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Friday, 30 October 2020 18:09

Financial Incompetence is No Excuse!

Written by Dave Luehr

Index

The Basics

 

While I recommend shop owners learn as much as they can about the financial side of their business, I believe they should at least learn the basics. The more advanced stuff can be outsourced in many cases to trusted partners such as bookkeeping services or CPAs. If you need help getting started or need an ongoing financial expert, we at Elite Body Shop Solutions also have advisors who can help.

 

Or maybe you are like me? Once I learned the basics, I became addicted to mastering the financial stuff! After all, once you master the math, you can master the money!

 

So, what are the basics? To begin with, a shop leader needs to understand these four things:

 

1. Profit and loss

 

Profit and loss is the simple equation that shows revenue coming in the various departments like parts, labor, materials and sublet, then subtracts the expenses involved, thereby leaving a profit or a loss in revenue. The bottom of a P&L statement shows your net profit.

 

Profit and loss statements are usually produced each month, after the month is over. This is a great way to analyze past performance; however, it is a history report.

 

Smart operators also use the same basic P&L structure to analyze each job during the month. This is an opportunity to check profit centers such as parts, labor and materials on each job so shops can optimize profitability on each job before it’s too late. This practice, commonly called job costing, is a proactive approach and is a critical component of running a business by the numbers.

 

The profit and loss statement, P&L or Income Statement is a document most shops produce monthly to show operating performance. This document will indicate if the business is operating profitably or not; the only problem is that, as important as this information is, it doesn’t tell the whole story.


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