Auto repair shops are cash intensive and usually have a lot of moving parts (pun intended!). From regulations and licensing fees, to local and state taxes for operation, to the sometimes complicated transactions between you and your customers, the economics of running an auto repair shop can get pretty complicated and hard to follow. However, with a good accountant and some organized bookkeeping, there are tried and true ways to keep your shop afloat and even achieve a thriving business.
In this article, we’ll take a look at some of the most common cash flow issues that auto repair shop owners face, and provide a few suggestions on how to avoid them.
What is Cash Flow for an Auto Repair Shop?
For any small business cash flow is simply the amount of assets (income, inventory, cash in the bank, etc…), minus your liabilities (long-term payments like business loans, licensing fees, lines of credit, etc…). The difference between those two factors is your remaining cash. The goal of any business is to make profit, or to be cash positive. So if expenses exceed the amount of income the business is making, that’s a cash flow problem.
Problem #1: Long Payback Periods
One of the most common cash flow issues for auto repair shops is how long it takes between providing a service and receiving payment in the bank. Most people use their car insurance to make claims and pay for repairs, and the back and forth between insurance providers often takes several days and weeks before money is allocated to the shop. Also many repair shops use invoicing systems to charge customers for extensive work and offer extended payment plans for larger bills. This creates a delay in when the shop gets paid and by extension the technicians.
Problem #2: Essential Business Operations Costs
By this we mean taxes, salary for your technicians, budgeting to buy inventory for different car parts and anything else that keeps your business running. Most of these expenses come before the customer’s money actually hits your bank account.
Problem #3: Seasonal Business
A major factor in cash flow for auto repair shops is that, depending on the location of the business, most shops have a busy season in the warmer months and slow business in the fall and winter. Most people bring their cars in for repairs and routine services during the warmer months when there are generally more road trips happening. During the holiday season and the colder months, car travel is generally light, which means less business for the auto repair shops, and a subsequent gap in cash flow during these times. To cover these slow months, there are a few things you can do.
Hopefully these solutions provide some clarity on what you can do to avoid the most common cash flow issues for auto repair shops. Every business has its challenges, but with some smart budgeting and preparation, there is always hope to grow a thriving business.