Susan Johnson was VP of Finance at Moore Automotive, a performance and service shop in Fairfax City, Virginia, outside Washington, D.C. She had a degree in accounting and nearly two decades in finance. She started at a CPA firm, then built and fixed accounting departments for small companies in defense, agriculture, wine distribution and construction. Her husband Bill had bought Moore Automotive in 2007, and Susan joined him in July 2015.
In 2017, when she talked with host Kevin Dubois, Moore had about six and a half full-time people and was at capacity in its old building. The owners had bought land and were planning a 10,000-square-foot shop. Most guests ran the wrenching side. Susan ran everything else.
This episode covers the back office, from simple books and gross margin on long jobs to employee handbooks, unemployment tax, building layout and lean inventory.
Buying a shop instead of starting one
Moore Automotive was founded in 1985. After the founder passed away, his family put it up for sale. Bill, who had been burned by a couple of performance shops on his own car, bought it in a stock deal. That meant he took on the whole company, including the customer list and the name. Susan said the appeal was low risk. The business already had revenue from regular maintenance on Toyotas, Lexus, Hondas and Acuras, plus staff and infrastructure, while the owners built a performance side. They hired Chris Hoover, a technician and tuner they knew from high school, bought a dyno and grew the Evo business by word of mouth.
Kevin asked how to value a service business. Susan said it usually comes down to a revenue factor plus the value of the assets and the intangibles. The customer list is the big intangible. Kevin added that a customer list without phone numbers, emails or addresses is worthless. Since maintenance customers rarely follow a shop that moves, Susan said a leftover list might even be worth selling to a shop in the old area.
Set up the books simply, then read gross margin
Susan said good accounting starts with how the software is set up, whatever you use. Her income statement had about 15 lines. Revenue came first. Cost of goods sold covered labor, parts, subcontracted services and other direct costs like shop supplies. Then came expenses such as rent, utilities, marketing, admin, depreciation, IT, insurance, interest and taxes. She said almost every company she walked into, even ones many times Moore's size, had far too many expense accounts.
The one place she added detail was labor. Some wages are cost of goods sold and some are overhead, and she didn't want office wages counted against technician gross margin. She called it above and below the line, with gross margin as the line. Technician time on a car goes above. Her own bookkeeping time goes below. The service that pumps out used oil and coolant goes above, because you need it to produce revenue. Buying the crew lunch goes below.
You have to have good data to be able to make business decisions, and gross margin is the data that you really need.
If the reports out of your system look wrong, she said, go back and check the setup. A CPA or QuickBooks specialist can fix it.
Long jobs and revenue recognition
A maintenance shop does the work, bills it and pays the tech in the same few days. A performance build can run for months. If the whole invoice lands in one month and the labor and parts land in others, gross margin swings around and tells you nothing.
Moore ran full accrual books. When a customer paid a deposit, Susan held it as deferred revenue and recognized it as the work was actually done, so revenue and the costs that produced it showed up in the same period. She did it partly because the bank financing the new building wanted books close to generally accepted accounting principles. Mostly she wanted to see the real gross margin. She also tracked results by product line, which for Moore meant car platform. Even without accrual books, she said, a shop needs to compare hours spent against what was charged on each finished job.
She also looked at balance sheet health using current ratios, quick ratios and debt to equity. Moore had no debt, but Susan took a bank loan before the building project and left the money in savings. It built a lending relationship and showed her what reporting the bank would demand.
Handbooks, job descriptions and unemployment tax
Susan said every shop should have an employee handbook, even with one employee. She recommended the handbook wizard from the Society for Human Resource Management. For a couple hundred dollars it asks your state and headcount and fills in the required policies. You add your own rules on hours, vacation, sick leave, holidays and safety. Then follow what you wrote. If the handbook says vacation is paid out at termination, pay it, even to someone you're angry with. Every employee should sign a receipt for the handbook on day one, and it goes in their file. A written job description should go with it.
That paper matters most when you let someone go. Susan advised using the 90-day trial period where your state allows it, giving yearly written reviews, and documenting problems as they happen. A fired employee who knows your records are sloppy can bring in the Department of Labor, the IRS or state tax agencies.
She gave an example on state unemployment tax. A small shop terminates one person, who collects around $13,000 in benefits. The shop's rate might jump from 0.8 percent to 5.7 percent for four years. In some cases, she said, a severance would cost less. Her advice was to look up your rate, compare it to your state's average, and show up for the unemployment hearing.
The handbook can help with workers' comp too. If the rules ban horseplay, a shop can challenge a claim from someone hurt while horsing around. On waivers, Susan said attorneys told her Moore's long dyno waiver was too long to hold up, because nobody would read it. A shorter one gave better coverage.
Plan the building around efficiency
Moore's old building was 5,700 square feet, but only about 4,400 of it was shop space, laid out for quick maintenance work. Susan calculated that pushing cars in and out cost the shop about $30,000 a year. She said the worst layout is a long, skinny building with lifts in a line, where reaching the middle lift means moving every car behind it.
The new building was planned with at least two lifts per technician, a clean room for engine work, and pallet racking. Parts from a torn-down car would be palletized, shrink-wrapped, labeled with the customer's name and stored up high instead of spread on the floor. Susan planned to hire no one at first and see what the better layout alone added. In her view the building was at capacity, and her people still had room. She also forecast capacity from lifts times hours open times working days, using five days even though they were open six to cover vacations, holidays and weather.
Before signing a long lease or buying, she told owners to ask the city or county for its comprehensive plan. Moore's plan showed the city pushing industrial use out of its area.
Keep inventory lean
Susan preferred just-in-time inventory. Stock costs money to count, store and manage. She stocked only what she knew she'd use, like certain fluids and spark plugs. She asked local distributors to keep her hot items on their shelves in exchange for a promise to buy them there.
I'm not in the business of managing inventory. You're in the business of managing inventory and selling parts.
Small items like bolts and clips she didn't track as inventory. Shop supplies were charged on invoices and compared against what the shop actually spent. Kevin warned that without a consistent part naming convention, duplicate records make inventory counts drift.
Key takeaways
- Keep the chart of accounts simple, and split labor so only technician time counts against gross margin.
- On long jobs, match revenue to the period the work was done so gross margin tells the truth.
- Give every employee a handbook and job description, follow your own policies, and document problems.
- Watch your state unemployment tax rate. One poorly handled termination can raise it for years.
- Plan your building around lifts per technician and vertical storage, and check the local comprehensive plan first.
- Build relationships with a CPA, a banker and local business groups before you need them.
Getting job-level data with My Shop Assist
Susan's point was that you can't manage what you can't measure, and that a shop is really job costing. My Shop Assist captures that data as the work happens. Technicians log time against each job and task. Parts and purchase orders are tied to the job. Progress billing lets you bill long builds in stages instead of all at once. When a job is done, you can compare hours spent to what was charged, and finished jobs export to QuickBooks as invoices. See the full list of shop management features in My Shop Assist.
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