Cut your costs


As supply chains return to pre-COVID levels and we have the option to stock up on inventory for our best-selling parts, we likely need to free up some cash to make those big purchases. You can apply for credit cards, negotiate account terms with your vendors, or cut costs – all of which give you more funds to play with for inventory.


When I work with a shop, profitability is always a high priority. Here are three places I look to find cuttable costs and additional funds:


Prepaid charges

When the money is out the door, it’s easy to forget about it. However, have you ever paid for 12 months of a service, only to stop using it after 3 months? Don’t forget to cancel that service and recoup some of the money you spent.


Many vendors will take annual payments with easy cancellation policies, knowing that few people will actually go through the effort to cancel. On the other hand, software companies usually have a no refunds policy on their annual subscriptions. This money, in my experience, is not worth fighting for. Cancel the auto-renewal and move on.


Look at your last 12 months of spending. Filter out your parts purchases, rent, and employee costs, which leaves you with only other fixed and variable expenses that can potentially be cut. This is where you’ll find prepaids eligible for refunds.


Deposits

Did you place a large buy-in or deposit with a vendor or insurance company? Negotiate to cut those numbers down to free up cash. This money will show up in the same filters I described in the last paragraph, but rather than a refund for unused services, you’re now negotiating for a reduced deposit.


Emphasize that you’ll be using some of the freed up cash to spend more with that vendor – after all, you’re looking to stock up on inventory. Your vendors will be more receptive to this sort of negotiating tactic than any sort of threats.


Where’s the value?

Go through all your purchases and answer the following question: did this bring value to the shop? If your answer is no and you’re due to make that purchase again, get rid of it, quickly!


Your goal should be for everything you spend to generate a return on investment. You buy inventory and sell it for a profit. You pay employees and they generate more revenue than their salary. You pay for software that saves you 5 hours a month to spend with your family or optimizing your business in other ways.


Everything you buy should give you a return on investment. It may not always be monetary, but I challenge you to provide a solid, confident answer on every one of your purchases.


This audit will not only help you cut costs, but also figure out where your business could do with generating greater value. Maybe your customer service needs some investment, or your equipment is slowing you down. This approach will help you find new ways to use your freed up funds.


In conclusion

Get creative when cutting costs. Look for prepaid annual charges, deposits, and value-less payments that you can cut or cancel.


Let me know how it goes – email me at arun@drivenperformanceadvisors.com.


Driven Performance Advisors

Driven Performance Advisors creates profitable, efficient, and stress-free $5M automotive aftermarket shops. Subscribe to DPA Weekly at drivenperformanceadvisors.com/dpaweekly.

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