How much money do you need to make to keep the doors open?


How much do you need to sell to ensure your business is keeping your the doors open?

By ‘doors open’ we mean break even, the amount of money needed to cover all your expenses – that is, salaries and wages, superannuation, WorkCover, payroll tax, rent & occupancy costs, the phone and then all the consumables, components and freight costs you incur to deliver your product and services to your customer and keep the doors open.

How do you calculate your break even costs?

Let’s look at an example of the yearly profit & loss statement for Awesome Motors – [you should be able to print off your own Profit & Loss Statement from your MYOB, Quick Books or Xero Accounting Software].

Profit & Loss

Awesome Motors [Example]

Income   FY2016
 Interest Income  $1,500
 Sales – Engine Repairs     $450,000
 Sales – Warranty Repairs  $12,500
 Sales – Roadworthy  $25,000
 Total income $489,000
Less Cost of Sales
Total Cost of Sales  $185,000
Gross Profit  $304,000
Gross Margin 62%
Less Operating Expenses
Total Operating Expenses   $248,473
 
Net Profit $55,527
Tax $16,658
Profit After Tax $36,869

 

Calculations:

  • Take the operating expenses (all fixed costs including wages & salaries): $248,473
  • Divide by the gross margin:  62%
  • This equals:  $400,762

The break even for Awesome Motors is $400,762 a year to keep the doors open or to be break even.

NOW divide $400,762 by the total number of days a year you work.  If you’re only working business days, it’s about 250 days a year.

What’s my daily rate?  $400,762 / 250 days = $1,603 each day needs to be invoiced.

TARGET PROFIT

Let’s take it a step further! My view is that the business needs to generate enough income for my family to live the life we want to live.  Thus, I need to be paid for my time, but I also need to generate a return on the money I have invested in my business.

EXAMPLE:  Say we have invested over the life of owning the business, $200,000.  I want to generate a 20% return after tax on my investment which is $40,000 PLUS the salary and the super I get for me working in the business.  We can reverse engineer the calculation above to work out what we need to invoice each day to hit that target profit.

 

Equity in Business      $200,000
Return on Investment  20%
 Target Profit After Tax    $40,000
 Tax Payable (estimate)  $17,143
 Profit Before Tax $57,143
 Divide profit target by 0.7
 Total Operating Expenses   $248,743
Gross Profit Required $305,615
Gross Margin 62%
Total Income $491,599

 

  • Divide $491,599 by 250 work days.
  • To achieve the Target Profit – we need to be invoicing $1,966 per work day.

Now you know your daily profit and the minimum you need to keep the doors open, work out what you need to do to achieve it.

Good Luck.

Graham Van Damme
Owner, All Head Services (Aust) Pty Ltd
Accelerator Trainer, Entrepreneur’s Organisation
www.linkedin.com/in/graham-van-damme

 

All Head Services had a 2RZ cylinder head from a Toyota RZH103 HiAce sent in with an issue of the valve clearances closing up and the customer having to adjust valve clearances at very short intervals due to a misfire and loss of compression.

The valve clearance for this engine is a shim and bucket design, and it is relatively easy to adjust the clearance without removing the camshaft. The cylinder head was dismantled, and when inspected it was found that the valves had recessed into the head causing the valve tip heights to be out of specification.

This engine had been converted to run on LPG which commonly causes the valves to recess into the head, which closes up the valve clearance. To correct the continual closing of the valve clearances, the owner had the shims machined down. Then, the next time they machined the inside of the buckets to gain some extra clearance.

Many engine components are case hardened which means that they have a very hard out layer, but are relatively soft on the inside. Once this outer layer has been worn through, the components will degrade rapidly.  In this case the machining process has broken through the case hardening and has caused the shim to wear through, damaging the buckets and has worn the lobes off the camshaft.

If the valve clearances on any engine continually close up there is usually an underlying issue and a vehicle being run with an out of tune LPG system can be a significant contributor. The cause of this must be investigated to stop further damage.

Sometimes it seems that everything is out to get you, as a customer of All Head Services has recently experienced.

The customer had sent in the cylinder heads off an L98.60 litre V8 VE Commodore for reconditioning. The cylinder heads were reconditioned and returned to the customer who refitted them.  After starting the engine, there was a noise from the upper engine area so the customer carried out some diagnosis then removed the cylinder heads for inspection. Upon removal, it was found that the pistons had been hitting the head gasket around the fire ring.

After some further investigation, it was found that an LS1.57 litre head gasket had been incorrectly packaged in the VRS gasket kit instead of L98 6.0 litre head gaskets. The LS1 has a bore diameter of 101.6mm.  The gaskets look identical apart from the bore diameter difference. This 2.6mm overlap allowed the pistons to hit the gasket fire ring of the gasket which is flush with the head. This caused significant damage to the pistons as it compressed the ring lands. The customer then had to fit an exchange engine as a result.

The moral of the story is to always double check that the parts you have been supplied are correct for the application.  Just because they should be right does not mean that they are. A few seconds checking can save hours of rework and drama.

1991-2006 Ford Courier

1991-1997 Ford Raider

1990-2006 Mazda B2600

1997-2006 Mazda Bravo

All Head Services supplied a cylinder head to a customer for a Ford Courier with a G6 engine.  These cylinder heads are provided complete, but the customer must swap over the camshaft and rocker assembly.  After fitting the head, the customer called saying that there was an issue. The exhaust valve on No.1 cylinder was sticking when turning the engine over.

