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Sewells best practise: Bodyshops – the secrets of survival

Last month we reported on the Sewells Bodyshop Opinion Survey, which includes the prediction that 800 primary bodyshops will close within five years.

Recent news about the bankruptcy of a bodyshop group and other premier bodyshops makes this prediction look somewhat optimistic. So what must bodyshop owners and managers do to avoid becoming one of the casualties?

Finding a universal solution is extremely difficult because of the malaise afflicting the body repair market. The problem is that the body repair market is not functioning as a market should.

Supply and demand, the basis of any successful market, has been distorted because five or six insurance companies now control the majority of the work carried out by many thousands of relatively tiny businesses.

In particular, the approved repairer system is unfairly stacked in favour of insurers. They demand discounts regardless of quantity, which means bodyshops have to give the same discount for one repair a month or 30. In almost any other market, discounts depend on quantity, and that should certainly be the case for body repairs too.

One day insurance companies will wake up to find there are too few bodyshops to service the needs of their policyholders, and then repairers will be able to charge what they want. But until that happens, how can owners ensure the survival of their businesses?

Sewells’ experience highlights lack of management controls as the main reason why bodyshops go under. Quite simply, owners don’t know what’s happening until it’s too late and they run out of money. The main secret of survival is to know what is happening as it happens, which means monthly management accounts. These don’t need to be complicated.

In a bodyshop you only need to know half a dozen essentials. Surprisingly, two-thirds of bodyshops we visit cannot even tell us their financial year-to-date sales – never mind gross margins, creditors, debtors or their larger regular expenses and overheads.

The second secret of survival is to have a spread of customers, and reduce dependency on a single work provider. Yet 20% of bodyshops rely on one insurer for more than 30% of their work. Of course it is difficult to diversify, especially as retail is such a small proportion of the market, but the survivors will be bodyshops with a spread of customers.

The third secret of survival is estimating. Estimating competitions show that even the best underestimate more often than they get it right. This is backed up by the fact that industry average overall efficiencies run at less than 100%. Margins are, at best, wafer-thin, and this is not an industry that rewards risky strategies, as has been proved by recent bankruptcies.

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