It's that time when we'd like to gaze into our crystal balls to see what the next year holds.
Well, if it were as simple as that to see what our futures hold, then how we run our businesses would be different.
Instead, we have to plan based on historical information, known factors and sound business judgments.
One concern I've always had as I prepared budgets is my ability to create a final product that is realistic. Sure, we want to be optimistic. We want to believe next year will be better and business will be great. But we have to ask, “Will it be different and if so, why?”
We have just experienced two back-to-back business extremes. For many, August was the best month of the year followed up by September which, well, wasn't.
Any time we have a market fluctuation of almost 4 million units in the seasonably adjusted annual rate, no one really wins. I think 2010 vehicle sales will mirror 2009, except for timing.
I do believe, when compared to 2009, we will see a gradual improvement in new-vehicle sales as we enter the final half of the year.
On a macro level, I firmly believe we need to see consumer confidence improve dramatically. More importantly, the current trend in unemployment must reverse. The more quickly this happens, the faster we can start doing business with some degree of confidence.
To begin your 2010 budgeting, do this:
One week prior to sitting down and preparing your financial plan, assemble your management team, provide a high-level recap of your year and explain what you want to accomplish by preparing this budget.
From experience, I have found it best to provide management with a recap of the past 12 months. Ask each manager to identify in writing areas where improvement is possible.
After noting these areas of needed or possible improvement, each manager should prepare a detailed plan to accomplish them. Remember, a goal without a plan is only a dream.
Confusion often obscures the difference in a budget and a forecast. Researching the definition for each, I found a statement that offers a good explanation.
It's this: A budget is an organizational plan stated in monetary terms. Forecasting predicts the outcome of a planned action based on actual outcomes in a reference class of similar actions to that being forecast.
The plan your management team will complete obviously should include their anticipated sales and gross profit generation, inventory levels, as well as an estimate of expenses and personnel counts required to generate the gross.
A successful dealer, whom I greatly admire, has each member of his management team choose five items that will most directly affect the performance of their respective departments.
During monthly review meetings as the year progresses, these individual items are referenced in discussing performance. For example, consider an action item a new-vehicle manager might submit: If I want to sell 100 new and used vehicles monthly and my average salesperson's retail unit production is 8 units, my salesperson count cannot drop below 12.
When preparing an expense budget, remind your management team that, for example, the monthly expenditure cannot exceed 75% of our gross profit if we are to take 25% to the bottom line. Then, the challenge becomes allocating or assigning a budget to each individual expense to ensure that collectively the expenses do not exceed the 75% noted in this example.
Last, but certainly not least, include a discussion of cash, and educate your team on the items which impact cash and your ability to do business.
The new year will present its share of challenges for us as an industry. But with proper planning and a committed management team that can execute its plans, 2010 can be successful.
Tony Noland is a veteran auto dealership consultant. He can be reached at [email protected] associates.com.
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