I discussed cash flow briefly in a recent column and doing so brought to mind other financial-related issues I regularly see collision repair businesses facing. I asked one of my colleagues in this industry, Elainna Sachire of Square One Systems, Inc., if she’d help me share some of her insights into shop finances with readers of my columns.

I have a hard time imaging there’s anyone in this industry with more experience and expertise in digging into shop financials than Elainna. Square One Systems started what is likely the longest continually running 20-group in this industry, the Coyote Vision Group, more than 35 years ago. Today, Elainna and her team work with 22 such groups, comprised of about 450 shops, doing a combined $1.2 billion in annual sales. She’s helped transform shops into some of the top-performers in the industry, with many veterans of her groups having gone on to successfully sell their businesses to larger players in the industry.

So given that, I asked her what she sees as some of the major mistakes plaguing many collision repair business, including some of those businesses she’s gone on to help transform. Here are a couple pitfalls she shared with me.

Misperceptions about profitability in a changing industry. “The issues I see businesses stumble on haven’t changed much in 30-plus years of doing this,” Elainna told me as we started our conversation. “I still see the same mistakes made.”

Whether in 1990 or 2020, she says, shops need to be adjusting based on increases or decreases in sales, job-costing to ensure profitability, and working to be ‘expense-efficient.’

But while those larger concepts are consistent, she said, that doesn’t mean the industry doesn’t change. She understands, for example, that investments made in order to achieve shop certifications by automakers has shops seeing changes in their expenses and scrambling for a return on that investment.

“I have shops tell me, ‘I have these four OEM certifications, and with those costs, there’s no way I can be as profitable as I used to be,’” Elainna said. “But I tell them: That’s not how it works. At the end of the day, it’s still sales minus expenses equals net profit. I do believe in being certified. But if that’s driving up some costs, you have to make some other choices. You either need to drive your sales higher to pay for that, or you have to be more expense-efficient in other areas.”

If anything – like the expense of OEM certifications – is cutting into your ability to generate a healthy net profit, she argues, you have to figure out how to change that.

“I call it peeling back the onion in layers to dig in and figure out why you’re not operating profitably,” Elainna said.

Overlooking inventory control and turn. Elainna and I have both seen shops that for some reason have a year’s supply of inventory, whether it’s sandpaper and seam-sealer, or primer and masking paper.

“Shops have to get more efficient and realize how wasteful that is, and what it does to cash-flow,” Elainna said. “It sounds hard to believe, when I talk to shops, for some reason when they have a lot of inventory, they use a lot more materials than they use when they have less on hand. When inventory is controlled, there’s just less waste.”

I told her that I try to get my clients look at vehicles on the premises as their “inventory of work,” something else they need to manage well.

“It’s like people going into a restaurant,” she agreed. “If you and I go to dinner, and we sit there for six hours, it doesn’t matter how much we spend: That restaurant will have done better if it turned that table several times. A car sitting in your shop for days or a week before you get to it is the same thing. There are occupancy costs related to it. You’re not leveraging your square footage.”

I’ll share more from my conversation with Elainna in my next two columns.