AM Online

Sewells best practice: How much do you pay for no work at all?

In a service or body repair workshop, the main product is time. While it is easy enough to understand how to make a profit from buying and selling productives’ time, the reason for making it look so complicated in management accounts is less obvious.

Take the simple example of one technician who turns up for 40 hours in a particular week, works for 37 of these hours on paying work, and achieves labour sales of £2,150. So if the technician is paid £10 for each of the 40 hours he or she attends, the workshop has made a profit of £1,750. This looks very straightforward, and you would expect just three lines in the management accounts for this workshop: one line for sales, one for what the technician was paid, and one for the profit.

Most management accounts break down this particular week’s work into at least six separate lines. The first line would be the labour sales. Then from this is subtracted the second line, which is the technician’s pay for the 37 hours actually worked on paying jobs. The result is the so-called ‘labour gross profit’ on the third line.

After that, and listed as ‘expenses’ in the accounts, separate lines show the technician’s pay for the three hours of ‘non-productive’ time; the technician’s pay for holidays, sick leave and training days; and finally a line showing employer’s National Insurance contribution and any benefits received like a pension. In effect, the technician’s pay and benefits are split over four lines.

This layout highlights how much the technician gets paid – for not working. Over a whole year, if we said the technician’s holidays, sickness and training amounted to eight weeks, then the management accounts will show that 30% of the cost of this technician is for not working. And this is fairly typical.

Clearly you cannot cut back on holidays and training, and sickness is inevitable as is National Insurance. But what about the three hours of non-productive time, which amounts to 6% of the cost of this technician over 12 months? Not only is non-productive time a cost, it is a wasted opportunity to produce more work that customers will pay for. But only by measuring time and costing it can you hope to stop paying for nothing.

If you are not a registered user your comment will go to AM for approval before publishing. To avoid this requirement please register or login.

Comment as guest


Login  /  Register

Comments

No comments have been made yet.