Profit Alert - What Went Wrong Here?

What went wrong? It’s a terrific season – units are flying out the door, your service shop is overflowing and your parts counter is busy all day long. You’re putting in 70 hours a week and your staff think you’ve got more moves than Bruce Lee. “Wow – this is going to be a great year” you smile smugly to yourself. Then, 3 months into the season, you finally look at your financials. Your stomach churns as you realize you’re just about breaking even. “What went wrong?” you ask yourself.

When you think you’re having a great season and you’re really, really busy, it is so easy to let the fundamentals of business get away from you. But, just because the cash register is constantly ringing doesn’t mean your business is making a decent profit – or any profit at all!

You must, I repeat must, be on top of your margins on units, parts, accessories and the service department. You must, I repeat again must, know the state of your inventories and floor plan financing and your critical expenses like salaries, advertising and interest & bank charges amongst other potentially volatile expenses.

And you’ve got to be on top of these numbers every day, every week of every month. And if you can’t answer these questions on demand then you are managing your business and your livelihood by the seat of your pants.

You’re making the number one mistake all dealers who fail make –

You’re spending more time working in your business than on it.

As the General Manager of Financial Services for a major manufacturer in our industry, I got to hear to all kinds of stories from Dealers as to why sold units were not paid out on a timely basis, parts payments were behind and credit lines were maxed out.

Then, when I looked at the dealer’s financial statements and saw that sales were up but profits were down, I always knew why. By the time the dealer had realized the situation they were in, it was too late.

By being too busy “doing” and managing their businesses by the seat of their pants, these Dealers had lost control and had let their businesses get away from them. It was the same old story, time after time….after time.

Am I being too critical? Absolutely not, because I get incredibly frustrated when I see this happen.  Do I sympathize with these Dealers? Absolutely not, because there is a wealth of technology and outside help available to prevent this from ever happening.  Am I surprised this happens?  Absolutely not, because it has been going on since I got into this business 30 years ago.  As the saying goes, “if you can’t effectively manage your businesses then you shouldn’t be in business!” 

There is a highly complex and ultra-secret solution to this “seat of your pants” management approach (or should I say lack of management) but it requires discipline, responsibility and the desire to make more money. Here it is...are you ready?

“Make a plan, execute it each month, check the numbers, adjust as required” 

Sound too easy? Sound too good to be true?  I guarantee you, and I know for a fact, that every profitable dealer in this industry has a plan and monitors and adjusts it all year long. 

When I do a Financial Performance Analysis for a dealer I always tell them – without exception - that they should be making between 3.0% and 5.0% minimum profit on gross sales. I often run into the usual negative “sounds too good to be true” response but the numbers don’t lie. Nor do the balance sheets of the industry’s most profitable dealers.

If you build a comprehensive financial business plan with monthly profit objectives that incorporate proven statistical targets for margins, expenses and sales volumes for each department in your Dealership, then you are one step closer to the profits you should be making. 

Then compare your plan each month to your Profit & Loss Statements and make immediate adjustments to bring your targets back in line when necessary.

Sometimes those adjustments mean hard choices like laying off staff to hit the 9.0% salary cap, but immediate and considered action can make the difference between profit and loss.

This is not a time consuming responsibility, but it is a responsibility, one that will make all the difference in the way you manage your business and the profit results you will realize at the end of the year. And no more churning of the stomach and the burning question “what went wrong?”

If you need help or guidance to get away from managing your business by the seat of your pants and to build your plan, contact me for a free consultation. 

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