"You Are Not Alone"
We tend to believe that the struggles we face in business are ours alone and are unique to our own situation and organization. As a result, we feel that we are all alone to deal with these challenges. However, in this industry there is a common thread that ties us all together – one that has been frustrating dealer growth and profitability for years. Read More.
It is reasonable to consider that you folks who have been in business for a long time are thinking; "this guy can't tell me anything that I don't already know about my business".
This is a fair comment, but the problem is that if things aren't going so well we usually and typically view the situation as being caused by two basic problems – "my sales are down and I have too much carryover inventory". That's not to say we don't consider the fact that overhead is up over last year and cash flow seems tight, but it certainly does not provide enough information to make effective decisions and changes.
As one dealer put it to me recently, "my sales are up but my profit is down and I am not sure why". The common thread I mentioned above is that we have never been taught to analyze the individual components of our business that hold the answers to our questions.
Sure, there are lots of courses offered out there with the expectation that you'll go back to your dealership and apply the calculations you've been taught. The problem is that you're missing a critical component in those calculations - the statistics to put the information into perspective.
Further, most dealers have never been shown, and therefore don't understand, the value of analyzing their statements on a month-to-month basis so, by default, look to sales volume as their primary indicator of financial health.
So what are these components that are so vital to managing the growth and profitability of your business? Ask yourself if you know the answers to the following questions:
· What are my inventory turns per year
· What is my current assets to current liabilities liquidity
· What is my working capital ratio
· What are my gross margins by product group
· What is my volume by product group as a percentage of gross sales
· What are my salaries as a percentage of gross sales
· What is my interest expense as a percentage of sales
· What is my advertising as a percentage of sales
· What is my return on investment
· What is my debt to equity ratio
Probably the most important question is the one I've left to the end which is "how do these components of my business compare to my fellow dealers and more importantly to the most profitable dealers in the industry?"
If the answer to any of these questions is "I don't know" then rest assured, you are not alone - you are part of the vast majority of dealers.
Financial analysis is a discipline unto itself that requires industry experience and a statistical knowledge of the targets we should be working towards to meet our profit expectations.
In other words, you need a "go to guy" with extensive industry experience who can provide answers to your questions.
Got questions about how your company is performing? Contact me for a complimentary tele-consult.
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