What You Can Learn From This Dealers Failure
The word FAILURE is a very powerful expression that can have many negative connotations. If you listen to the experts, they will tell you that sometimes you have to fail to learn how to succeed. That may be true but when a dealer told me that he was closing his doors, I felt the sting of his failure and wanted to know why. You can find out why here
I know for myself, failure is a word that I have feared all my life on many levels. I was one of those people who had to grind it out to get through school, but it was the fear of failure that prevented me from being held back, got me into university and was largely responsible for graduating with a degree. I found that fear of failure can be the mother of invention.
As a Profit Solutions Specialist in the Recreational Products Industry, when a dealer does not succeed I want to dissect the reasons why, so it does not happen to others. The first thing I wanted to assess was, could he have done anything differently to achieve a successful outcome.
What I learned was that just about everything I teach (and preach) around achieving profitable success, this dealer wasn’t doing!.
Here’s a list of events that lead to the closing of this dealership and how some simple steps could have made the difference between success and failure..
- Accounting or Operating Business System:
This dealer had one of the best accounting systems available in the industry, but I quickly discovered it was not being used to its potential and, in some cases, incorrectly. The end result was he could not produce an accurate monthly P & L or Balance Sheet from the system. Consequently, there was little or no monitoring of the business on a monthly basis.
Lesson #1 – You cannot operate a business successfully without accurate financial information on a monthly, if not daily basis.
- Target Assessment:
Many of the accounting functions performed in the dealership were not aligned to industry standards.
- Rebates were not credited to the sales invoice at the time of sale.
- Sales commissions were charged to unit sales as a cost of goods sold.
- Service Technician salaries were not charged to the Service Department as a cost of goods sold.
Lesson #2 – You cannot monitor your business effectively if the target analysis is inaccurate. Industry targets are key to assessing whether you are on point with what should and can be achieved in the business. If you are comparing apples to oranges you are making decisions on bad information.
For example, if your salaries percentage is 8.5% you may think you are right on target for staffing in the dealership. However, if commissions are charged to cost of goods sold your margins are going to be understated and so are your salaries. The case may be that your salaries are really 11.0% of gross sales and therefore way over target and costing profit.
- Target Achievement: After considerable analysis and adjustment to the financial numbers, I discovered almost all the targets were out of balance with the industry standard for profitability. The fact that sales volumes are very good meant nothing if they are not hitting all of the margin and expense targets. Lesson #3 - You must know all the targets you should be achieving and how to calculate them in accordance with industry standards. Only then can you make effective adjustments to your business model to achieve profitability.
- Critical Timing: This dealer had never performed a Financial Performance Analysis on his business, or, prepared a comprehensive Business Plan. By the time he put these tools in place and started making adjustments to the accounting and his target assessment the damage was too deep to cope with a slow month in sales.
Lesson #4 – The longer you wait to address problems in the dealership and, if necessary, seek outside help, the greater your chance of failure.
What I learned from this experience is that everything I believe in - and promote through Lifeline Business Solutions is right on point.
- You must have an accurate accounting system that can produce statements on a monthly basis.
- You must align with industry standards to effectively assess your profitability potential.
- You must analyze your business and prepare business plans to both stack the deck in your favour and to facilitate monitoring and adjusting on a monthly basis.
To avoid potential failure you must adapt these lessons into your business model sooner than later. If you’re not sure just how, or, need or want help, contact me for a free consultation.
