Tag Archive | "Money"

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THE GOING RATE IN THE AREA


Working out how much you should charge should involve more than simply plucking a figure out of the air, says Andy Savva

Andy Savva

Savva has run various large independent garages and has been a troubleshooter for underperforming franchise workshops. comment@haymarket.com

One of the most and frequent responses I hear from independent garage owners when asked: ‘What’s the basis of your labour rate?’ Answer: ‘it’s the going rate in the area’.

There is a law in this repeated answer. How can you set your labour rates within the same bracket as your competitors? If you do that tells me that you have the same fixed costs, rent, rates, insurance, electricity, gas, salaries etc. as everyone else, surely this cannot be possible?

Of course it isn’t the case. While independent garage owners will have similar running costs they won’t be exactly the same, yet labour rates are set on the basis that it’s the going rate within a given postcode. Let me tell you here and now this is certainly not the way to set your labour rates.

Your first challenge is to calculate your complete running costs for your business as mentioned earlier, this should be straight from your annual accounts. Let’s assume this figure is £395,000 this includes staff salaries for five techs and three non-productives, all your rent rates, insurance and general running costs etc.

So before anything happens you need to generate £8230 per week. Now on average the labour/parts split for an invoice is around 50/50, so an invoice of £200 will have £40 vat £80 labour & £80 retail parts sold. So the figure of £8230 now becomes £4115 for labour hours sold (income) just to cover the complete running costs of the business.

At this point I would not consider the mark-up of parts (usually around 30 to 40 percent) as I considered this income as a bonus.

I always based my business objectives of making my garages sustainable & profitable on labour hours sold. You then calculate the potential labour hours you have available to you to sell, think of the number of ramps and working bays times the number of productives (five ramps/ technicians x seven hours per day) x five days per week for 46 weeks in the year which takes into account holidays, training and sick days etc… Stay with me!

So if we use the calculation above the potential labour that can be generated will be 175 per week and if we multiply that by 46 weeks, we potentially can achieve 8050 labour hours (income) per year. Now we already know that we need to generate £395,000 per year to meet our fixed cost expenditure without making a profit, if we then divide the potential labour hours available (8050) by running costs £395,000 we get a labour rate of £49 per hour.

REAL TERMS
Now an important point, whatever labour rate you set will not necessarily mean that is what you recover or receive in real terms. In my travels up and down the country reviewing many different independent garages I how found that most do not sell more than four hours of labour per technician per day. A low figure which has a dramatic impact on the overall labour rate originally charged.

If your labour rate is say £50 and you are paying a tech to be there for eight hours, the labour rate is actually approx. £25 per hour. That’s called a recovery rate. Now this figure will fluctuate due to many factors like, productivity, utilisation, efficiency of the workshop, types of jobs you undertake, skill level, tooling and equipment that you have and any discounts as well as small repairs (bulb changes, lubricant top-ups) that are not charged for.

WILLING CUSTOMERS
There are many consumers willing and able to pay more for a service or product as long as they feel they have received value for money. I did not want to be in the same bracket as every other independent garage business offering the same services as everyone else not really offering anything different. This is much harder as we are all then trying to attract the same customer and it only pushes labour rates down or they never seem to go up for the right reasons.

The other concern I have with our sector both franchises and independents that advertise lower labour rates advertised for older vehicles. This drives me mad, why should we charge less? Is it because some other technician is going to come out of the tool cupboard who has less skill, paid less, who only works on older vehicles, so we can charge less? Of course this is nonsense, it’s the same techs, their skill level is no different when applied to older or newer vehicles.

I am happy to report that when I sold Brunswick Garage in December 2015 our labour rate was £90 per hour. However our actual recovery rate was £82 per hour, extremely healthy and unmatched as far as I am aware.

My final comment is, whatever your labour rate is, always remember that even if its higher than most, you must be able to justify it if and when questioned by your customers. You must ensure you continually explain the services and products you offer, and communicate the benefits why people should use your garage rather than competitors.

DON’T FEAR CHARGING HIGHER
When I began Brunswick Garage I knew my labour rate (£82) would be way above what other local independent garages charged. The average was around £50 in my part of North London. This did not bother me at all because I knew what I was offering potential customers, no one else could or would match us in terms of facilities, skilled staff, OE equipment and tooling, etc. So my labour rate was set to cover these costs and leave me a reasonable profit to keep investing in my business and people.

