I have created forecasts and budgets each year of my professional career, and feel somewhat comfortable with the process. But I'm always open to insights from others.
Accordingly, I participated in an informative audio conference, Understanding Budgeting, by Alpha Financial Consulting Inc.
First, their definition of budgeting: “A budget is a summary statement of plans expressed in quantitative terms. It guides an entity in reaching financial goals; it is a forecast of future events. A budget is simply a business plan restated in dollars and cents.
“Without a narrative plan with goals, objectives, strategies and tactics, there is nothing to budget. The plan indicates where a business is now, where it wants to be and how it will get there. A budget simply quantifies the ‘how it will get there’ portion of the plan.”
How did your operation perform relative to your plan for 2006? Granted, many automotive franchises had more than their share of challenges. If there were areas where you failed to realize your forecast, what were the contributing factors (i.e., excess expense, insufficient gross or a combination)?
If there was excess expense, was it personnel-related or possibly related to improper inventory planning? Did you take all the necessary steps to right-size your expense structure based on your actual gross production?
Before formalizing a plan for 2007, think about certain external influences which could directly affect business.
Is your local economy diverse and stable in terms of employment? On a national basis, what will happen with interest rates and the price of gasoline and, what effect will it have on your business?
One respected firm's 2007 economic forecast calls for a decrease in interest rates, crude oil to be about $65 per barrel and unemployment to be about 5.3% by year end. If this economic forecast is accurate, how will your business perform in light of it?
The first step in planning 2007 is to comprehensively review your 2006 results with all managers in attendance.
It's important each manager then devise an attainable plan for 2007, taking into account any factors which might impact performance. Once each individual departmental plan is established, each manager should share them with other managers.
Another comment of note from the conference:
“In a good budgeting system, realistic targets are set and actual revenues and expenses come within a percentage point or two of the budget. ‘Beating’ a budget by a wide margin because it includes unnecessary padding should not be rewarded, as it suggests a lack of ability to plan and anticipate. Managers should (also) not be rewarded for sandbagging by setting low targets and then exceeding them.”
To help you and your team in the planning process, following are a series of performance Benchmarks® from the NCM Client database:
A goal without a plan is only a dream. A sound business plan and effective execution will help ensure your success in 2007. Good selling!
Tony Noland is the president and CEO of NCM Associates, Inc. He is at [email protected].
|Category||Domestic||Regular Import||Highline Import||My Dealership|
|Productivity - Gross Per Employee Avg Mo||$8075||$9958||$12549||$|
|Productive Employee % Total Employees||54.4%||57.3%||53.3%||%|
|Gross PNVR Excluding F&I||$1503||$1387||$3796||$|
|Net F&I/Access Pre-Compensation PNVR||$863||$817||$807||$|
|Gross PUVR Excluding F&I||$1840||$1711||$2410||$|
|Gross PUV Wholesale||$34||$78||$88||$|
|Net F&I/Access Pre-Compensation PUVR||$768||$856||$828||$|
|Advertising As % Retail Gross New (Net)||11.6%||12.1%||7.2%||%|
|Advertising As % Retail Gross Used (Net)||14.0%||13.6%||10.5%||%|
|Floor Plan Int. (Net)-As % N/V Retail Gross||9.3%||2.6%||4.1%||%|
|Total N/V Expenses as % Total N/V Gross||92.8%||66.0%||78.4%||%|
|Total U/V Expenses as % Total U/V Gross||76.7%||77.9%||82.6%||%|
|Total Expense as % Total Parts Gross||59.6%||65.3%||54.4%||%|
|Total Expense as % Total Service Gross||86.5%||74.8%||76.4%||%|
|Total Expense as % Total Body Gross||98.0%||88.4%||93.0%||%|