For shops, one budget area that can provide the biggest bang for the buck is paint and material margins. Any profit improvement here falls straight to the bottom line.
Many paint companies and jobbers provide a variety of assistance and support to assist shops in this area, however many are not successful in providing long-term results. Normally the lack of sustainable results is due to a lack of awareness of what is being spent. Shops need to employ a method that creates an accurate picture of costs.
Any time we work on improving profit in a business, we should always look at the mathematical formula that creates the profit. Consider the following formula:
PAINT & MATERIAL SALES – PAINT & MATERIAL COSTS = PAINT & MATERIAL PROFITS
We'll focus on paint and material costs. These costs are produced by a few simple items:
- usage;
- material costs; and
- inventory.
Before we spend a tremendous amount of time dissecting all the areas of reducing costs, lets look at the simple concept of trying to spend within our budget.
To budget, we need a target of what we should expect to spend. Although it can vary, a good starting guideline for material expense is 6 percent of sales. Additionally we need to determine our projected sales and work days for the month.
Once we've established the three parameters, we can deter-mine our daily and monthly budget for paint and material expenses. For example:
Projected monthly sales $100,000 X 6%
Projected paint & material expense $6,000
Work Days in Month ÷ 20
Daily Paint Budget = $300
Each day you want to determine how much you spend on these costs, and then keep a running total. Keeping these numbers in a spreadsheet makes it easier for some individuals. However, you can just as easily do it using a calculator and a sheet of paper.
As you go through your numbers each month, you will see fluctuations in costs. Some of these may be the result of a supplier not coming to your shop daily. Others will have different sources. You need to find out what these different sources are. Part of the value in keeping a chart is that it compels you (and other owners and managers) to get up out of your office chair and head to the back of the shop to find out where and why these excessive costs are turning up.
Obviously, simply keeping track of expenses will not solve budget problems by itself. Neither will any other quick fixes, such as arbitrarily cutting costs. When you need a product to complete repairs, you still must order the necessary materials to get the job completed, even if it requires you to spend more than your budget allows.
Identifying cost overruns, as in most operational improvements, allows you to determine where to focus to solve such problems. Solving these problems can be the difference between operating at a profit or building up the kind of deficits that lead to bankruptcy.
