Use Financial Documents to Build Dealership Service Profits

“The balance sheet on the financial statement helps managers take the service department’s temperature,” says fixed-operations consultant Ed Kovalchick.

Jim Leman, Correspondent

May 11, 2010

3 Min Read
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More frequent use of dealership financial statements and daily operating control applications can help the entire service department.

The two tools can guide a shop to improved expense and margin controls and motivate technicians and advisors to more profitable performance.

Nevertheless, many service managers do not use them, says fixed-operations consultant Ed Kovalchick, CEO of Net Profit Inc. in Alabaster, AL.

They don’t use them to measure their own effectiveness nor share data with their technicians and advisors so they can better visualize how everyone’s performance relates to hard results.

“The balance sheet, one of three key indicators on the financial statement, helps managers take the service department’s temperature,” Kovalchick says.

The financial statement provides key management summaries, such as how cash is flowing, various inventory sizes and what monies are owed.

“For instance,” Kovalchick says, “the financial statement details the status of warranty and service and parts receivables and work-in-progress inventories.

“It also indicates how much techs are being paid for work on repair orders not completely processed, or contain time which has been inaccurately posted, as well as how much is being stocked for various shop materials.”

This information is available monthly from the dealer-management system, and while useful for planning and making adjustments, the summary information is past tense, reflecting what has happened.

On the other hand, the daily operating control application, or DOC, is accessible from the DMS at any time and is an almost real-time reflection of profit and expense opportunity by various categories the service director wants to evaluate.

The DOC is more suited for use in larger dealerships where the service director oversees operations of several stores, says Ron Sompels, a partner in charge of dealer practices with the certified public accounting firm of Crowe Horwath LLP.

“Viewing the DOC is a quick and easy way for the service director to review key summary data in order to spot areas where there might be problems or issues,” he says.

It can be run for whatever period of time the service director wishes to cover – the current week, for instance, to get a look at operations on a macro level, where gross profit percentages are relative to sales.

“Unusual variances in the numbers should cause the director to look further into the details,” Sompels says. “Are service margins low for some reason? Might techs be working on relatives’ vehicles ‘on the clock’ or is something else wrong that needs to be corrected?”

Robbie Long, service director for the 6-franchise Liberty Auto City in Libertyville, IL, reviews the financial statement data with her managers and the DOC with service advisors.

“The statement reveals what we have to change, but the data is historical. The DOC, which breaks out the individual franchises, gives me sales and gross figures, letting me know what we are doing at the time,” she says.

“Using the DOC is an instant way to see the categories on customer pay, warranty and internal for service, body shop and parts gross by franchise and at the same time get overall sales and gross figures for all of fixed operations.”

The breakdown makes it easy to compare on a month-to-month or a year-to-year comparison in various methods.

The DOC helps with other expense control, as well. For instance, because a DOC can be run from the DMS at any time, service managers using it can see trends develop as tickets close.

“And that can tell me if I need to redirect my advertising dollars or even fine-tune my appointments in reference to that franchise,” Long says.

About the Author(s)

Jim Leman

Correspondent, WardsAuto

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