“Dealers are used to talking about how many trimmers they sold or what advertising they did,” explains Crader. “They talk about when their next open house will be, not their return on assets. But a banker will ask those tough financial questions.” Dealers should be prepared to talk to lenders about their return on assets as well as their profitability over the past few years. Crader advises dealers to prepare several accurate, detailed profitability and cash flow statements on a regular basis to prove they have a strong handle on their business.
WHERE TO INVEST
Once you have earned or acquired the funds for investing in the dealership, the goal should be to invest in any area of the business that would improve operations and reduce costs. “We try to invest in areas that make us more productive, which would help eliminate costs,” explains Winstead. “We would upgrade our computers, for example, or modernize the shop to help the mechanics.”
Technological upgrades are a popular reinvestment among dealers. Having an updated system with additional capabilities can help the business run as smoothly as a well-oiled machine. Additional computer workstations are also favored. “The added revenue from a great snowblower season has allowed us to update and expand our computer network and website,” shares Andy Egelhoff of Egelhoff Lawn Mower Service in Thiensville, WI.
“We came to the conclusion that every key employee needs their own workstation with Internet access to be more productive,” Egelhoff concludes.
What about the people working in the shop or at the computer monitors? These are the people who keep the business going, and Hoctor believes they should also see some of the reinvestment dollars. “Dealers need to reinvest first and foremost back into their people,” Hoctor advises. “If you ask a typical dealer, they will say they pay their people well. Maybe they do, but most dealers don’t have an incentive plan or device in place to promote loyal, good employees.”
A little incentive can go a long way. By offering employees who perform well throughout the profitable year an added bonus, dealers can build the employees’ loyalty to the company. The more dedicated and loyal employees a dealership has, the less turnover it will experience. The resources used in hiring and training new employees will take away from the profits, leaving less money for future reinvesting.
An area of investment that will offer a great return is in the facility itself. Improvements on the structure and size of the facility will improve the overall value of the business. If you rent your facility rather than own, purchasing it may be something to consider.
“The majority of dealers rent their buildings,” says Hoctor. “With rent continuing to go up, that is a huge strain on a business.” Forking over the cash now for a down payment or purchase of a dealership facility will alleviate the financial distress caused by future hikes in rent. According to Hoctor, this should all be laid out in the business plan. “A part of any good renting dealer’s business plan should include putting money aside for a down payment on a building,” Hoctor advises. “You have to plan for it.”
Dealers who are enjoying a profitable business may think: If it isn’t broke, why fix it? Instead of letting the successful aspects of the business coast along, they should be invested in to further increase their profitability. “Dealers should make sure they are maximizing the profitability of what they already have,” explains Crader. “They should be putting systems in place to enhance the profitability of business segments that are already lucrative.” Determine which group of products or segments of the business are offering the best return and consider allocating some reinvestment dollars to those areas.
As dealers actively running the business, you should know which areas would benefit most from investing. If you can’t put your finger on it, Marks suggest this simple exercise. “Every process has a critical constraint,” explains Marks. “Dealers should think about what the one thing is that they can change in their business that will make it more successful.” Marks also suggests thinking about the one thing that you find yourself apologizing to customers for again and again. By asking yourself these questions, you should be able to think of a few areas unique to your business that could use investment.