February 2006

NEW YEAR RESOLUTION: By now we are well into 2006 and, I no doubt, many New Year resolutions will already be rather tarnished. In fact it's sad to see just how quickly the optimism of early January can fade away as familiar circumstances blunt the edge of enthusiasm. 

So, rather than think about the things we cannot change, why not look at one that could be addressed?  In Management Matters, (on this website) I mentioned how it depressed me when I asked bodyshop owners to show me a copy of their business terms and conditions. Every organisation that a bodyshop deals with has it's own terms and conditions. Tax man, bank manager and work providers all "lay down the law", so why don't bodyshops attempt the same? No, I'm not advocating militancy but simply suggest that the next work provider, seeking to place work, in return for reduced margins, is presented with a reasonable set of requirements actually tailored that meet the bodyshops primary needs.

SURVIVAL: Sadly, as 2005 saw no let up in the decline in bodyshop numbers should 2006 be any different? For the unwary, never fall into the trap and assume that being busy must guarantee being profitable. Last December a quality repairer, while admitting to being in difficulties, asked me to make contact in early January. Alas my requested telephone call was answered by the Receivers! Another owner, while professing to be busy, felt that making two productives redundant would be the answer. Without control, and a good margin of gross profit, negative cash flow will inevitably become the killer. While Management Matters could be helpful to many bodyshops, please be assured that a sympathetic, and confidential, ear can always be found by ringing the Bodyshop Fellowship.

HOW MUCH LONGER? A client recently asked me to review, and comment, on a work provider contract. Ultimately the usual dictates of "thou shalt do this, and that, and that" lead to the crunch of 10% off the bottom line and payment within 45 days. 

Yet, as we know, any discount given cannot come off the bottom line. It can only come from the margin of gross profit. Given that the bodyshop is making a clean gross profit of 30%, the discount comes from here. Financially this would equate to a £1,000 job (excluding vat), making a gross profit of £300 from which the £100 discount is then deducted.

Therefore, as one can see, the 10% discount actually works out at 33.3% off the gross margin. Moving forward, if the bodyshop is "on overdraft" further charges are incurred of around 2% -3% over base rate. Then, if permitted to factor, a further 2% to 3% would also be added on.

Right, that's only half the story as things will get worse because, while waiting 45 days for their money, the bodyshop will:

• Have to pay their productives, weekly or within 30 days.

• Have to pay their parts suppliers within 30 days.

• Have to pay their paint distributor within 30 days.

Wonderful. All this is from a diminished gross profit margin linked to a blind belief that the payment will actually arrive on day 45. Not an original thought but, as the agony goes on for the bodyshops, is it not time for the work providers to expect policy holders to share a bigger burden of the repair costs, by realistic premiums?

FACTORING: Am I the only person who finds the "anti factoring" stance of several work providers more than unhelpful? At the risk of stating the obvious, with  bodyshop margin's slim to non existent, the added burden of restricted cash flow is a "bridge too far". As many bodyshops have capped overdrafts, how can they ever expand, without additional capital or by speeding up cash flow? As there are many professional factoring companies, who provide bodyshops with a first class service, ought not these companies be given the freedom to help rather more bodyshops?

As I said to a bodyshop owner the other day "Wouldn't your cash flow be easy if every job was paid, in full, with a credit card on collection?" Okay, this incurs a small percentage charge, just as factoring does, but is there any real difference?  In both cases the money, less 3% or 4 % is banked within days.

THE NEXT GENERATION: Because customers, and work providers, will always need a vibrant bodyshop industry to support them, where will the next generation of productives come from?  Therefore, as work providers must have a steady platform of repairers, might they contribute towards the cause, perhaps by sponsoring apprenticeships within their approved repairer networks?   Could we not have some sort of "quid pro quo" arrangement whereby bodyshops, that legitimately employ and train apprentices, could be freed from the burden of having to give work providers discounts?