The unseen concerns surrounding late repairs

Aug. 2, 2019
An unseen concern that most don’t pay attention to is cash flow. Cash flow is generated by sales, and the timeliness of those sales is what keeps a business fluid.

Some of the concerns surrounding late repairs are very visible while others are only noticed by a few. We can see the grimaced face of the customer service representative as they are discussing a late repair with a customer. We can hear the reasons for the delayed repair from the production manager during progress and release meetings. We can see the red on the management system screen when a vehicle has not progressed to the next repair phase on time — but what about the issues that aren’t quite as evident?

An unseen concern that most don’t pay attention to is cash flow. Cash flow is generated by sales, and the timeliness of those sales is what keeps a business fluid. While front office and production staff concentrate on moving a repair through the shop, accounting is working to keep the business in the black.

I’ll use a simple four-day repair that gets delayed for three days to illustrate some concerns.

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The first unseen concern is in labor expense paid out without a sale completed. Payroll is one of the largest expenses in a shop and it requires stable cash flow to ensure employees are paid on time. This repair was originally due out on Thursday with Friday being a scheduled payday. Even though the repair is delayed, a portion of the repair has probably been accomplished with a technician expecting to see the labor posted in their paycheck. One repair might not stress cash flow; however, multiple late repairs could quickly take things in the wrong direction.

A second unseen expense is related to parts purchases. Some shops pay for parts as they arrive, others are billed with payment that is due by the 10th of each month. Let’s look at how that delay will affect parts and follow that same four-day repair schedule. In this instance, the repair was scheduled to be delivered by the end of the month but the delay pushed it into the following month. If those parts were paid in advance, there is a purchase without a sale recorded; if they were invoiced, a bill has now arrived with payment due by the 10th without a completed repair sale posted. In an accountant’s world, a purchase and the related sale should happen in the same month of business. Delays disrupt this process, requiring adjustments to keep a business’s books in balance and cash fluid.

When a customer talks to me about low paint gross profit, one of the first things I look at is cycle time. It seems odd to the customer at first but once I explain it, they see how it relates. As with labor and parts, paint products consumed must be balanced by a sale. When a repair is late it is reflected in cycle time. With cycle time out of balance, paint consumption can occur in one month with the sale in another. This creates a roller coaster effect in paint material gross profit levels, which is echoed in a decrease in cash flow because of payments posted without a sale.

Some believe that cash flow issues balance out over a couple of months and don’t give them much concern. Other businesses operate month to month and see it as a problem but do not make the connection between delayed repairs and their poor cash flow. Knowing how late repairs affect the stability of a business’s cash flow is key to sustainability. I think a lot like an accountant and believe that each month should stand on its own with balanced debits and credits and stable cash flow.

It is said that knowing about a problem is the first step in resolving the concern. I encourage all shop owners to look at their repair delays, how many are started in one month and completed in the next. Your cash flow could be affected by these delays and taking steps to correct them could make great improvements for your business.

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