Aside from having the sales and costs of goods sold mapped or coded correctly, having your overhead expenses coded correctly is important as well. We’ve explained COGS and how they should land on the financial statement. Think of these as expenses you would have even if you did not fix one vehicle. As a reminder, overhead expenses are things like rent, customer service representative (CSR) or manager pay, electric bill, estimating system, etc. It’s important that we don’t want to muddy the gross profit margins by assigning overhead expenses to the COGS buckets on the P&L. The sales should be broken out into a minimum of six different buckets - labor, parts, paint and materials, sublet, towing and other. Let’s take a look at what a suggested P&L should look like. So, if you have sales in labor, parts, paint, sublet and towing, the P&L should also have those exact expense categories. A rule of thumb is to add an expense category for each sales category. Any expense that is part of the repair should be categorized as a COGS item. Typically, at the end of the month, the sales and costs are exported into the accounting system (Tally, Zoho, etc.), where the sales and some repair order costs are accounted for. The expenses are also broken out between categories - labor, parts, paint and materials, etc. You order the parts or assign labor hours based on that decision, and the repair begins. When you make decisions such as replacing a part or repairing the damage, you’re choosing a category of revenue - labor, parts, paint and materials, etc. When a vehicle is dropped off at a repair facility, an estimate or repair order is created in the operating/estimating system (Audatex, OEM DMS, etc.) to plan out the repair. These are expenses that are associated with the repair of the vehicle. The first set of expenses we’ll talk about is COGS. A little later, we’ll take this a step further and get more detailed within those two overall categories. All bills/invoices are either entered or coded to one of these two categories. A high-level look at the business separates out the COGS from the overhead expenses. For example, a technician’s payroll expense is separated from the office supplies purchased so that management can review expenses correctly. Chart of accounts is basically the buckets or categories where expenses are assigned. Further, understanding the chart of accounts aids in creating an accurate P&L statement. It gives management and ownership the roadmap of financial performance and helps with understanding the financial health of the business. Knowing the difference between costs of goods sold (COGS) and overhead expenses is important for body shop owners because it gives them the ability to create a P&L statement that’s accurate and precise.įor many reasons, having a clear layout of the P&L for the business is necessary. To set up the P&L, it’s important to understand the different types of expenses and where they should fall on the financial statement. Setting up a profit and loss statement (P&L) for a body shop may seem cumbersome, but once an owner understands a few key strategies, it becomes simple - and then allows management to focus on running the business.
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