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Auto Repair Shops Could Use Accountants’ Help

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By Michael Cohn
February 4, 2014

Automobile repair and maintenance shops are recovering slowly from the recession and could benefit from more help from their accountants, according to a new report.

The report, from the financial information company Sageworks, found that while privately held companies generally continued to post sales gains last year, many industries—including auto repair and maintenance—are seeing their growth rates slow from 2012 and 2011.

“Slowing sales growth can present operational challenges for an accounting firm’s clients as they balance efforts to continue increasing sales with the need to keep expenses in check,” said the report.

However, those kinds of challenges can also provide opportunities for accountants to help their clients plan ahead and revise their business strategies if necessary. By reaching out to clients in industries where sales are slowing, an accountant can not only offer additional business advisory services, but also be considered a more valued and trusted advisor.

A financial statement analysis by Sageworks found that sales at privately held auto repair and maintenance shops increased, on average, 1.7 percent during the 12 months ending Jan. 23, 2014. That annual growth rate turned out to be the smallest sales increase since 2009, when sales declined for auto repair and maintenance shops, and is a little more than half the rate of sales growth in the industry in 2012.

Meanwhile, profitability at auto repair and maintenance shops generally has remained healthy. Pre-tax net profit margin, on average, was 9.1 percent in the most recent 12 months and was well above the averages for 2012 and the last five years. Profits for the average auto repair and maintenance shop in Sageworks’ database increased 18 percent in the last 12 months.

The increasing profit margin appears to have flowed through to the balance sheet in the form of current assets such as cash, inventory and accounts receivable, helping provide more liquidity in recent years. The average current ratio was near 3.4, and the quick ratio was approaching 2.4, Sageworks noted. 

Sageworks suggested accountants use financial analysis reports and industry data to help their clients in such industries. They can then benchmark the company’s sales performance to its industry peers or to peers in various sub-industries. For example, specialized repair shops posted generally weaker sales growth than general auto repair and maintenance shops. Knowing which segments of an industry are outperforming others can help the business and its accountant develop both short- and long-term strategies for improving performance.

Accountants can use such data to identify any expense areas that are tracking above or below industry averages, enabling the client to make adjustments to keep costs contained or to spend additional money in areas, such as advertising, that could boost sales.

Accountants can also project the expected results for the client based on the most recent financial statement. They can add extra value to their engagements by showing clients the potential impact on their results by changing specific line items, such as the impact on profits of increasing sales by 1 percentage point, Sageworks suggested.

The Sageworks data examined financial statements in the 12-month time period between January 2013 and January 2014. For more financial metrics on this industry or 1,400 other industries, visit Sageworks’ Industry Data for CPAs.

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