Dealer Insights - March/April 2013 - Chart Your Course In The Right Direction
The economic environment that influences your dealership’s success has changed dramatically over the last several years. During the worst of the recession, your business likely focused on the here and now: surviving and reaching an acceptable level of profitability.
Now, as the environment for selling cars and trucks continues to improve, it’s time to pay more attention to your dealership’s future. You can do this by revisiting your business plan — or, if you haven’t had a plan, creating one — and determining the best road to greater profitability and future growth.
A COMPASS OF MANY USES
A business plan is a management tool that maps out your dealership’s future by setting goals and then charting a route to reach them. Your business plan also can serve other purposes.
For example, factory field representatives and lenders view auto dealers with formal plans as more organized, less risky business partners. And, with manufacturers looking to constrict their franchise networks and lending still tight, a formal plan may give you a leg up on the competition.
If you haven’t formalized your 2013 plan by now, it’s not too late to start. The year end performance recap from your factory field rep in January or February provides a good starting line for business planning.
THE HEART OF YOUR PLAN
The type of plan and level of detail may vary depending on your dealership’s size, its goals and with whom you plan to share the information. Most plans include a forecast of future performance presented in a format similar to that of the dealership’s financial statements.
In other words, you should have a projected balance sheet, income statement and statement of cash flows. You may not realize it, but these three financial statements flow into one another. Increases in planned equipment expenditures, for example, will affect all three statements.
WHAT YOU EXPECT TO HAPPEN
Your forecasts will be driven by a number of assumptions. For instance, based on market trends, you might expect warranty service to decrease 10% due to better built vehicles. You also might assume cash deficits will be covered by draws on your credit line, which could potentially increase interest expense.
Excel spreadsheets often are used for business planning. They enable you to change one assumption and then see how that change filters through the three financial statements. But it’s imperative that your assumptions be reasonable. You can assume, for instance, that you’ll sell an average of 50 used units per month. But if the most you’ve sold recently is 30 per month, does your assumption really make sense?
Some plans also include a sensitivity analysis, which identifies the variables with the biggest effect on the bottom line. Others provide three scenarios — best, worst and most probable cases — to give the plan greater perspective.
If you expect managers, lenders or prospective investors to buy into your business plan, include verbiage on your strategic direction, industry outlook, market analysis, anticipated changes in operating efficiency and management team. Be realistic.
A concise, well-written executive summary is another key element of an effective plan. It will grab the reader’s attention, especially when you’re communicating with time-crunched lenders and factory reps.
Once you’ve completed your business plan, what’s next for your auto dealership? Too often owners shove their plans into a desk drawer and fall back into the routine of managing by gut instinct. But you’ll get more mileage if you compare actual performance to your forecasts on a monthly basis.
Identify discrepancies between actual and forecasted results, and evaluate the underlying causes. Perhaps your plan’s underlying assumptions are flawed or overly optimistic. Or maybe some members of your team aren’t following the plan — they may be overspending or underselling. Use your findings to revise your plan, and employee behaviors, going forward.
A LEARNING PROCESS
If you treat business planning as a learning process, you’ll gain a deeper understanding of how your store runs. In turn, your forecasts will become more reliable and meaningful. Spot-on business plans impress lenders and factory reps, which may entice them to do more business with you.
Dealer Insights - March/April 2013 Issue