I have started here by assuming you do have some profits. I have just returned from the 6th annual URG training conference, and I didn’t find anyone who wasn’t proud of increased sales. As I reported last month, those who are paying attention are doing well, in fact, very well. If you aren’t proud of your profits, don’t despair; this article will be of even greater value to you.
The first chapter of my recently published book How To Salvage Millions From Your Small Business discusses financial statements and operating metrics. Both of these items are key to your success, and, if you are to continue (or start) to prosper, you simply must pay more attention to these tools.
First, financial statements. You have to get them monthly by the 15th. These have lots of information, and they can certainly be intimidating. Please, Rome wasn’t built in a day; so go easy. Pick a few items to study and focus on, like towing expenses and brokered parts sales. Study them relative to prior months, and understand what they mean to your profit picture. Any good consultant, accountant or advisor will ask to go over your financials with you, and just a few suggestions can easily make a big difference for your bottom line. I am always amazed, when I do consulting assignments, by the accountants who don’t understand our business and that deliver statements that don’t give the owner good information. Remember, get them monthly, and learn to spend at least 30 minutes reviewing and comparing them to prior periods.
Second, operating metrics. I touched on these last month but didn’t have enough room to discuss them in any detail. They are more fun to develop and use than financial statements, and can be even more valuable. Again, gather the information monthly, and study them by the 5th or so of the month. Some key ones are these:
- Total number of employees
- # Salespersons
- # Dismantlers
- # Purchased vehicles, total $, average $
- # Days to break even on vehicle purchases
- Total $ net part sales, core sales, warranty sales, repairable sales, scrap sales
- Cars dismantled per total employees
- Cars dismantled per dismantler (Count all employees involved in dismantling, stocking, cleaning. This should be at least 1.5; 2.0 would be great. Remember to count ALL employees involved in the process.)
- Sales per month per employee (If you aren’t at $14k+, you are probably not profitable.)
- # Invoices per salesperson
- Sales per salesperson (This should be at least $40k; I have seen $225k.)
- % Credits to sale (This is affected by the way and when credits are written.)
- % Brokered parts (My bias is towards less.)
- # And $ warranty sales per salesperson
You will be intrigued the first month when you gather these, but will really start getting meaningful information by the 2nd month, as you can watch for trends. Try to compare them with a friendly competitor if you can, and any good consultant will have some idea how you measure up on the metrics compared to other recyclers. With this information in hand, reconciling it to the financial statements as needed, you will really know where your profits are coming from, or going to!
More in my next article, but remember only you can make BUSINESS GREAT!
Please email if you would like me to send previous articles.
Ron Sturgeon is past owner of AAA Small Car World. In 1999, he sold his six Texas locations, with 140 employees, to Greenleaf. He now manages his real estate holdings and investments, and does limited small business consulting. You can learn more about him at WWW.salvagingmillions.com. (Click on “more about Ron Sturgeon”.) He can be reached at 5940 Eden, Haltom City, TX, 76117, or firstname.lastname@example.org.