What's My (Bottom) Line?
A Guide to Successfully Understanding Financials
by Terry Dennis
The biggest mistake glass shops make is not paying attention to the bottom line. This is where the profit will be found, and profit is what determines the future of the company.
When I was in school, more than 20 years ago, we were taught that a company needed 33 percent net profit to grow and prosper. Today, however, it seems many auto glass shop owners are happy to try just to break even.
This is the formula for a profitable business:
Gross Sales – Cost of Goods = Gross Profit
Gross Profit – Operating Expenses = Net Profit
Your company can’t survive if you can’t determine your selling price based on your actual cost of doing business. Too many people are looking at the wrong line. Some business owners look at gross sales, while others look at market share. But I go back to the bottom line, where there is supposed to be a surplus (in the old days they called it profit).
Mega Market Share
The ‘Big Big’ companies always want market share. Somehow, it’s as if that gives them stability. If that strategy worked, GM and Ford wouldn’t be in financial trouble. They forgot about profit and have been offering huge discounts to try to maintain market share.
If you’re taking jobs just to keep busy or to capture market share, you’re working with a losing formula. If you understand your costs, you will not set the selling price of your services so that you lose money or accept jobs on which you lose money.
I have two simple rules for making a business successful.
First, remember who the customer is. My clients are the vehicle owners. They should be able to decide what shop is going to do their auto glass work based on quality and safety, not the cheapest price.
Capitalizing on the power the policyholder has with his or her insurance company is key. Billing the customers and having them get involved with the claim and payment creates a much more willing insurance provider. Insurance companies are more likely to pay a bill presented by a customer more quickly and at full reimbursement than they will a bill presented by a glass shop.
Second, remember what your cost of doing business is. There are many more things that go into running a business than just the cost of the materials. These items (equipment, drive time, two-man sets, rent, marketing and advertising expenses, vehicle repair, tools, fuel, insurance (health, liability, workers comp, auto, life), labor and taxes) need to be part of your pricing and billing above and beyond your cost of goods in order for you to make a profit.
What’s your bottom line? Make your business profitable.
Terry Dennis is head of Terry L. Dennis Consulting Inc. in Three Rivers, Mich., which works specifically in the auto glass industry. He has also been co-partner of a glass shop, Auto GlassMasters LLC, Schoolcraft, Mich., since August 2000.
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