The cylinder head was removed and sent in for inspection.  Upon dismantling the head, it was found to have four bent exhaust valves, and it had also cracked or broken off all of the exhaust valve guides below the seal.

This type of damages is a common occurrence with these cylinder heads.  It is caused by the rocker arms not being aligned with the tip of the valves when tightening the rockers down. This causes the lifters at the end of the rockers to slide off the tip of the valve and push sideways on the valve stem which in turn bends the valves and cracks the valve guides.

All Head Services replaced all the bent exhaust valves and guides and assembled the cylinder head along with fitting the cam and rocker shaft assembly in the correct position.  The correct sequence for tensioning the rocker shaft bolts is shown in the attached full article.

This type of assembly error is not limited to the G6 engine. When assembling any cylinder heads with rocker arms, ensure that all the lifters r adjusters are in the correct position before tensioning the rockers down.  A little bit of care and attention the first time will save a lot of time and money.

 

One of the secrets of our success at AHS over the years has been to focus on our core customer to the exclusion of others.   Simply put, our Core Customer is the Independent Mechanics and Machinery Shops – YOU,  and our core purpose is to help YOU succeed!

What is the benefit for you to know who your core customer is?

Understanding who your Core Customer is allows you to grow your business because you’re now focusing on the customers that WILL buy from you.

 So, how do you know who your core customer is, and what is a core customer?

Drawing on the material written by Bob Bloom, the author of The Inside Advantage, A core customer can be identified as follows:

  1. Someone who purchases your product at the optimal (best) price point that generates you profit – why?    Because they assign real economic value to what you have to offer and buying at your price is a positive action for them.
  2. Identify who your Core Customer at the expense of WHO IS NOT your core customer (be selective).   For us, it’s simple, the first question we ask when we get a phone call is, Are you a Mechanic?  If not, we refer them to their local mechanic(s) who are already our client.  We know by doing this, our conversion rate goes from 2% to over 30%, and we are THEN dealing with OUR Core Customer –  not a punter who just wants to price check!
  3. Your Core Customer is a real person, with wants, needs and fears – they are not a lifeless profile on paper – they are alive and are just like you and I, AND have specific reasons, emotions and interests in your service.
  4. Your Core Customer has an online identity that can be appealed to via digital media and they have specific behaviors that you can learn and appeal to as they are online.
  5. This Core Customer who pays on time, not only are they loyal to you, but they will refer others to your company!

So how do you identify them?  By asking yourself the following questions:

Pick out the 1 customer

  1. Who is your favourite customer?
  2. Who is your newest customer?
  3. Who is your best fit customer (i.e. values fit)?
  4. Who is your most profitable customer?
  5. Who generated your largest revenue?

Then

  1. What was the name of the decision maker?
  2. What did they buy?
  3. What’s their job, etc?
  4. How did they buy?
  5. How did they find you?
  6. Words to describe their demographic
  7. Words that describe their buying behaviour

Can you see any patterns?  Are there any connections?

From this you’ll be able to build your Core Customer in 25 words or less, or better still, have a visual representation of your Core Customer and focus on them.

Good Luck.

Graham Van Damme
Owner, All Head Services
Accelerator Trainer, Entrepreneur’s Organisation
www.linkedin.com/in/graham-van-damme

 

This is one of the key principles I teach in the Entrepreneur’s Organisation Accelerator Program [https://www.eonetwork.org/eo-accelerator ]

All Head Services have had numerous calls for technical help regarding fitting the inlet camshaft VVT (Variable Valve Timing) phaser hub to the camshaft once they have been removed.

The VVT hub is locked by an internal pin which is fed by oil pressure through the camshaft.  It is essential to make sure that the hub is in the UNLOCKED position before it is bolted to the camshaft.

The procedure to unlock the hub is as follows:

  1. Check to see whether the hub is locked or unlocked by checking if the dots are on the front face of the hub. If they are aligned, the hub is LOCKED. If the dots are about 30º out of alignment, the hub is UNLOCKED, and if it is OK to be fitted.
  2. If it is LOCKED. Mount the hub onto the camshaft temporarily, with the bolt finger tight.  NOTE: Make sure that the dowel pin at the end of the camshaft is aligned with the correct slot in the hub.  It must engage with the rounded slot, not the two square ones. Refer to diagram in Link to full VACC Article.
  3. Tape the oil supply journal of the camshaft with insulation tape.
  4. The oil pressure hole for unlocking the camshaft is the closest hole to the cam gear approximately at 90º clockwise from the oval hole on the rear of the hub.
  5. Poke a small hole in the tape to access the oil hole.
  6. Apply approximately 20 psi air pressure to the oil hole (Cover with a rag as oil will squirt out!).
  7. The VVT hub will usually turn with the air pressure to the unlocked position, if not turn the inside of the gear assembly anti-clockwise.
  8. Check that the hub is in the unlock position and that the dots on the hub are not lined up.  You should be able to move the hub in the advance and retard position easily.  NOTE:  if you move it too far it will relock and you will have to repeat this procedure.
  9. Tension camshaft bolt to 54 Nm.
  10. With the bolt tight, you can now rotate the hub clockwise all the way and that you hear the pin lock the hug.
  11. The camshaft can now be fitted to the engine.
  12. Confirm that the hub is LOCKED before installing the timing chain.

Fr more information on the 2AZ-FE engine log on to Tech Online, or call the VACC’s Technical Advisory Service.