Sometimes it’s the simple stuff
You hear this many times over, maybe in different terms, but it is always there when it comes to hitting the performance numbers you are looking for. And that statement would be…..the devil is in the details. You hear it or see it many times over. You hear it during webinars or training sessions. You see it in the annual MHEDA Disc Report where you have hi-profit dealers and typical dealers. And when you compare where you stand compared to the hi-profit crowd, there are only a few line items that make the difference between being hi-profit, typical or worse.
Let me give you an example…
I work with Currie Management with some of their Performance Groups (15-plus dealers who meet two to three times per year) to compare notes and work on ways to improve their performance going forward. As part of this process, Currie provides a financial model and composite for each member of the group which contains their individual data compared to their model as well as the other members in the group. Participates are allowed to compare notes and discuss differences in operating results, as well as new ideas to make both perform at a higher level, which in turn means that most if not all members should be improving some facet of their operation after each meeting.
The difference between this group and others I am familiar with is, Currie gives each member of the group a “Financial Model” based on their individual sales mix. Consequently, each member’s model could be different from all the others, which is likely depending on a sales mix made up of new sales, used sales, short-term rental, long-term rental with maintenance, parts sales, service sales and other key sales components such as warehouse system, etc. As you probably know, each segment of your sales mix produces a different level of profitability, which in turn must cover your fixed and variable operating expenses below the gross profit line, and generate a profit before tax that will take care of debt service and an appropriate ROA.
So you can imagine what happens the first time a CEO member comes back from one of these meetings, with the “model” that Currie offered up, and shares it with department heads. “Impossible” is what you hear most often, “Our business is different,” is another…”He’s crazy” also shows up quite a bit. In short, a high percentage of department heads cannot imagine getting even close to the model. But then a miracle happens and the historical trend lines start moving in the right direction. Meeting participants discuss how their attempts to hit the model numbers are working out, what works and what doesn’t…describe each step in the right direction and how it was accomplished…and after numerous meetings and discussions, along with the financial composites which reflect actual results against the model, you start to see changes moving the needle toward the model and higher performance. Believe me it has been a fascinating experience to see these changes become a reality.
And, for those having a tough time convincing department heads that the model is reasonable and attainable, a visit from Mr. Currie himself, meeting with each department head, usually gets the process moving in the right direction. It may take more than one meeting, but the results have proven to be worth the time and effort.
I mention this program because what the results really develop from is attention to the details and diving into the weeds to get down to the makeup of basic transactions. With this higher level of understanding, changes are easier to make and understand and lead to more efficient, profitable operations. I can’t tell you how many times we have discussed the parts or service departments and demonstrated how a change here or there produces a move towards the financial model.
And once we get dealers performing for the most part according to the model, we find that the difference between getting results beyond the model are almost 100% related to expense control. In other words, the top 25 dealers in one survey are all very close to “model” performance in terms of sales mix and gross margin percentage. But some in this group produce a PBT 15% higher than their peers…and after reviewing the financials…that increase results from better operating expense control, staying on top of costs and using technology to reduce cost.
I have no doubts that any dealer who participates in a program that I have described will better understand his numbers and be in a position to deal with department heads at their level. In addition, having model goals and accountability will move the needle towards both greater performance and shareholder value. Any dealer getting ready to transition out should get ready by participating in a performance group which will help increase sales proceeds when the time comes to exit the company.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. E-mail [email protected] to contact Garry.
