as well as they should.

I would do as others have suggested, inspect the business from top to bottom, looking at rates of pay, staff levels, staff sickness, idle time, charge out rates, overdraft fees, credit control, loan servicing, stock control, cost analysis, marketing, efficiency, management, and so on and so on.

You could offer this service on a success fee, thereby getting the buy in of the owners and allowing you the potential of a good fee.

Jason Dormer

Seahorse (UK) Ltd - For accountants and bookkeepers

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What is it's local reputation? Too cheap,bad service,problems with after care on jobs. These may give you further clues as to problems areas to look at.

The man down the pub is always good for this sort of info. Ask which garage he would would recommend to someone "new to the area" and why 

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They have a great reputation locally, the owner is an exceptional mechanic.  I think that is a big part of the problem,  just because you are great at the service you offer, doesn't make you the right person to be running the business.

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Do the reconciliations

You can take short cuts and you might find useful information but you may also still be in the dark. Doing the reconciliations properly will definately identify the problems.

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Peter, I think you are absolutely right, I need to take a couple of months as samples and work through exactly what is going on.  

 

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A few other pointers

Just be aware that garages (in general there are always exceptions) are having a particularly tough time in general at the moment customers are counting their pennies and not having work or servicing done if they can avoid it.

Sometimes the best artists, mechanics or even accountants aren't necessarily the most profitable. They do a wonderful job and all their customers rave about the work but they take too long to complete the work and therefore have massive time write offs. There has to be a balance between the standard of work and the time available for a job. Some of the mechanics might be just slow of course. The owner should set some standard times for the work and ensure they are adhered to.

 

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Why not do what hotels do?

When the client comes in your garage should know in the main why they are there - basic service etc etc.

You need to create a checklist of work agreed to be done and signed off at  the outset and paid by credit card (so you have the card details at that point). If there is anything additional you could have an upper limit of costs that dont need additional authorisation before being charged for. Any big stuff would need a call being made to the customer.

In my experience there are set times that jobs should take (there is a book of times) and these can be used as a basis for setting out the costs of particular jobs. You therefore dont necessarily need the timesheet bit, you just need the workers to know how long it should take.

Whether you then link the ultimate cost to salary costs is up to you.

If it is a local garage then you are looking at the captive pricing used by theme parks - there is no where else to go so people will pay extra for convenience - you just need to identify their pain threshold.

Not very different to a lot of posts on here but usually linked to accountants and whether they should have timesheets or not...

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Job cards
Hi Gem,
Just a couple of thought-if you are using a Job card system just write the time it actually takes on the job card. You can then benchmark your workshop labour hours efficiency easily against attended hours. The industry standard is 100% but no garage is that efficient, in my specific experience 80% is a good goal.
A previous poster mentioned labour rates-your labour cost should include all techies plus management, and the overhead absorption should be almost 100%.
You don't mention a sales department, so I'll assume you don't trade vehicles. Otherwise your interdepartmental invoices could be the major cause.
On the parts department, again another previous poster has mentioned using RRP. This is a standard to use, but tweak it to suit your local business. Bear in mind that are lot of suppliers to the motor industry change their prices on a daily basis, so a price control procedure hand in hand with a stock control programme should iron that out. If the garages customers do not require original equipment parts then consider going with the generic rather than OE.
Also ensure you put a mark up on your sublet and if you offer an mot service but sub it out, charge a service fee. I'm sure you're doing it already but double checking your invoice/cost of sales matching on tyres, fluids, lubes, consumables etc can help identify which area you are haemorrhaging the cash.
Taking deposits (30%) could also help balance out the cash flow for larger jobs.
You haven't mentioned menu pricing-if you do have menu items for the bog standard services, brake discs etc you will need to do a costing exercise to ensure the profitability of each menu price and include all the small consumables etc.
Good luck!
Dawn

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Garage Data Systems

I have a number of small workshop clients with between one and four technicians.  They all use different systems but the most cost effective for a small business is Garage Data Systems which will link to Sage, controls invoicing, job cards and time keeping and costs a few hundred pounds.  The parts margin should be 30% and they should carry minimal stock, as most areas of the country can get two or three deliveries a day from several different parts factors.  They should look for a margin on labour of 75%.  A bonus system paying technicians on hours sold can improve efficiency. Productivity should be 90% (hours worked v hours attended) and efficiency should be at least 100% (hours sold v hours worked).  Servicing should be invoiced at standard hours to encourage the technicians to complete the job below standard hours and so earn a bonus.  The workshop manager should monitor and control quality to ensure that bonus isn't earned by cutting corners.  They should do a competitor analysis to make sure that their prices are consistent with the competition.  They should look at menu pricing for servicing work, which is the most profitable, and avoid diagnostic work which is time consuming and often undercharged.  I wouldn't waste time looking backwards, it will just prove they are inefficient and under-charging.  They will never get on top of the paperwork with a manual system.  Install a computer system, support them through the implementation and let the computer reports identify the areas for improvement.  However, it will only improve if the proprietors are open tio changing their ways.

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Added value

Now that is real "added value" over compliance!

The last sentence is the key!

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