Ways to better manage money for auto shops

Are you one of the small auto shops in the local neighborhoods? Then, chances are you are charging far less than the actual worth. This happens a lot. Too many of the services are undercharged, but due to the recurring expenses and worker shortages, as a shop owner, your first concern is to manage cash flow. More often than you may wonder why you aren’t able to pay bills despite charging the rates.

Well, the problem runs deep when you are unable to bring in more revenue. If you are not earning more profit, the business will not grow, period. Or your capital might be tied to banks, and you need cash to expand to reach a break-even point.

You need to draft a strategy, reassess your assets and tools, and plan accordingly to have better control over short-term operating cash flow.

To make it easier on you, in this blog, we have highlighted some serious techniques that have proven fruitful for businesses similar to yours to keep pace with their bottom line.

What is the cash flow system?

In simple words, it is the cash and equivalent items to cash that are transferred in and out of your business on a daily, weekly, or monthly basis. A positive cash flow means your business is bringing in more money than its expenses, while a negative cash flow means your expenses are higher than the incoming cash.

There are other factors involved in the cash flow system, like how quickly a customer pays you and how quickly you invest that money in the business. The important components of the business cash flow include;

Velocity: The time between ordering raw materials and collecting payments for finished products.
Volume: How well the materials and labor costs are managed drives the profits.
Indirect costs: Like raw material spoilage, low inventory, idle workers draining resources, etc.

You need to better manage these components with an auto repair billing solution to control the financial system of your auto shop. It’s a common practice for auto shops to use such tools to keep a close track of bills, invoices, and cash flows.

5 Ways to better manage money for auto shops

It can take some time for money to reflect in the accounts. Instead of worrying too much about it you can practice these steps to better manage the cash flow:

Plan the payment mode

It’s best to have a mode of payment protocol set at the time of initiating the business. In the beginning, you can start with cash payments if cashless payments seem a bit much. But using auto repair billing solutions can help you with managing cashless payments by tracking invoices and ensuring payment reminders.

You can decide how the customer will be paying for the services and repairs, i.e., with cash, debit/credit, or some other mode of payment.

In case you practice extending lines of credit, you need to stop practicing it right away. In certain circumstances, if you have to grant it, then it should have a stringent credit application process so that the customer knows it’s a serious thing. And that they have to follow up with the payments on time.

Manage reporting

Financial reporting can slip if you are doing it manually or using an outdated system. If this is the case, you need to switch to an advanced software that helps generate financial reports. It is essential to keep track of your financial health to ensure sales, expenses, and income are on track and nothing is amiss.

This way, you can pay closer attention to your profit and loss account (income statement) so you can also plan which expenses to hold off and which to spend money on. You can also track viability on the short-term cash flows by better managing your bills using the billing software.

Work on your receivables

What happens when some customers take more time to pay you? Talk about a chaotic cash flow, especially if you have recurring expenses on spare parts and need to make payments to your vendors. It will be a messy situation to be in.

Always ensure your invoices are professional and digitally created rather than manual. If a customer is paying on time, offer them discounts so they are motivated to pay you ahead of time, even if it’s for a minor repair.

Customers with bad credit are not worth the hassle. So, referring to our previous tip, avoid offering services to them on credit.

Explore the pricing

How well you charge for the repairs and inspections depends on you as well as the demand in the market. Let’s say a customer tends to pay easily if a service costs more, making them believe it’s worth the hassle based on the quality and uptime you provide.

To make this happen, invest in the right tools like digital inspection tools (DVIs), analyze competitors’ pricing, and the customer’s spending power, too.

You could increase or decrease the price and offer discounts after doing your research. Find that sweet spot that would make the customer keep coming back to you.

Take care of payables

It’s not only about managing the money you are bringing in, but also about what you are spending. While the automotive repair industry is expected to grow by USD 93.19 bn during 2022-2027, you can’t become part of that growth unless you eliminate unnecessary costs.

Look for ways that make payables more effective, like moving to the cloud and migrating to online payments, so cash flow isn’t lousy. A friendly connection with suppliers can work in your favor when negotiating better payment terms, too.

Always review your finances

Every business hits bumps on the road, and it’s common. But how quickly you jump back up matters the most. Always keep a closer look at your books, and when things don’t add up, reassess your plans and strategize again.