Those who truly understand the intimate nature of any business configuration know that it’s all about numbers, period. And the “numbers measurements” are copious, which in the case of the financial statement puts the accounting office personnel in the cross-hairs. That is provided anyone in the organization really cares or studies what accounting accounts is all about.
I am amazed sometimes at how often the franchise accounting manual guide isn’t utilized, although dealers are comparing numbers in groups as if they were the gospel of likeness. Lesson: Don’t beat yourself up till you know the actual facts.
Business Education
One of my roles was working with a very successful mid-sized dealer group for many years, has been to educate select middle managers and manager candidates on their particular franchise financial statement numbers. These employees have been deemed as loyal performers and influencers, who have earned a plan for continued growth within this expanding organization. The assembly may consist of such underlings as team service managers, parts counter personnel, master technicians, sales managers, F&I managers, as well as their department heads.
The corporation’s owners/bosses, who have been successfully overseeing their highly profitable group for many decades, believes that financial statement exposure, including an understanding of the realities of cash management and so-called profit, creates employees who want to be part of the solution instead of part the problem. I make it a point to dissect the mostly ignored balance sheet of their particular franchise, including the realities of cash flow, fat inventories, and the many categories of never-ending taxes, which is always an eye-opener. I won’t say here, but you know which other group needs a healthy dose of this reality regarding genuine business workings.
Interestingly, of the numerous dealers I have worked with over many years, I feel comfortable saying this conglomerate has the least employee turnover of any. I am working now with most of the same employees we started with in the early 1990s, except for the retirees. You won’t see that often brother and sister.
Big Business
One of the primary concepts I teach is that the size of the average division (department) in today’s dealerships is a good-sized multi-million dollar company itself. Typically organizations of this volume have a CEO or COO who studies and knows their numbers intimately. Unfortunately, today’s dealer department heads are primarily driven by daily forced reactive management, and many get no significant exposure to their own numbers. Some are so uneducated about financial statement performance; they don’t know what they are looking at when they get a glance. Sadly, these same numbers are what their ultimate performance is judged on, and when they get chewed out or sacked because of meager numbers, they still aren’t sure why. How does a daily decision-maker thrive with no understanding of their ultimate scoreboard? And How much of this fact is tied to constant dealer turnover?
One reason for the lack of intimate financial training is the reality of both successful and unsuccessful dealer department managers having more to do with their particular franchise and location, then their actual management abilities in many situations. Take an esteemed Honda manager located in a hot financial and social district, then transfer them to a Kia store in the downer part of town and see what happens. You get the point.
This isn’t a knock on that particular boss; it’s that the right environment can overcome the need to learn financials, ultimately not the best situation in the traditionally up and down long-run. That brings me to trending. In the aforementioned dealer group, we have been continually completing department financial tracking (statement trending) forms I introduced several decades ago. Here, the monthly data and related calculations are entered and tabulated to monitor many financial trends, looking for any pending trouble areas against forecasts, or even accounting errors (yes, those happen more often than you know).
Trends Are Trendy
When I conduct the financial workshops, we always enter the latest data and discuss the trends and merits of the measurements, especially the wherewithals of critical margin management. These comprehensive sessions result in subordinates re-entering their positions with a revised view of the many decisions made by top management, grasping why a serious profit must be earned for their business and related employment to survive. An eye-opener exercise is demonstrating how a dealership can earn a $50,000 profit and have no ready cash to make payroll. If you haven’t owned or been totally responsible for an enterprise, big or small, you are probably clueless to the realities of the numbers – no fault of yours, just the circumstance.
For some reason(s), I will initiate a scheduled hour or so monthly financial statement review with dealer personnel, which is done for a time, then it stops. I am sure a hefty piece of the reason is the daily demands from customers, employees, factory personnel, maintenance issues, accidents, etc., which tend to dominate management time. On the other hand, the departments somehow survive when the top people are on vacations or otherwise away for days – maybe just phenomenon or plain luck. Ignoring the ultimate numbers scoreboard ultimately will create some failures, if not today, then later; but always.
The Bottom Line
The bottom line here is, in fact, more than the bottom line. Glancing at the net profit each month is not the end-all exam, but rather the beginning of investigating and understanding the actual financial performance including the many volumes, margins, expenses, inventories, and receivables of multiple departments. It’s easy to see the need for mini-department CEOs to be privy to, and managing their own department’s results, considering the literally thousands of numbers involved every four or so weeks. Beyond that, sharing financials with subordinates so that there is an understanding acceptance of managements’ many decisions affecting them and others is just smart.
Probably the most ignored parts of the financial statement eating up cash each month are the department inventories in the asset sections. Sadly some manufacturers have chosen to combine some inventories on their financial statement makeup so that individual inventories cannot be viewed easily.
In any event, I have an easy to use Excel workbook, including guides with which you can analyze your service, body shop, and parts departments each month. If you want a copy, send me a note and put on the subject line: “Inventory Studies.” It might be nice to see where at least some of your cash is hiding if it really exists.