Your auto repair shop may be making a gross profit but how is your profit margin? This is a good measure of how efficiently and successfully you are running your business. Knowing how to assess the four principles of profit via the different aspects of profit margin in your auto repair shop business can make the difference between normal to poor profits and exceptional profits.
The four aspects of profit margin that are important for your business are the gross profit margin, operating profit margin and its growth, and the net profit margin.
Your gross profit margin is good indication of the efficiency of your auto repair shop in providing services in relation to your overall revenue but it only takes into consideration the costs of the goods and services that you sell.
To obtain your gross profit margin as a percentage, take your net sales and subtract how much you paid for materials and then divide by the net sales. This percentage will vary with your costs for parts and labor and the mix of jobs that you are doing. It is a handy measure of job efficiency. The higher that your gross profit margin percentage is, the more efficient your business is. At Exigo Business Solutions we try to educate our clients in ways to identify and fix hidden costs of doing business. Knowing your gross profit margin is a good tool to help spot problems in efficiency and perhaps hidden costs. The next step is to calculate your operating profit margin.
You can use your operating profit margin to analyze how profitable your business operations are. It includes overhead and costs of goods sold as they relate to your revenue stream.
Your operating profit margin gives you a better view of how well your business operations are going than either the gross profit margin or your gross profit. This measure includes business expenses like rent, telephone, internet access, and other utilities. However, this measure does not include taxes, amortization, interest on loans, or depreciation.
Your net profit margin measures the overall profitability of your business. It is the number that you want to look at to be sure that all of the work you are doing and investment that you have made are worthwhile!
Unlike your operating profit margin, this measure includes all expenses including taxes, amortization, depreciation, and interest on your loans.
You should always look at your profits and margin of profit measurements over time. When you see problems and institute fixes, you need to see positive results.
In order to grow the profits of your auto shop you need customers, sales, and a firm handle on expenses. At Exigo Business Solutions we are not just the top accounting firm in the Kansas City area. Although we will do an excellent job keeping your books and doing your taxes, we help our clients make their businesses more efficient and profitable. The tools that we apply to this task include the Fix This Next approach to managing business problems, the Profit First method of managing your cash flow and budgeting to guarantee a profit, and a wide assortment of intelligent business tools like QuickBooks to help you better manage your business.
The Fix This Next approach to managing your business helps you fix nagging problems that otherwise soak up your time and energy. It does this by identifying the most basic business issues first and foremost. This system looks at what is called a business hierarchy of needs starting with sales and profit and working its way up to business organization, business excellent, and business permanence. A key feature of this approach is that after identifying problems and fixing them, your Fix This Next coach will help you set up efficient and effective tracking systems to keep problems under control and let you get back to running your business more profitably.
The basic way that bookkeeping is done looks at income, subtracts expenses, and sees profit as something that is (hopefully) left over in the end. The Profit First system takes your income and subtracts your profit leaving your expenses. This system accomplishes two things. It puts money into your pocket every month from when you first start your business. And, it forces you to look at hidden costs and problems in order to stamp out unnecessary expenses. Profit First makes profit a habit and not a matter of chance.
We have found over the years that using a mix of these tools results in an organized, successful, and profitable business.
This is the question that we posed at the beginning. If you are not sure or not sure how to steadily improve your profit margin and your profits, contact us today at Exigo Business Solutions.