DALLAS – People in the collision repair industry know the business of fixing cars well, but the actual “business end” of the business can sometimes be baffling. The language of business managers and accountants is much different than that of shop owners and repair technicians. At the Women's Industry Network (WIN) conference Tuesday morning, attendees had a chance to increase their understanding of basic financial documents.
Presenters Kathy Coffey, market and distribution support specialist at AkzoNobel, and Teresa Kostick, owner of AllLine CARSTAR in Bollingbrook, Ill., in their session "Understanding Financial Documents," provided an overview of how to read a profit and loss statement and balance sheet, how to identify the key tools used to monitor and manage for best results, and how to understand commonly used key performance indicators (KPIs).
"I think that most people get put off by the terminology," Coffey said. "At the end of the day, it's all pretty basic. It's actually very similar to the process we all use at home when we evaluate our own income and our budgets. This isn't something to be put off by, because we all deal with finances every day. It's about understanding and not being afraid of it."
A profit and loss (P&L) statement, for instance, includes revenues along with operating expenses, including fixed and variable expenses. "We're providing an overview of the basic items and how they flow down the profit/loss statement," said Coffey. "Everyone's business is a little different, but everybody has some expenses in between revenue and getting to net income."
Common KPIs include gross margin as a percent of sales, sales per employee, expense as a percent of sales, return on assets, day sales outstanding and inventory turnover.
Understanding these concepts can help shop owners evaluate their operations and look for ways to make improvements.
"People are looking for ways to get the most out of the bottom line, whether they're selling paint or fixing a car," Coffey said. "Everyone is in the same boat right now."
Day sales outstanding (DSO) is a good example. DSO measures the time it takes a company to collect account receivables from credit sales. By determining how many days worth of sales are in accounts receivable, you can gauge your success in receiving payment from customers. You arrive at the figure by dividing total outstanding receivables by total credit sales, multiplied by the number of days in the period. If the number is relatively high (more than 30 days, for instance) you might need to improve your collections process, or that your customers are having cash flow issues.
"Understanding these concepts can help people make better decisions," Coffey added. "Maybe they're not looking at their KPIs and putting the pieces together. By benchmarking and comparing some indicators over time, they can see whether some programs are working or not."
