Article

You May Be Happily Ignorant If...

August 2006, Auto Dealer Today - WebXclusive

by Jeff Smelley - Also by this author

You may be happily ignorant if…

If you are managing your dealership primarily on sales revenues and your cash balance, you may be happily ignorant of the true financial position of your dealership. This situation is very similar to driving at night with no headlights. The danger is in what you can’t see.

You may be happily ignorant if …

You don’t know how much cash is going to be required to pay bills, curtail floor plan and make tax deposits.

You don’t know how much money is needed to process title work, pay off liens on trade-ins and therefore, how much is left to replenish inventory.

You don’t know the relationship of advertising investment to sales and which means of advertising yield results.
 
You don’t know whether that off-site sale really made money or if the related expenses were higher than expected.

You don’t know what deals have not been funded by lenders.

You don’t know the past due status of in-house deals.

You don’t know whether you are collecting your BHPH accounts or just writing deals.

None of these answers can be found in your checkbook. Do you even ask these questions, or are you happily ignorant of the answers?

You may also be happily ignorant if …

You are expecting your employees to be more concerned than you are about your money, your success or your future.

You keep hiring employees to manage your accounting, administration or operation because you don’t have the time to nor do you feel it’s important enough.

You think ignoring any of these things will make them go away.

We all tend to gravitate to that which we feel comfortable and knowledgeable about and shy away from that which is uncomfortable and foreign. Accounting controls, financial statements and informed planning are not typically comfortable areas for many dealers. The reason is that many dealers did not have those responsibilities in their earlier positions. Someone else processed the title work, paid the taxes, balanced the checkbook and dealt with the banks. Therefore these dealers focus on buying and selling vehicles while ignoring administrative and accounting issues in their dealership.

Understand, I am not recommending that you become a CPA or even a proficient bookkeeper, but being happily ignorant of financial concepts and requirements is dangerous. If you don’t understand what a Balance Sheet, Income Statement and Cash Flow Statement are, find out. Learn what the components of these reports are and what each means to your dealership. Once you know this you can begin using these reports as tools to manage your dealership.

Only then can you review these documents and know that they accurately represent your dealership’s financial picture allowing you to begin measuring progress towards your goals.

Make it your business to know your business. Strive to become better educated about non-sales related areas of your dealership. Attend professionally prepared classes that address dealership operations. Join your state dealer association. Seek out professionals that can provide expertise and answer questions. Be proactive in your quest for information. The return on investment for your effort may have a greater impact on the success of your dealership than that sales seminar you have your eye on.

Look around and count the dealerships that aren’t in business anymore and you will begin to see the cost of being happily ignorant. Then decide whether being more informed is worth the effort or if you wish to continue to be happily ignorant.

Vol 2, Issue 3

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