“Poor expense practices melt away gross profit dollars, reduce net profits, and take away from potential capital funds — funds which could be used to produce more income or to support better prices against competition.
“On the other hand, sound expense control enables the dealership to realize maximum return from its total investment, and leads to a stronger, leaner operation — one which is more equipped to be competitive and to grow in a tough demanding work place.”
Those words of wisdom are from an older version of The Ford and Lincoln-Mercury Manual of Internal Controls and Operating Procedures. It is great advice that I have tried never to forget in both my personal and professional life.
I am a firm believer that expense control is the seventh profit center in a dealership.
I realize you can't save your dealership or any other business into a profitable position.
But, with the proper controls in place and with the proper buy-in and assistance from your staff, you can certainly enhance your bottom line.
The bottom line is this: “Each and every dollar of excess expense is a dollar of net profit lost.”
So, just how do you go about establishing an expense conscious culture in my organization?
It all starts with staff education. Monthly, without exception, hold an expense meeting with all departmental managers, your comptroller and your payables person present.
Each attendee is given a detailed analysis of each expense account as well as an expense-trend analysis from your dealership management information system.
This expense-trend analysis will list the dollar amount of specific accounts over a period of time as well as the average monthly expense.
This will help you quickly focus on areas that require the most immediate attention. For accounts that are out of line, there should be copies of the charges by department for each person to review and discuss.
Group discussions of out-of-line accounts help facilitate education and teamwork. As the qualities of the meetings evolve, you will see an expense-conscious culture begin to form with your management team.
Now also is a good time to establish a preferred vendor list for your operation, if one does not currently exist.
By concentrating your purchases with fewer vendors, you command a more competitive price. It is important for your management team to support this list of suppliers, and stay away from the tendency to occasionally make purchases from other sources.
If you currently have a preferred vendor list, this is a good month to send a letter advising both current and potential vendors that you are soliciting bids for their services for 2007.
If they are current vendors, you might add the following:
“Based on the good service your company has provided, we would prefer to continue our business relationship, but that decision will be based in part on your price competitive position in the marketplace.” (If you would like a copy of a sample letter for this, please contact me and I will provide it.)
Expense management is a 365-day per year task. You must put yourself in the position, from an expense standpoint, to capitalize on opportunities when they occur.
Education, teamwork, expense management and expense reduction are all within your grasp when you implement the simple processes discussed here.
Tony Noland is the president and CEO of NCM Associates, Inc. He is at [email protected].