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The Joy of Understanding the Financial Statement

I understand that not every dealership shares the complete financial statement with the service manager. Some give the manager just the two pages that relate to service. Some use a DOC that only gives them service information on what the GM feels is important.

Regardless of the information that the manager receives, the question is this: Do the service managers understand what they are reading? Since many service managers have been promoted from technician or service advisor positions, my personal experience would say that they do not. The question that arises then is this: Have they been trained on what the financial statement or DOC is trying to tell them?

Some service managers have access to see all the charges on a particular line item on the statement. Others need to ask the office manager or the GM for that information. Some managers that I met had access to this information and did not know that. Others just assume that they know everything that is in the service policy financials. Does this make them a bad manager; of course not. But it does leave room for improvement with training.

Once the manager breaks down the financial information line-by-line, he or she will realize that each line is pointing at a potential problem area. For example, if the line for service policy is trending upward, is it just bad luck, poor training, or perhaps excessive goodwill? All of these could be true, but probably not. The financial line item needs to be broken down by the individual charges that make up the total of the service policy line. Then the manager can see what is driving the excessive charges of the service policy line.

The prior example was showing an area concerning the service policy. Let us look at the area concerning personnel expenses. Is the personnel expense line climbing month-over-month? If the gross profit of the department is growing, then an increase in personnel expense could be normal. If the gross profit is trending downward, but the personnel line expense is growing, then maybe it is time to break down the data in the personnel expense line.

Another story on the financial statement is the line concerning unapplied time. The reason unapplied time is my personal favorite is that each dealership seems to have its own personal plan to keep the unapplied time down. I have had dealerships with 5-figure unapplied time payouts and dealerships with 0 dollars in unapplied time.

Let me take a moment and define unapplied time: Money paid to technicians is NOT collected on repair orders. It is just that easy to define but not so easy to control if you do not understand what is driving the unapplied time. It is almost impossible for unapplied time to have a true total of 0 dollars on the financial statement. Some stores have techs with guaranteed income, but don’t consistently reach their hourly goal to cover the expense. Other stores have bonus systems for the techs that incur a charge to the unapplied line. The ways to work with the unapplied time financial line are extensive. Some stores overcost for unapplied time with accounting changes in the DMS to cover the expense. Other stores believe their unapplied time is excessive but do not try to analyze it. How do we manage something we don’t analyze? The financial statement is pointing out the numbers on the unapplied line and asks to come up with a plan to lower the charge.

The facts remain: the financial statement tells a story. I have only gone over three areas of the finances that the manager controls; however, the service manager has many areas to make continual decisions on every day. With more knowledge of how their decisions affect everything on the statement, then the better decision they will make.

The service manager has two primary missions at the same time: Keep the dealership’s CSI as well as the service department’s net profit as high as possible. The financial statement contributes to this process.

Reach out to us here at M5. Let us work with the managers in the fixed operation departments. We will raise their financial knowledge, so they can work on the financial problems in their departments. The knowledge we teach and the changes the managers make from this knowledge will be well worth it.

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