10 Secrets to Dealership Financial Success

by: Stephan King, Moss Adams LLP

We all define and measure success differently. Success can be measured against external standards or benchmarks. How do you measure the financial success of your dealership? Are you doing the things necessary to make your dealership financially successful?

Over the course of the last 20 years, I have learned a lot from the best teachers; successful dealers. What they all have in common is passion, a commitment to excellence, and keen business acumen. For them success was not an accident but a planned endeavor.

Let me share what I have observed from these successful dealers.

10. Good Financial Information
One common characteristic of successful dealers is keen business acumen. How do dealers make good decisions? They get timely and accurate financial information. Ask yourself these questions. Can you pull a financial or dealer statement on demand? If you do, is it accurate? How much cash do you have on hand? Successful dealers can typically answer these questions with confidence.

9. Hire Professionals
Another characteristic of success is a commitment to excellence. Dealers have different backgrounds. But in all cases, they hire to their weakness and hire professionals. In some cases it was not practical for them to hire directly into their dealerships. Outsourced services are used to leverage expertise. They did not limit the hired guns to the financial and legal areas of their dealership. Ask yourself, do you utilize human resource experts in the hiring, termination, and evaluation of your staff? Should you?

8. Budgets and Forecasts
Dealers use budgets and forecasts to hold themselves accountable. It is also a way to hold their key personnel accountable. They measure success by comparing themselves to others. They use industry benchmarks as comparison against their own budgets and forecasts. Setting targets for sales, units, gross profit are all common internal benchmarks used by successful dealers. Not only do they use them to predict the future, they use them to reward results. Do you budget and forecast in your dealership? Do you compare your results against industry benchmarks or those of a 20 Group?

7. Hold People Accountable
Armed with budgets and forecasts many dealers use them as tools to motivate and reward results. They learned they “get what they inspect.” Should this be expected? Successful dealers use regular management and department meetings to track and evaluate results. It also allows the top performers to rise to the top. Do you hold people accountable? If people do not perform, what is your next move? Do you accept mediocrity routinely?

6. Reward the Right Behaviors
Many dealers use pay plans and other incentive programs to reward the right behaviors. They know pay plans work if they are monitored and evaluated to eliminate unwanted behaviors. Do you continually monitor or evaluate your pay plans to reward and reinforce positive behaviors? Are your employees appropriately vested in your success?

5. Manage Cash
We all know the old adage “cash is king.” All dealerships should carefully manage cash. Dealership sales can be seasonal and as a result holding onto earned cash is an absolute necessity. Successful dealers use budgeting and forecasting as a way to predict their future cash needs. For them, managing cash is a daily, sometimes hourly, occurrence. The only way to effectively monitor and manage cash is through timely and accurate financial information. Are you able to manage your cash daily? Do you use electronic banking or means to manage cash?

4. Unlock Frozen Capital
Dealers who are short on cash often look for ways to find additional cash. These dealers are adept at unlocking frozen capital from their dealerships. There are a number of ways to improve the dealerships cash position. Dealers often speed up the collection of receivables, reduce inventory levels, or defer payment of payables. Successful dealers are creative and look for ways to unlock frozen capital from the less obvious places. Do you know how to identify frozen capital? Have you explored ways to maximize cash from unlikely places?

3. Reinvest
Success is not an accident. Reinvesting profits, extra cash, and unfrozen capital has perpetuated their success. They reinvest as a hedge or protection for the future. The hedge is a self funded insurance policy for a rainy day. Do you self fund for your rainy day? Do you consistently reinvest profits into your future success?

2. Manage Debt
Managing debt is very similar to managing cash. In dealerships debt is the lifeblood. It typically is the primary source for funding inventory. It is also used to fund capital projects or to level out cash flow needs. The debt lifeblood can also be a toxin to a dealership low on cash. It never fails; you can get credit when you need it. Successful dealers only get debt when they do not need it. Do you borrow from banks or others to meet your needs? Or do you borrow from yourself?

1. Build Wealth
The measurement for financial success is security. Successful dealers build personal wealth. And, thus they are financially secure. Dealers are able to use their stores to provide their communities with jobs and financial support. Also, they are able to provide for their own families.

Are you building personal and family wealth with your dealership? Is your dealership worth more today than it was one, three, or five years ago? Do you follow the first nine steps to Dealership Financial Success?

Stephan King is a CPA and partner of Moss Adams LLP. Moss Adams serves over 400 dealerships nationwide, ranging in size from single-point stores to large mega dealerships and publicly held groups providing creative solutions to clients’ complex problems. For more information contact Steve at 1-800-905-4010 or visit their website at www.mossadams.com.