Pictured Above: Rex Collins is a principal of HBK CPAs & Consultants.
Uncover hidden cash and build profits in your dealership by understanding cash management and the benchmarks you should be striving to reach, says Rex Collins, a principal of HBK CPAs & Consultants.
Collins consulted on the United Equipment Dealers Assn.’s Cost of Doing Business Study and recently shared his insights in a Rural Lifestyler Dealer webinar. Here are some highlights regarding benchmarking, cash management and knowing your break-even point.
“Benchmarking provides us the ability to compare our own company’s financial performance against other dealers as a whole or companies within a similar line of business,” says Collins. These performance measurements should assist dealers in making accurate conclusions on the daily operations of their dealership. Collins believes that spotting significant differences between industry benchmarks and your own dealership’s performance can be the first step to improving your performance and making you and your team better.
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However, he cautions dealers against using benchmarks as an absolute standard and focus instead on using them as a tool for informed decision-making. “Companies differ as to their sales emphasis, their customer relationships, their location, their size, the industry they serve and the local economy. Any two companies can be successful yet have difference experiences regarding certain performance measures,” says Collins.
Measuring Gross Profit per Employee
Collins likes to start with gross profit per employee when going through the benchmark process with dealers. “The first analysis I do is gross profit per employee and, typically, I am going to try to dive as deep as I can to come up with what the gross profit per employee is,” says Collins.
Most dealerships have data on gross profits, but many don’t have data based on individual employees. This is an important process because the gross profit for employee shows the talent of the employee, Collins says.
Understanding Cash Management & Break-Evens
Cash management is the key to understanding the position of a dealership from day-to-day and it can change in a matter of a few hours. Still, it is important to have a system where cash management is being monitored and reviewed daily.
“Cash management is the key to long-term viability. Dealers tend to experience very volatile cash balances and sometimes manufacturers’ policies drive cash considerations,” says Collins.
Understanding your break-even point is another important measurement and goes beyond how many units that need to be sold and includes other factors, such as parts inventory. “Active parts that haven’t had any sales activity in the last 12 months have less than a 1 in 10 chance of ever selling. Ever,” he says.