The tried and true formula to increase profitability is to either increase revenue or reduce expenses. Is your dealership as profitable as it could be? Is there room to improve your BHPH Budget? How do you know?
You could compare your dealership to other BHPH dealers and against industry benchmarks. If you discover that you are receiving less gross profit per car than the industry benchmarks, you may be leaving money on the table. It could be time to reassess your plan…or your plans.
BHPH dealers need several plans to oversee their budgets because it is a very cash intensive business. Your plans should include:
- Six to 12 month revenue plan
- Expense plan
- Profit plan
- Cash flow plan
In your cash flow, for example, if you are budgeting a $1,500 average in down payments but are really averaging $700, you will run out of money to buy more cars. If you are budgeting your expenses based on this cash flow, your budget will be off quickly.
In your revenue plan, are you projecting net new account growth or is it going to shrink? The more mature a portfolio gets, the harder it is to attain new growth (e.g. 20 paid off, 20 charged off, 40 loans a month = zero growth). Some dealers choose to chase aggressive sales without considering if the deal is a good one to put on the books. Charge-offs will eat up profitability more than any other expense, and it is usually a self-inflicted expense due to poor deal structures and underwriting.
Poor deal structures and underwriting sometimes stem from a lack of training for staff. Dealers should consider staffing and proper training as investments in gross profit rather than as expenses. Too few or untrained staff lead to shortcuts and mistakes. As you gain productivity from staff and consistency in deal documentation and communication, you can increase your gross profit per sale.
Plan your expenses in advance as you do your revenue projections. You should know your expense per car sold, including closing and underwriting costs, staffing, service and follow-up care and collections.
Continue Reading: Start-up dealer? Do it right the first time.
If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.
Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at email@example.com or 972-202-8000.