The Difference Is In The Detail

When business is not progressing as we hoped we tend to look for one specific reason. For example, a dealer may believe he/she has excessive inventory that's killing his/her sales. This may be a problem for the business, but are they sure it is the only thing eroding their profit? Read more.

After analyzing dealer statements for years it became apparent that rarely is there one major problem that is holding a company back from realizing its objectives. Typically there are a number of issues that, when addressed, can make a substantial overall difference in profit.

It all starts with breaking down your business into its individual components. I do this through what I call a Financial Performance Analysis. When done over a 5 year term, you end up with a clear picture of how every aspect of your business is performing. This includes:

1. Trend Analysis

2. Financial Ratios

3. Percentage Calculations

4. Margin analysis

5. Volume by product group

These are all common calculations used to assess how a business is performing, not only in the eyes of your creditors but also in respect to your goals. By using industry standards for profitable dealers you can easily identify where changes can be made to enhance profitability.

If you are experiencing excessive floor plan interest expense and your inventory turns are below standard then you most likely have excessive carryover stock that is not moving. If you indentify this as a problem and stop there, then you could be missing out on a number of other key adjustments. Have you checked your salary and advertising expense, sales margins on each product group including Parts, Accessories and Service? Do you have adequate working capital and do your volumes per product group conform to industry targets?

To demonstrate how little adjustments can make a huge difference let's look at a couple of examples. Your Parts sales are $724,637 for the year and that represents a 31% gross margin. If you made an adjustment to up your margin by 3% to 34%, which is standard for the industry, then the additional profit would be $32,938.

Your salaries are $350,000 for the year and that represents 11% of gross sales. If you brought it down to the established target of 9% of gross sales, it would add $63,637 to your bottom line profit. Consequently, with these two small adjustments to your operation based on achievable targets, you could add $96,575 to your annual profit.

This is not just meant for dealers who are struggling to make a reasonable profit. This holds true for every dealer's bottom line profit. By doing this analysis you will identify a number of areas that you can make small adjustments to realize big returns.

Don't just look at the big picture or for the one solution. Drill into the detail to find those small adjustments that can make an overall big difference. If need help with your analysis, contact me for a free consultation.

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Lisa Marie on Chris Brown, Lifeline Business Solutions

Lisa Marie

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"When it comes to Finance and Commercial Credit, he is one of the most knowledgeable people I know. No one I know has more in-depth experience or understands distribution finance better than Chris"

- Joe Conte, Canadian Counsel, Textron Financial Canada Limited

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