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Accounting for Auto Repair Shops: Top 3 Myths Regarding Inventory Management

Inventory management is a persistent challenge for many organizations, with fewer than half reporting they have a solid system in place that’s working well. For some auto repair shops, the lack of a working system is due to their not having the time or resources to implement one. Other shops, perhaps influenced by these myths, haven’t taken the steps needed to onboard a successful system. Here are the top three myths surrounding inventory management for auto repair shops and the truths they conceal.

Myth #1: You Can Start a Business Before Having an Inventory Management System

Since the goal of most businesses is to grow, you need an inventory management system in place as a core element of your operational infrastructure—even before getting started—especially if you run an auto repair shop. Also, with an inventory management system as a central part of your processes, you’re in a position to discover efficiencies and savings on a day-to-day basis.

That doesn’t mean it’s too late to get an inventory control system if your auto repair shop is already up and running. In reality, it’s never too late, especially for an auto repair shop, given its diverse array of tools, accessories, and parts that a system can help optimize.

Myth #2: Buying in Bulk Is Always the Best Way to Save Money

Even though buying in bulk can save you money, particularly when it comes to items such as motor oil, lubricants, and paint that often apply to many different jobs, it’s not always the best way to conserve funds. Inventory management tools made available through bookkeeping and accounting services for small businesses can be more effective if you need to save money—in part, because they can surface and clarify your inventory needs.

For example, suppose your auto shop, like many, stocks up on brake discs of various kinds in anticipation of the hundreds of brake jobs they face each year. With an inventory management system in place, you can track the rate of depletion of each type of brake pad, identify trends, and restock accordingly. Then, with this information in hand, you can tweak your orders to get what you’ll most likely use instead of wasting money on pads that may or may not get installed.

Of course, this is a simple example, but the concept can be applied to a wide range of jobs and parts throughout your shop. Assessing inventory data and using real-time info can make it easier to avoid over-investing in unnecessary stock.

Myth #3: You Can Forecast Demand Without an Inventory Control System

While it’s common for some auto repair shops to try to forecast demand using only sales data, that isn’t enough to gain an accurate view of your future needs. This is primarily because sales data provides only a few metrics, whereas an inventory management system gives you access to far more information. You can then use this data to identify specific trends and adjust your orders accordingly.

For example, suppose your auto shop provides air conditioning charging services, and you have sales data from the previous quarter indicating your shop performed 87 recharging jobs between April and June. It could be a mistake to order enough refrigerant to accommodate 87 recharges, especially because you’re about to enter the summer months.

However, using an inventory management system, you can track how your inventory fluctuated over the entire previous year, including the summer months. You can also compare the previous quarter’s numbers with those of the same months in the prior year, which may reveal a growth trend that should be accounted for as well. In addition, you could use auto repair shop accounting services to juxtapose your inventory data with the rate at which you were able to complete your AC jobs and perhaps uncover a correlation between the two. Armed with this data, you can design a well-informed inventory strategy for the next quarter.

With an inventory management system that works in conjunction with bookkeeping for auto repair shops, you can remove the guesswork out of the best ways to save money and accurately forecast demand. Even if your business is already flourishing, you can still incorporate inventory control tools to keep the engine of your business running and your finances heading in the right direction. Learn how PABS can help by reaching out today.

By John Bugh

John Bugh is Chief Revenue Officer for Pacific Accounting and Business Services (PABS), responsible for the strategic direction, planning, vision, growth, and performance of the company’s marketing, branding, and revenue streams.

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