Editor's Note: Here's an excerpt from a feature story in Rural Lifestyle Dealer's spring issue. Click here to read the complete feature.

Take the time now to analyze and control expenses; check your processes and profitability, especially in your service department; and become a smart purchaser of goods and services. Start by looking at the “big 5” expenses: data processing, insurance, personnel, advertising and interest, but don't forget the small stuff. We recently found half a million dollars in savings for a dealer by addressing every expense item, including office supplies.

Let’s dive deeper into several areas, starting with your dealership management system. A periodic assessment can you help you see if it’s time for a change or if you’re paying for features that you don’t need. You may even find you’re paying for features you didn’t know you had.

When it comes to insurance, be aggressive and assertive when it comes to premiums. The insurance market is very efficient and agents are fighting for your business, which could mean lower premiums for you. Reach out to different agencies and have them quote their rates, but make sure they are at least matching your current coverage.

When quoting rates, agents tend to provide packages that don’t often lineup with what you have. In that case, go back to them for a revised quote. Dealers we work with are seeing rates for health insurance close to what they were paying 5-7 years ago, without giving up benefits.

This philosophy of being assertive and aggressive also applies to the goods and services you buy. We’ve found that fewer than 5% of dealers have a controlled purchasing process and quantifiable cost reductions in place. Analyze your vendor list to see if you have duplicate or competing services, which is often the case for dealerships with multiple locations. It’s not unusual for a dealer to work with 400 or more vendors and you should be able to reduce that vendor number by 35% or more. Actively managing the remaining accounts and auditing invoices, especially for built-in cost escalators, could net savings of up to 25%.

Ask for discounts as well. Send a letter to each vendor, saying that you will have to shop for other options unless they are able to offer a discount. You can download a sample letter by clicking here. The effort can be well worth it as those discounts could return price savings every month.

Regularly review your lender agreements. One dealer we worked with changed from a fixed rate to a variable rate loan (utilizing a floorplan swap) and renegotiated the terms related to its working capital loans. These moves saved about $21,500 in annual interest and nearly $370,000 in negative cash flow. For a thinly capitalized dealership that is struggling, this cash flow difference is dramatic.

Retirement plans are another area for cost savings, if you are willing to do the research. Or, consider working with an expert to find a plan that meets your needs and budget. See the following chart, “Comparing Retirement Plan Costs,” for an example of what could be available to you.



View Rex Collins' presentation in the Dealer Success Academy, "Preparing for the Unexpected & Unpredictable."