Automotive & HD Business Management Articles.
Bob Greenwood. January 15, 2014. ( over 4 years ago ) 834 views
NET PROFIT is that number at the bottom of the income statement that stands out by itself after all expenses have been listed and totalled. This number is usually expressed in a “before tax” denomination, therefore, the company will pay corporate tax on this number, (assuming it’s a positive) or a proprietorship (non-incorporated business) will pay personal tax on this number.
The objective, in a business operating an automotive maintenance shop, should be to “net” a minimum of 10% of bay sales before tax, but AFTER a professional management wage has been earned. A business has a right to gross profit, but it must EARN net profit.
I’ve talked to many shop owners who treat net profit like a dirty word. “Well if I make net profit, I’ll have to pay tax.” or “well, a guy who makes a $100,000 or more must have ripped somebody off”, or “with the cost of everything in this business, you can’t make a good net profit anymore, I wish the old days were still here”. With comments like these running throughout our industry, no wonder it isn’t profitable.
It’s truly time to understand reality. Net Profit is NOT a dirty word, it’s required for survival. It’s required to pay for updated equipment. It’s required to hire highly skilled and competent staff. It’s required for facility improvement. It’s required to reduce and pay out debt. It’s required for outside investment to ensure the owner has a retirement program. It’s required for business growth. It’s required to reduce the level of the owner’s STRESS.
I think it’s time this industry understands and embraces this concept of “NET PROFIT”, and had a long love affair with it! And if management can’t seem to do that, then maybe it’s time the business get a prescription for some “steroids”.
With all the liability exposure, the high investment required in capital items, the long hours of duress many shops endure trying to make their business work, why would an owner want to risk a $200,000—$500,000 investment to “buy himself a job”? This owner would be far better off for himself, his family and the industry, to cash out and get a good job as a competent technician. He would make more money with no risk.
A proper business plan must be built each year to see what revenues are required to pay management a professional salary, and earn enough net income to “grow the business”. The business must grow in all aspects, especially things such as increasing its client base, staff, equipment, inventory, and facility. This planning is not an overly difficult procedure, but it will take some time to calculate, study and analyze whether the facility the business runs in, is capable of reaching the revenues desired and “drive” the necessary net income required. The shop should be capable of paying management a $125,000—$150,000 salary and netting 10% of bay sales before tax.
If the shop doesn’t PLAN for that level of net income, something in this industry usually happens… there is none. Watching the sales and bank balance go up and down is not planning for net income. To net 10% or more of sales, and pay management a professional salary, a business owner must strategically plan the business to operate in today’s competitive environment. If he/she doesn’t know or understand how to do that, then business management education/development is a must, otherwise their very fabric of family security is definitely at risk.
This business is not worth cheating time away from your children or losing a family over.
NET INCOME development should be the very first issue to be addressed and understood before 2014 is over so the next five years can be celebrated with a new vision and true optimism for a bright secure future.