You have to manage cash. You can’t manage your business from how much cash you have in the bank or how much sales revenue you can produce. Many dealers have very little cash because they have reinvested all of their excess cash and profits back into the business while trying to grow sales as rapidly as possible. An increase in sales and gross profits can put you out of business in a very short time frame if you run out of cash to operate. It takes an enormous amount of cash to fund dealership operations successfully and most dealers are undercapitalized and or have not arranged for adequate lines of credit to fund the growth they want to achieve.
You have to manage inventory. Sometimes you have to make those tough decisions when units are overage and are consuming all of your cash and lines of credit. Sometimes it makes sense to dump them and invest in fresh units. Keeping overage units around can actually decrease your potential sales volume and gross profits and is a very poor use of cash. Remember, inventory is normally one of your largest assets and where you have some equity.
You need to review liabilities. Are you able to pay bills on time? You and your office manager shouldn’t be regularly scrambling for cash to pay lien payoffs, monthly parts bills and other expenses while trying to juggle enough to clear payroll checks. Can you pay off your floor plan line of credit according to the loan terms? If you and your personnel are spending time looking for cash instead of selling and managing the business, you will find it difficult to succeed.
Look for equity sources. Look for personal and other assets. Go to the bank and get a new or increased line of credit, or look for an investor or partner to help fund a cash shortage so you can get back to the real business of selling and servicing vehicles profitably. Do not try to grow too quickly. Be consistent and focused instead.
Build your personnel. At the same time you are building your sales volume, build your personnel. Train your people how to do things the right way, the first time. If you don’t know how something should be done, find the answer from someone who does.
Talk to your accountant. Your accountant will be visiting you soon to complete your annual federal tax return. Ask your accountant, “What do you think my financial strengths and weaknesses are?” He or she is probably very familiar with your business and knows your financial history. Discuss a plan to increase your net worth and cash flow, and minimize any cash shortages you are experiencing. Sometimes you make more progress with steady growth rather than large sales surges.
Financial weaknesses can hurt business. If your accounting records are a mess, you will likely encounter many surprises when they are finally reconciled to some semblance of debits and credits. Some of these surprises are not very welcome. Lines of credit and other loans can be put in jeopardy if loan covenants are not being met and haven’t been for months. It will take unnecessary negotiations and time to work through issues like this your financial institution – if they are even willing to do so. The last thing you want to do is scare your financial institution with poor financial data. They might tell you to look elsewhere for financing. Then you really will have a lot of extra work and stress to dig yourself out and you may be forced to close the doors since most dealerships can’t exist without some kind of floor plan line of credit.
Do you have answers? Are your financial records in order? Are they only in order at year end after your accountant has completed the tax returns? If your accountant is cleaning up the same accounting problems year after year, you should know about it. Poor accounting software, inexperienced or poorly trained dealership staff, or a lack of time to get the job done correctly can cause poor accounting records. You should strive to achieve accurate and timely financial records every day. This will allow you, your accountant and other advisors to help you achieve your goals in the time you have allotted for them. Don’t waste any more time. Make sure your accounting and financial data is a strength of your dealership.
Vol 4, Issue 1