Editor's Blog


Loaves of Bread Not Slices

May 23, 2010
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I’ll admit it. I’m not a giant fan of reading financials and management reporting.

I’ll also admit. That I can help pretty much any business be more successful and they’ll fail if they don’t know the numbers.

That’s why I make sure they’re in good hands when it comes to this particular one of the 7 Power Concepts I speak about on a regular basis.

Yes, I can read a financial statement and I know what the numbers mean.

Yes, it still bores me!

The reason it really bores me is when I read financial reports where anal-retentive owners and/or their accountants get busy generating tons of paper all of which make it even more mind numbing.

The great Frank Blau told me once, “If you can’t run your company with a pad and a pencil the computer will just obscure the facts.” That doesn’t mean the computer isn’t helpful. It is. But, sometimes it just generates too much or the wrong things.

My good friend who handles the financial one-to-one work with my clients teaches them, “You don’t need to know how many slices of bread there are on the shelf when all you need to know is how many loaves of bread there are.”

When I’m working only one to one with clients and she’s not involved, I teach my clients the following: Focus on the basics on real-world accounting and know that this is not the same as tax accounting.

Real-world accounting done properly gives owners and managers real numbers designed to run their company in real-time which tax accounting that your accountant typically does is designed to help you avoid or at least delay paying taxes which is a good thing. But, only real-world accounting will help you run your company with a financial dashboard to know where you are and where you’re headed.

Here’s the loaves of bread I pay attention to:

Key Numbers for Service & Repair Companies

Note: The following is only Rule of Thumb, but it’s based on experience in traveling the country and speaking with other industry leaders.

1. Marketing is 4 - 18% of last year’s gross sales. Four percent being conservative and typically a mature company and 18% being for a company highly aggressive at growing.

2. A desired ratio of 2 employees in the field making money for every 1 employee [including the boss or bosses] on the inside. 1.5 to 1 is still acceptable. 1 to 1 is a danger sign.

3. Gross profit of 50 to 70%. The more service you do the more it should lean toward 70%, and the more install you do the more it tends to lean toward 50%.

4. Having a high new profit of say 8 - 20% is only necessary if you need it to show the banks or are preparing to sell. The focus needs to be on hitting top line gross sales and gross profit targets first and foremost.

Note: Another reason I don’t get overly focused on Net Profit is I know I can “massage it’ anyway I want by paying the owner and managers more profit sharing and bonuses and loading up on other types of compensation and perks.

5. A CSR conversion rate of 75% or higher.

6. A Service Tech conversion rate of 75% or higher.

7. $250,000 per truck/year was a good goal in the past. The goal has been trending toward averaging $300,000 per truck/year. The best shops are averaging $350,000 and up. Anything $250,000 and below is a caution flag.

8. I like to see a budget line item for year-round recruiting, hiring and training that is at least 0.5% to 1% of last year’s sales.

9. 10% to 20% material cost to the total sales for a purer service and repair company.

10. 25% to 40% material cost to the total sales for purer new construction and remodel company.

Get focused on these key numbers and engineer a change that will get you focused on making the numbers work for you.

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