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V

Variable Expenses (Sales Department)

Variable Expenses (Sales Department)

Variable Expenses ÷ Departmental Turnover (x100)

Guideline: Own Policy

Description:

Variable Expenses are those expenses that are directly linked to the volume of business that you conduct. A good example here is Sales Commission. If you do not sell any vehicles then commission will be zero. When a Salesperson sells a vehicle, only then does the Sales Commission become payable.

Typically, Variable Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R133,778
B) Total Turnover = R7,432,165
C) Variable Expense % = 1.8% (A ÷ B X 100)

Discussion:

The term "Variable" does not mean that an expense varies by value, nor does it mean that it may change in some way. It simply means that this type of expense grows with the level of business that you conduct.

In order to gain full control over your Departmental Expenses you really need to understand the difference between Variable and Semi-fixed Expenses and have them properly separated on your financial reports.

Related Terminology:

Variable Expenses (Service Department)

Variable Expenses (Service Department)

Variable Expenses ÷ Total Turnover (x100)

Guideline: Own Policy

Description:

Variable Expenses are those expenses that are directly linked to the volume of business that you conduct. A good example here is consumables. If you do not sell any hours then consumables will be zero, as soon as you begin to sell hours then consumables build accordingly.

Typically, Variable Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R18,570
B) Total Turnover = R371,388
C) Variable Expense % = 5% (A ÷ B x 100)

Discussion:

The term "Variable" does not mean that an expense varies by value, nor does it mean that it may change in some way. It simply means that this type of expense grows with the level of business that you conduct.

In order to gain full control over your Departmental Expenses you really need to understand the difference between Variable and Semi-fixed Expenses and have them properly separated on your financial reports.

Related Terminology:


Vehicle Debtor Days

Vehicle Debtor Days

Vehicle Debtors ÷ Vehicle Sales Daily Turnover

Benchmark: < 14 Days

Description:

The Vehicle Debtor Days informs you of the average number of days that your customers take to pay you for their vehicles. Typically, this usually applies to Fleet Sales.

Example:

A) Vehicle Debtors = R21,400
B) Vehicle Sales Daily Turnover* = R3,891
C) Vehicle Debtors Days =  5.5 days (A ÷ B)

Note:
In order to calculate the Vehicle Sales Daily Turnover, you will need to take the total value of the vehicles sold on credit for one month and divide that figure by the number of days in that month to arrive at a daily sales turnover.

A) Vehicles Sold On Credit = R120,624
B) Days in Current Month = 31
C) Vehicle Sales Daily Turnover = R3,891 (A ÷ B)

Discussion:

Credit terms around the country with fleet companies vary considerably. In any event, you should ensure that you recover your money in the fastest time possible to reduce any risk and to minimise the investment.

Related Terminology:

Vehicle Parc (Bodyshop)

Vehicle Parc (Bodyshop)

Description:

Your franchise manufacturers provides you with all the vehicles registered within your dealership's area of responsibility over a given period of time; this represents your vehicle parc. These vehicles could be registered by your dealership or by another dealership that is selling vehicles into your area. In many cases the time period for measuring vehicle parc spans 10 years, although this varies from manufacturer to manufacturer.

Example:

Vehicles registered in current year = 958
Vehicles registered in Year 2 = 821
Vehicles registered in Year 3 = 767
Vehicles registered in Year 4 = 789
Vehicles registered in Year 5 = 745
Vehicles registered in Year 6 = 827
Vehicles registered in Year 7 = 754
Vehicles registered in Year 8 = 706
Vehicles registered in Year 9 = 635
Vehicles registered in Year 10 = 582
Total 10-year vehicle parc = 7,584

Discussion:

In the years that follow, the current vehicle registrations are added and year 10 of the calculation is replaced with the year 9 statistics and so on, therefore providing a revised ten-year vehicle parc.

Current 10-year vehicle parc

Related Terminology:


Vehicle Parc (Service Department)

Vehicle Parc (Service Department)

Description:

Your franchise manufacturers provides you with all the vehicles registered within your dealership's area of responsibility over a given period of time; this represents your vehicle parc. These vehicles could be registered by your dealership or by another dealership that is selling vehicles into your area. In many cases the time period for measuring vehicle parc spans 10 years, although this varies from manufacturer to manufacturer.

Example:

Vehicles registered in current year = 958
Vehicles registered in Year 2 = 821
Vehicles registered in Year 3 = 767
Vehicles registered in Year 4 = 789
Vehicles registered in Year 5 = 745
Vehicles registered in Year 6 = 827
Vehicles registered in Year 7 = 754
Vehicles registered in Year 8 = 706
Vehicles registered in Year 9 = 635
Vehicles registered in Year 10 = 582
Total 10-year vehicle parc = 7,584

Discussion:

In the years that follow, the current vehicle registrations are added and year 10 of the calculation is replaced with the year 9 statistics and so on, therefore providing a revised ten-year vehicle parc.

Related Terminology:

W

Work-In-Progress (Days) (Bodyshop)

Work-In-Progress (Days) (Bodyshop)

WIP Hours ÷ # of Prod's ÷ Hrs Attended in 1 Day

Benchmark: 5 days or less

Description:

Work in progress (WIP) simply refers to the number of hours that have been booked onto jobs that have not yet been invoiced.

This vital KPI informs you of the number of days Work In Progress that you have accumulated.

