I may sound like a broken record in my continually urging you to right-size your operations. But I have heard from many dealers who say they have heeded that advice and are glad they did.
I would like to share with you a great suggestion I picked up years ago from a long-time client; a process he calls Plan B. This is an exercise he insists each general manager complete and then keep up to date. The process is still in place.
In this right-sizing exercise example, we have an idea of our average month's total dealership gross. From that gross, we subtract an amount, say, 85%, to cover our expenses. The balance then becomes dealership net profit.
Our right-sizing challenge is first to identify the essential expenses required in operating our business profitably and then control the expenses and not let them exceed their budgeted percentage.
Obviously, your largest expenditure is personnel. So many begin this process looking at their essential personnel both from a productivity and expense standpoint.
Plan B, while similar to right-sizing, requires you to take planning a few steps to the next level. Assume we've positioned ourselves properly through right-sizing and today we are profitable. But what happens if business conditions worsen? This is where the Plan B exercise begins.
Our goal is to have this plan prepared in advance should we ever need it. Our client's point with his general managers is that by following this process, our Plan B can be created objectively and not emotionally.
For this exercise, assume business declined 15%. From the steps we've taken earlier in right-sizing, we have been able to take 15% to the bottom line, but if our business declines another 15%, there is no margin for error. Now, we are in a break-even or possibly a loss position.
My personal recommendation is that you, the dealer, complete this plan without assistance. Begin, as if you were opening a new dealership and creating a realistic business plan. Start with your staffing requirements and base your productive staffing requirements on unit, gross or hour production.
For example, if I anticipate selling 75 retail vehicles and the average salesperson sells 8.5 units per month, I will need nine salespersons. The average sales manager can work with five salespersons, so I will need two sales managers, one finance and insurance person per 75 deals, etc.
Your fixed-operations personnel needs would be based on traditional averages such as repair orders per day to determine service advisor needs, anticipated parts sales divided by $40,000 per employee minimum and anticipated labor sales divided by the historical labor hours per technician.
From an administrative/support role, only 45% of your total staff can fall into this category. One important item when considering personnel requirements: Don't attach names or faces to the plan, just determine your staffing needs.
The next step is to start down a blank dealership operating report or financial statement. To each expense category, where applicable, assign a budget as a percentage of the gross. Last, but not least, determine the levels of all inventories you feel are necessary to compete in the marketplace. Once you have completed these steps, you will be able to determine your working capital requirements.
Now, after completing the plan outline, compare Plan B to your existing operation and make note of the differences. This — the differences and your methodology in making the changes — becomes your next challenge. Once your work is complete, put the plan in a sealed envelope and place it in an accessible location should the need for it arise.
What you have accomplished will allow you to be ahead of 99% of your competitors should business conditions ever dictate the need for a Plan B. We hope that won't be the case, but be prepared, just in case.
Tony Noland ([email protected]) is the president and CEO of NCM Associates, Inc.
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