Forecast Fixed-Ops Finances
By Lee Harkins Ward's Dealer Business, Sep 1, 2008 12:00 PM

Fixed-operations financial forecasting can be a task for dealerships. Managers often get overwhelmed with bringing all the components together.

Even if a forecast is completed, the big questions are: Will it be right? Will I be able to hit it? How can I make my wish become reality?

As the dealer or general manager, you have a responsibility to your managers to lead them though the process of financial forecasting, a prediction of future profit or loss.

It must be based on a logical review of history along with the anticipated results of certain planned events. The forecast must be based on realistic data.

The foundation of performance in a service department is based on two simple elements: Flat-rate hours and effective labor rate. Flat rate hours multiplied by your effective labor rate equals sales. Sales less cost of sales equals gross profit, and gross profit less expenses equals net profit (or loss).

Overlooked in many forecasts are the hours produced by the technicians. Simply basing your forecast on past performance using the numbers from the same month last year with a 10% increase is nothing more than a wish and a prayer.

I had a call from a talented fixed-operations manager, Charles Sigmon of Anderson Automotive in Raleigh, NC. He and I discussed better ways to retain technicians.

My suggestion was to develop a year-end bonus plan beyond the technician's normal flat-rate plan that was driven by performance. Have each technician forecast their own performance for the next year. Pay their year-end bonus based on their accomplishment of their forecast. The advantages:

• You develop a long-term retention tool for the technicians — they must be employed by the dealership at year-end to receive the bonus.
• You are training your technical staff on the importance of forecasting.
• You develop a realistic department forecast that can be measured all the way down to the individual technician.
• You track actual performance toward objective at any time during the day/month/year.
• You see why, or why not, the forecast was achieved.
• No more shell games! You know where the nut is!
• An increase in production can translate to: more customers served; added convenience for your service customers; and more customers on the lot.

Using this approach may change the entire accounting system you have for production measurement and management in your service department. Here are three must dos:

1. Each technician must have a daily forecast number or production objective. Weekly is OK, but daily allows you to see the production plan more clearly.

   • Complete a summary of production for each technician. Start by listing their hours by the day, week and month for the prior year. Then determine realistic production objectives for the forecast year. If the technician was not present in the prior year, determine (with their input) a daily production objective.
   • Review with the individual technician the objectives of the incentive process and explain how the forecasted hours and numbers were determined; why are we implementing the new incentive plan; and what's in it for the technician.
   • You may want to add these options for your incentive plan. Performance: Measured daily and the incentive will be paid quarterly or annually. Qualifiers: Fixed-right-first-time scores must be at a pre-determined level and attendance must be at a pre-determined level.

This provides you with a starting point in your forecasting process. It should be beyond being just a wish list. Knowing why you hit the numbers is as important as knowing why you did not.

Lee Harkins, president of ATcon in Birmingham, AL, is an industry consultant and speaker. He is at 800-692-2719 and LHarkins@ATconSSE.com.

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