Last year I had the privilege of`appearing on @carmcapriotto podcast, Remarkable Results. We had a fantastic time talking about how to take care of your business finances and a few things you need to know to have a successful business. Here are a few of the points we discussed.
Know Your Break Even Point
The first thing you need to know about your business’ finances is what your break even point is. What is the point where your income and your expenses balance out? In other words, at what point do you actually start to make money?
To know this number you have to know your expenses. What are your fixed expenses (the expenses that stay the same every month like rent and to some extent utilities)? What are your variable expenses (like labor, parts, and equipment)? And what debts do you have to pay? Once you put together your list of expenses, you can then begin to calculate how much money you need to make just to hit the $0 mark. And from there you can start to build a plan to make money beyond that.
Know How to Make Your Income
You also need to know how your income is broken down. For most mechanics shops that I have worked with, parts and labor are each about 50% of the income. But if you look more closely, certain services and parts are more profitable or make up a larger percentage of your sales. Knowing those details will help you decide how to grow beyond the break even point.
And if you have a business coach who is helping you, you can use their advice combined with your knowledge of where you income comes from to make strategic decisions for the direction and goals of your business
Know Your Accounts
The last tip that I shared on the show is to know your accounts. You need to know where your business is as you go and not only when you are looking back through your purchases. It helps to have a bookkeeper who can help you keep on track and flag any issues they see as they come up.
You also need to have the right model for your financial planning. Although I am not a financial advisor and cannot tell you which model to take, I have seen my clients succeed with a profits first model. With the right model for your business, you can improve your strategic decisions and not only focus on paying the next bill.
Additionally, you need to have your accounts in order. It helps to have accounts set aside for distinct purposes. I have seen successful companies have separate accounts for purchasing, payroll, taxes, and other types of expenses.
Success Takes Work
These points are only the tip of the iceberg. You need a lot of other things in place to build a financially stable business. It takes a lot of work but it is worth it. We talked about these points in a little greater detail on the podcast so make sure you check it out here.
And if you have any questions about how you can build a financially stable business (especially in the automotive service industry), please let me know. I would love to see how we could help!