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WHEN THE OFFER IS ON THE COUNTER


Pri Chauhan – When you quit, expect a leaving card, cakes…and possibly a counter offer. But can you have your cake and eat it?

counter_offer

When you decide to leave the company you work for, you should expect two things:

A) A massive goodbye cake (probably bought from the local supermarket with petty cash).

B) A counter offer to try and keep you in the business.

If you accept a counter offer, you probably won’t get the cake, but it’s common to receive a counter offer either at the time you hand in your notice or during the notice period itself.

The question is, what does that mean for your decision to leave… and should it stop you from moving on?

You should think very carefully and be sure you have considered all your options. (Unless you are leaving to become an F1 Driver, in which case absolutely nothing should stand in your way). When it comes down to it, only you can make this choice but to try and help, we’ve made a list of the things you should think about:

MONEY
If your resignation was purely a salary negotiation tool, then congratulations: the money is yours! This is not a tactic we would recommend as you risk failing to win a counter offer and having to actually resign when you don’t want to. This happens on numerous occasions in the aftermarket at various levels up to and including senior management jobs.

There are other, safer ways of getting a salary review, like just asking for one. If this is what it takes to be paid what you are worth, you should ask yourself if this is somewhere you want to be.

If your resignation wasn’t all about money then you need to work out what else is on offer. Consider these questions;

1) “What can the company do to reassure me that things will be different?”

2) “What would need to change for me to be happy?”

The truth is that the same circumstances that made you to consider a change will repeat themselves in the future and you need to decide whether more money is enough to make it OK this time around.

JOB SECURITY
In an ideal world a retracted resignation could just be swept under the rug and nothing would change, but once you’ve quit, it’s out there and you can’t take it back. The fact that you handed in your notice marks you out as different from the rest of the team; your boss knows you were willing to leave and that means you have the potential to do it again. If you need to work alone, perhaps outside normal hours, you might find that your boss is suddenly suspicious of your motives – and might ask to ‘borrow’ your key, which funnily enough, you won’t get back. The trust has gone and you might well be regarded as an outsider.

Statistics show the probability of voluntarily leaving within 6 months of accepting a counter offer is extremely high – around 80 percent. The same probability exists for employees being let go within a year of accepting a counter offer so keep that in mind before you turn down the chance to move on.

PROMISES
When it comes down to it, you have to decide whether the offer solves the problems that drove you to resign. With a few unfortunate exceptions, the decision to move to a new company should have little to do with ill feeling toward your current employer, and everything to do with personal growth. The most likely reason for you to have accepted a new role elsewhere is that you considered it to be the right step to take your career in the direction you want.

Before you accept a counter offer, sit down and ask yourself what you want out of life and what you want from your career. Be honest with yourself about what you need to do and where you need to be to achieve your goals. This is by far the most important thing to consider and should be the key influence on your decision.

OFFERS NOT ALWAYS FINANCIAL
Not every company will make a counter offer – and if they do, the offer made might not be financial.

In my experience (writes Editor Greg Whitaker) companies are far more likely to offer a ‘promotion’ to another role, or placate you that jam will be served tomorrow, when there will be more resources available for you to do your job. If you’ve made the decision to move on, as Pri says in the article, you should stick to it. Offers, (including non-financial ones) are rarely made in your interest, they are made because you company knows that it will no be easy to replace you.

For more on the subject, contact Pri on 0845 643 0497 or click pgautomotive.com

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NEXUS DISCUSSES UK AFTERMARKET


Around 200 aftermarket suppliers met buyersNexusUK at the Nexus Business Forum held in Montreux, Switzerland in February.

The Nexus organisation was founded a couple of years ago by 14 European car part distributors, including the UK’s Parts Alliance. Describing itself as a ‘value focussed alliance of aftermarket leaders’ it has already achieved a total consolidated turnover of €7.25 billion in 2015 and has plans to extend this to €9 billon by the end of the next accounting period.

With sums of money this large floating about, it is perhaps no wonder that suppliers were only to keen to get a plane to the magnificent Montreux Palace hotel to engage in complex ‘speed-dating’-style sessions with the buyers. The event left plenty of time for less pressured networking and discussions as well.

In addition to the business meetings a plenary session was held to discuss the nature of the aftermarket including threats and opportunities that would likely happen over the coming months.

The event was well attended by many well-known aftermarket faces. We spotted Peter Sephton and Stan West of The Parts Alliance and GSF respectively, while on the supply side we met Laurence Bleasdale of TMD Friction, Nigel Cole from Denso and Andreas Habeck from Hella among many others.

