Manage Your Cash

by: Stephan King, CPA and Partner, Moss Adams LLP

We all know the old adage “cash is king.” All dealerships should carefully manage cash. Given the current operating and economic environment of the RV industry, the better you are able to manage your cash, the better you will be able to weather the current economic storm. Without exception, dealers sales are flat or declining, inventories are growing, and overall profitability is falling.

The Source of the Storm
Higher interest rates and rising fuel costs are affecting your dealership’s sales of new and used RVs. There is continuing pressure to take on more inventory from the manufacturers. In addition, dealership sales are seasonal. This increases pressure to hold onto earned cash. I have written in past articles about the need for dealers to budget and forecast results. Given the recent slowdown in dealership sales growth, successful dealers are using budgets and forecasts to predict their future cash needs.

Managing cash should be a daily, weekly, and monthly process for all dealers. The only way to effectively monitor and manage cash is through timely and accurate financial information. Armed with accurate financial information, what are some of the things you can do to improve your cash position? How do you know if you are doing everything you can?

Here are some of the things you can do to improve your cash position:

Inventory
Increase or speed up your inventory turns. If you are able to increase the frequency of gross profit realization, you are able to accelerate cash flow. Minimizing flooring interest and curtailments are two benefits of reduced inventory levels. Incentives from the manufacturers typically do not help improve your cash situation. If the incentives do not result in net cash improvement through a higher gross profit and quicker inventory turns, you should forego taking on the additional inventory.

Are you focused on improving inventory turns? Can you just say “No” to more inventory? Do you have inventory celebrating birthdays?

Overhead
When times are good, it is easy to let dealership overhead creep upward. When times are not as good, overhead creep is a dark cloud looming over the dealership’s cash. Elimination of excess overhead is a difficult and time-consuming process. Dealers should identify areas of the dealership where a reduction in overhead is acceptable and desirable. Arbitrary reductions in overhead can have a short-term negative impact. Believe it or not, cuts influence employee morale. Do not let your cost containment efforts spiral into bigger problems.

Have you started the process of reducing your overhead? Have you seen an impact on dealership employee morale? Should you reconsider your approach to cost reduction?

Warranties and Other Receivables
Another way to manage your cash is to aggressively pursue reimbursements for warranty and other manufacturers’ receivables. It is not uncommon for dealerships to have a number of disputed warranty claims. Speeding up the collection process and resolving claims may have a significant impact on your cash. Likewise, decreasing the collection time, as with inventory, improves your cash position.

There are a number of other ways to improve your overall cash flow. In the current economic environment of high fuel costs and rising interest rates, managing your cash is vital to weathering the storm. Are you actively managing your cash daily, weekly, and monthly? Have you looked for opportunities to improve your dealership’s cash flow? Is there a better time to start?

Stephan King is a certified public accountant and partner of Moss Adams LLP. Moss Adams serves over 400 dealerships nationwide, providing creative solutions to clients’ complex issues. For more information contact them at (800) 905-4010 or visit their website at www.mossadams.com.