Example:

A) Hours booked as WIP = 216
B)# of Productives = 6
C) Hours Attended in 1 day = 8 (Per Productive)
D) Work In Progress Days = 4.5 Days (A ÷ B ÷ C)

Discussion:

Many financial reports have a tendency to provide WIP as a total monetary value, but this can often be misleading. You must ask the question, is it reporting a value based upon the Labour Cost of Sales, Hours Sold at retail value, or Hours Sold at the current recovery rate?

The example above just deals with the number of hours accumulated in WIP and this is therefore more useful in trend analysis and deals with all eventualities.

Related Terminology:


Work-In-Progress (Days) (Service Department)

Work-In-Progress (Days) (Service Department)

WIP Hours ÷ # of Tech's ÷ Hrs attended in 1 Day

Benchmark: 3 days or less

Description:

Work in progress (WIP) simply refers to the number of hours that have been booked onto jobs that have not yet been invoiced. This vital KPI informs you of the number of days Work In Progress that you have accumulated.

Example:

A) Hours booked as WIP = 120
B) # of Technicians = 6
C) Hours Attended in 1 day = 8
D) Work In Progress Days = 2.5 Days (A ÷ B ÷ C)

Discussion:

Many financial reports have a tendency to provide WIP as a total monetary value, but this can often be misleading. You must ask the question, is it reporting a value based upon the Labour Cost of Sales, Hours Sold at retail value, or Hours Sold at the current recovery rate?

The example above just deals with the number of hours accumulated in WIP and this is therefore more useful in trend analysis and deals with all eventualities.

Related Terminology:

Working Capital

Working Capital

Current Assets x Current Liabilities

Benchmark: See Current Ratio

Description:

Working Capital is the value of money that is used to run your business on a day-to-day basis, It's the money that is inevsted within the part of your business where you buy and sell your products and services. Working capital is not contained within your proprty or any other Fixed Assets.

The calculation for Working Capital is conducted from the Balance Sheet and is simply Current Assets minus Current Liabilities. This will provide you with the value of Working Capital currently available.

However, this equation does not inform you of whether the value of Working Capital is sufficient to sustain the business on a day-to-day basis.

If your business were a human body, then cash would be its blood. You need just the right amount to sustain life; too much and you might cause a haemorrhage, too little and you die.

Example:

A) Current Assets = R850,527
B) Current Liabilities = R654,251
C) Working Capital = R196,276 (A - B)

Discussion:

To assess whether you have just the right amount, you need to calculate the Current Ratio or Working Capital Ratio.

Related Terminology:

Working Capital Ratio

Working Capital Ratio

Current Assets ÷ Current Liabilities

Benchmark: 1.25:1 - 1.3:1

Description:

This KPI informs you whether the value of your Working Capital is enough to service your business. It's rather like the company's blood pressure test.

The calculation for Working Capital Ratio is conducted from the Balance Sheet and is simply Current Assets divided by Current Liabilities.

This example below is showing a Working Capital Ratio of 1.3:1, which means that for every R1 of Current Liability you have R1.30 in Current Assets.

We need this amount of cover because the nature of our business dictates that our stocks are always suffering the effects of depreciation and as an industry, we have the tendency to pay out money at a faster rate than we receive it.

Example:

A) Current Assets = R850,527
B) Current Liabilities = R654,251
C) Working Capital Ratio = 1.3:1 (A ÷ B)

Discussion:

This KPI is also known as the Current Ratio and is one of the most important ratios to monitor to ensure that you have enough cash available on a day-to-day basis to enable your business to function properly.

Related Terminology:

Working Efficiency % (Bodyshop)

Working Efficiency % (Bodyshop)

Hours Sold ÷ Hours worked Productively (x100)

Benchmark: 110% to 125%

Description:

This KPI shows you the Productivity and Working Efficiency. It shows you the Productives ability to complete their work within the agreed hours provided by the Estimator.


This statistic is not as straightforward as the Service Department equation, as due to the nature of the work it is not possible for a franchise manufacturer to apportion standard times.

Example:

A) Hours Sold = 1,083
B) Hours Worked Productively = 958
C) Productive Efficiency = 113% (A ÷ B X 100)

Discussion:

When a customer brings a vehicle to your Bodyshop for repair you provide them with an estimate that states the number of hours to be charged. This allocated time is the maximum amount that you are able to charge.

In order to make gains in profitability, your Productives must complete the job in a lesser time than is allocated by the Estimator, thereby increasing your Productive Efficiency %.

Productive Efficiency is a double-edged sword. If you take more time to complete the job then your Productive Efficiency falls below 100%.

Related Terminology:

This KPI is also known as Productivity and Working Efficiency.


Working Efficiency % (Service Department)

Working Efficiency % (Service Department)

Hours Sold ÷ Hours worked Productively (x100)

Benchmark: 110% to 125%

Description:

This KPI shows you the relationship between your Technicians speed in completing jobs and the abilities of your Front Counter staff to sell the hours to your customers.

Most franchise manufacturers provide dealers with allocated times for jobs on all vehicles and this allocated time is what the Hours Worked are usually measured against. The Hours Sold is the responsibility of the front counter staff and they could sell more or fewer hours than the manufacturers book times.

In order to make gains in profitability, your Technicians must complete the job in a leser time than is allocated by the manufacturer, or the front counter must sell more hours on the same jobs, thereby increasing your Working Efficiency.

Example:

A) Hours Sold = 1,130
B) Hours Worked Productively = 957
C) Productive Efficiency = 118% (A ÷ B X 100)

Discussion:

Working Efficiency is a double-edged sword. If your Technicians take more time to complete the job than the manufacturers allocated time then your profitability diminishes and Working Efficiency falls below 100%.

Related Terminology:

This KPI is also known as Productivity and Productive Efficiency.



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