We were particularly interested to note that an Iranian company, Alborz Yadak Trading, were among the companies competing for the attention of the buying groups. Iran has had a large manufacturing base for decades, but has been unable to trade with Western companies for years due to sanctions. Now diplomatic relations are open again, it will be interesting to see how products from the country are received into the aftermarket over the coming years.

There was also a panel discussion on the threats and opportunities that the connected car can bring.

Gael Escribe, Chief Exec at Nexus described how the reach of the organisation was to cover parts trading over the whole world. “Our vision is for one aftermarket and for Nexus to be a leader and not just a challenger” he said, reminding the audience that since foundation the organisation had achieved 59 supplier contracts and that places such as China that have traditionally been thought of as simply places where parts are made are now starting to consume components from around the world for their domestic parc.

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SUCCESSION PLANNING: WHO SHOULD TAKE THE REIGNS?

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SUCCESSION PLANNING: WHO SHOULD TAKE THE REIGNS?


Perhaps you’ve got one eye on retirement – but is handing over your business to a family member the best plan?

Family businessFor those of you who can still remember being a teenager, you may recall thinking that you would never get old, or if you were going to, it was so far off your radar. However, for those of us who are now of a certain age and can’t remember what being a teenager was like, then we are probably also at a point in our lives where planning for some form of retirement has become a consideration.

Time passes and at some point there is the need to consider succession planning. So that the whole unfamiliar process doesn’t come as too much of a shock, I suggest you take an hour or so today to create a time-based action plan that you can come back to at a later point.

To Explain in More Detail

From your current position, look ahead to decide what you want from the rest of your working life, when you would like to step down from running the business and most critically, if there is anyone who you would like to take the business over from you. This may be a family member, or an existing employee, but whoever you may have in mind, it is absolutely critical that you consider their character traits and business expertise as a potential business owner and their ability to address the changing face of the aftermarket.

  • Do not overlook loyal employees who may be able to take on the running of the business. If they are ignored in favour of an outsider, it may cause damage to your business from within.
  • In most cases, it is likely that you will need to realise some value from your business, either as a direct sale to provide a ‘pension pot’, or as an on-going income stream as part of your retirement income. This is where it becomes much more critical to think things through. If you decide to sell the business (which is the ‘cleanest’ option), then there are two scenarios – firstly, sell on the open market where you will simply want to ensure the best price. In this case, work with your accountant to optimise your balance sheet, profitability and good will value at the time you plan to sell to ensure that the business looks as attractive as possible to a potential purchaser.
  • Secondly, if it is sold to a family member, then there are many other considerations. The most critical is their motivation to take over the business, closely followed by their personal characteristics, experience and ability to actually run the business successfully to pay you the purchase price, particularly if this is over a period of time.

I have experienced a successful business being sold to the founder’s son, only to fail through a combination of naivety, incompetence and the burden of trying to pay back the purchase price over the following years – a very real risk in many cases. This is especially important if you expect them to fund your retirement plans as an on-going concern.

Plan and Minimise Risk

If you decide to let a member of your family run the business, then the first and most critical decision is to ensure that this person supports your future plans and if so, that they are capable of taking over being the business manager. I choose my words carefully, in the same way that you must also choose carefully who to consider. You need a ‘businessman, not a just man who works in a business.’

Choose Wisely

If a family member is going to run the business and pay you from future profits, then choose carefully, as unlike an employee, they would be harder to dismiss if they don’t perform. I would propose assessing against the 16 core competencies of the IMI’s Automotive Management Accreditation (AMA) scheme. In the likely event that some areas of their competencies are weak then help is available to support their development needs. This scheme is based on three increasing levels of management competency, providing the platform to support development as their experience levels grow. An initial on-line assessment is available from MIC Ltd, called AMA Trait that includes a one-to-one feedback session to provide a better understanding of the best development strategy.

Finally, there are two other critical aspects to consider. Firstly, even for a family member, ensure that a formal contract is in place which details exactly what the transfer entails and when it will come into effect. This is necessary for complete clarity and to avoid future disputes. Secondly, there are capital gains tax liabilities on any profit you may generate on the sale. Although there is information on the HRMC website (the tax rate varies depending on the level of profit, so it is vital to discuss this with a specialist tax advisor).

Overall, family succession can be a great solution for all concerned, but you may have to live with the consequences – possibly in the most literal sense ­– ensure that you plan carefully and take the necessary legal advice.

You can find more about Neil’s aftermarket consultancy at: xenconsultancy.com and links to topics mentioned in this article: catmag.co.uk/this-issue

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