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Car dealership cogs accounts3/20/2024 ![]() ![]() If you have a part-time w2 that you pay hourly and you only have her come in when they have work to do, you would consider that COGS right? Then you decide you like them and say "work for me full-time doing this same thing and I'll pay you a straight salary". If you look at your overhead over 12 months, it should not vary by more than a few % in any given month unless something major (positive or negative) happens that is company-wide, e.g., you grow the company by 50% and need to bring in a management team. The struggle I think people have with salaried people is they think "Oh, a salary is a fixed cost so it's overhead" which is not correct. If you bring the 1099 back, are you going to magically start putting that back in COGS? Your p&l would be super wonky! why would you magically consider that overhead? It's the same thing: Labor to generate the service you are selling. If you paid a 1099 to do the work, it is COGS right? If you terminated the 1099 and put a w2 in her place, then. Not all IT companies do this, but all of the large ones I know (personally and via peer groups) do it this way too. That topic is more up for debate for sure. A standard example of what a P&L should look like is Figure 7.We put our sales base pay in overhead and commission in COGS. ![]() The sum of all the information reported should be an easy, user-friendly P&L statement for any collision shop owner to follow. So, we refer to these expenses as associated with running a business that can’t be linked to creating or producing the repaired vehicle. For example, the parts and paint and materials are going on the vehicle, the technicians are repairing the vehicle, and the sublet and towing vendors are all involved with the repair. A rule of thumb is that if the expense isn’t somehow “touching” the vehicle, it’s an overhead expense. We need to pay rent and utilities to have a place to repair vehicles, but we’re not charging our customers/insurance companies for these expenses or making money on those items. You’ll notice that while it is necessary to pay these expenses, they’re not tied to the actual repair of the vehicle. Overhead expenses include payroll and benefits for all employees who are not directly repairing the vehicle, building expenses such as rent/taxes/utilities/building maintenance, office and shop supplies, advertising, meals, uniforms, etc. 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 (Quickbooks, Xero, 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 (Mitchell, CCC, 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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