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I heard of someone else using this:

20% cost of goods sold

20% production labour cost

40% operating expense - includes non production labour

20% net profit

 

I don't know if it's accurate or attainable, but just another point of view.

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While preached by many, I feel 20% net is a poor goal unless one likes paying a ton of tax. I try to keep net about 4-5% max. The shop can use a new truck, another employee, and new equipment more than it can use a 35% tax bracket.

I think the point is to have 20% net profit "in hand," then use it at your discretion for shop improvements in the places it will benefit you the most.

Shop tools, building improvements, training, computers, inventory are all good places to look at. How about profit sharing with your employees??

 

Ps. Canada only has a 15% corporate tax rate, much nicer then 35%!

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The 5% Net profit is a good way to look at it for tax purposes. Just pay yourself more to get the lower percentage of taxes owed. Than put that money in savings just in case it is needed.

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While preached by many, I feel 20% net is a poor goal unless one likes paying a ton of tax. I try to keep net about 4-5% max. The shop can use a new truck, another employee, and new equipment more than it can use a 35% tax bracket.

 

What! You want less net so you don't have to pay taxes! If your personal tax rate is 35% then you still keep 65%. You are mixing up

business and personal taxes. A business that is Sub-S, LLC or a Sole Proprietor puts all profit to the owner's 1040. When you buy all the stuff you need, what do you do then. Cut your prices?

 

I must not understand your reasoning.

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  • Have you checked out Joe's Latest Blog?

         5 comments
      I recently spoke with a friend of mine who owns a large general repair shop in the Midwest. His father founded the business in 1975. He was telling me that although he’s busy, he’s also very frustrated. When I probed him more about his frustrations, he said that it’s hard to find qualified technicians. My friend employs four technicians and is looking to hire two more. I then asked him, “How long does a technician last working for you.” He looked puzzled and replied, “I never really thought about that, but I can tell that except for one tech, most technicians don’t last working for me longer than a few years.”
      Judging from personal experience as a shop owner and from what I know about the auto repair industry, I can tell you that other than a few exceptions, the turnover rate for technicians in our industry is too high. This makes me think, do we have a technician shortage or a retention problem? Have we done the best we can over the decades to provide great pay plans, benefits packages, great work environments, and the right culture to ensure that the techs we have stay with us?
      Finding and hiring qualified automotive technicians is not a new phenomenon. This problem has been around for as long as I can remember. While we do need to attract people to our industry and provide the necessary training and mentorship, we also need to focus on retention. Having a revolving door and needing to hire techs every few years or so costs your company money. Big money! And that revolving door may be a sign of an even bigger issue: poor leadership, and poor employee management skills.
      Here’s one more thing to consider, for the most part, technicians don’t leave one job to start a new career, they leave one shop as a technician to become a technician at another shop. The reasons why they leave can be debated, but there is one fact that we cannot deny, people don’t quit the company they work for, they usually leave because of the boss or manager they work for.
      Put yourselves in the shoes of your employees. Do you have a workplace that communicates, “We appreciate you and want you to stay!”
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