Paul D’Adamo, “Core Hunter” at Rebuilders Automotive Supply (RAS), based in the US, discusses how using the profit and loss model could be of benefit to the overall profitability of your auto recycling operation.
As I travel the Trade Show circuit throughout the US and Canada, recyclers say that parts sales are off the charts! While the news is very exciting, I’m also hearing that labor availability and labor costs have skyrocketed, while scrap prices have turned in the other direction. Compound the labor situation with record inflation, and you will see that my topic is timely and extremely relevant. Bottom Line – Is your business profitable? How do you know?
Most auto recycling businesses are not run by CPAs or Financial Analysts. We are entrepreneurs who have always managed to be profitable by squeezing the most out of what we had. Our business has become more complicated over the last couple of decades. Basic business tools like a P&L (Profit & Loss Statement) are critical to knowing what is going on in your business. The idea of using your chequebook balance as a measure of your profit isn’t accurate and can lead to wild swings in managing your business.
In the 90s, when I attended ARA and URG Conferences, Jim Counts drilled a couple of sayings into my head. “Are you running your business or is your business running you” and “It’s not what you make, it’s what you keep.” With that in mind, I made it a priority to attend every seminar related to financial matters. Over time, I transitioned my business from “chequebook balance” mode to a “P&L” model.
Is Your Business Profitable?
There is a reason they call the Bottom Line. . .the Bottom Line. It’s called Net Profit: Income minus Expenses. However, the organization of the P&L is critical for us non-accountant types to understand how we run our business. Having your key income and expense line items appropriately organized allows you to see your revenue streams while also managing your expenses. Do you know what your current labor costs are? If you dread looking at your monthly P&L, this is a WAKE-UP CALL to make a change!
Change will not be easy. This is hard work as your current bookkeeping has been in place for years. Need some guidance? Email me for a “model” P&L Statement. It’s not perfect, but it will give you a comparison to your current statement. My model statement is categorized and prioritized to the needs of your business.
During my two years of consulting (post-Pick-n-Pull, pre-RAS), I found that most recyclers’ P&Ls were not used, primarily because they were not organized. Accounts were in the wrong place, income and expenses were miscategorized, and while their accountant could pull enough information from them for tax purposes, the document was useless!
What’s In It For Me?
While I want you to await next month’s P&L anxiously, I have a selfish interest in this endeavor. Your P&L should have a breakdown of your “non-parts” revenue stream, including scrap, cores, converters, commodities, and recalls. Once you see the percentage of income for non-parts sales, you can better maximize opportunities (wink, wink – keep me in mind). Most recyclers will be surprised how much revenue comes from non-parts revenue. . .but you will never know unless your P&L works correctly.
Questions on Cores, Recalls, or Converters? Contact Paul at email@example.com