How To Reel in the Credit $$$’s You’ll Need For 2014

If you want or need to improve your ROI, and if you haven’t already done so, now is the time to prepare for your profitability by planning to secure the credit you’re going to need for the balance of this year! Whether you’re a Marine, Motorsports or RV Dealer, the principles of acquiring credit to operate your business are the same. Find out what you need to do.

Having worked in the industry for 30 years as a finance and credit manager for a large manufacturer, I know for a fact that less than 5% of recreational product dealers actually prepare a comprehensive business plan.  I also know that dealers who do, reap a substantial return on their investment of time and effort!  So to improve your ROI, now is the time to prepare for your profitability by planning to secure the credit you’re going to need in 2014.

Here’s what to do.  It’s a three step process.

Step 1 – Perform a Financial Analysis

The single best way to get to where you want to go is to know where you’ve been.  If you want to maximize your profit for the next year, you’ll need to first complete a financial performance analysis on your last five years financial statements.  This provides you with a number of ratios, percentages and margin analyses’ that you can compare to industry standards and is absolutely critical to identifying the strengths and weaknesses in your business. 

You will need to know your:

  • Current ratio
  • Debt equity ratio
  • Inventory turns
  • Income (profit) as a percent of gross sales
  • Working Capital ratio
  • Cost of advertising
  • Salaries, excluding service technicians
  • Individual product group margins and volume to sales

Step  2 – Prepare Your Business Plan

Your next step is to translate this information into a business plan that starts with establishing your goals and objectives.  You can then use your unit sales forecast for the next year to build a monthly statement of revenues, cost of sales and expenses.  From this work sheet you can extract a projected cash flow that shows the monthly peaks and valleys of your capital requirements.

Step 3 – Secure The Credit You’ll Need Before You Need It!

Whether you are a new business or an established dealer, the most important step you can take is to negotiate your credit requirements before the rush of the new season.  This takes preparation.  Let me repeat myself here - the biggest mistake you can make when approaching lending institutions is to be unprepared to answer their questions and meet their requirements.  This is where steps 1 and 2 are critical to your success in getting the credit you need to buy your inventory and your operating lines of credit for cash flow.

Your Wholesale Finance Company and Bank are going to break down your financial statements to establish the value of your company and, in conjunction with your Business Plan set their security requirements.  

They will look at:

  • Liquidity Ratio
  • Equity Ratio or Net Worth
  • Inventory Turns
  • Return on Investment
  • Working Capital Ratio
  • Profit trends

Knowing how your business stacks up with a lending institution’s requirements is essential to your success in negotiating adequate credit lines.  Your business plan is your ace in the hole that will show the profit your business is projecting for the next year and demonstrates that you have a clear direction and plan on how you’re going to achieve your goals to get there.

  
It is important for you to realize that no matter how long you have been in business or the quality of your credit performance; lending institutions are going to want some “skin on the table”.

In other words, you’ll need to consider what assets you have to offer such as collateral mortgages, term deposits, letters of credit, personal guarantees etc. and what you are prepared to pledge. 

Getting your credit requirements in place well before the season starts is your smartest way to ensure an uninterrupted flow of business.  So think smart this year and prepare a financial analysis and business plan.  It will decrease your stress level, increase your chances of getting the credit lines you’ll need and help maximize your profits.

If you want or need help preparing your analysis or business plan, contact me for a free consultation. 

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