Crossing the Chasm

Your business, which has been built around people, should now be built around processes. For example, "Bill the parts counter guy" has always done things his way. That's fine; his way might be brilliant. Just get that process documented so it becomes the way that job or task is performed, regardless of who is performing it. Develop and document processes for everything you can think of—parts ordering, service writing, pricing and estimating, collections, etc.

Systems are important because 1) you need to delegate more so you can keep your focus on revenue generation, and 2) you need to run a lean and mean staff.
When your dealership grows to a Tier 2 level, you become a lot busier with more customers to deal with. The temptation is to add a bunch of staff. "You can't do that," Barerra warns. "Five employees is ideal; seven at the most if you're pushing well over $1 million a year." A general rule of thumb is $150K in sales per employee, though many leading dealers average a lot more than that.

Barerra offers the following glimpse of what an effective Tier 2 dealership staff might look like:
• The owner focuses on revenue generation: selling on the show floor and sometimes parts counter, visiting customers, handling the advertising, etc. The owner also works with suppliers and manages wholegoods inventory.
• The parts manager works the counter selling parts and accessories, manages parts inventory, manages the rental department and helps out on the show floor with equipment sales. This is why a more sales-oriented parts manager, as opposed to a technician-turned-parts manager, is often more effective for a growing Tier 2 dealership.
• One or two technicians stay on their benches generating billable hours.
• An administrator does the bookkeeping, along with IT-related functions like generating financial and inventory reports from your business system, managing your website, etc.
• A runner does deliveries, equipment set-ups, assists technicians, takes out the trash, etc. This is a good job for a high-school kid or retired person. You can always hire a couple part-timers to handle this important function.

Along with the desire to add staff, many growing dealers also want to add a bunch of new lines. Barrera says this is another temptation to resist. "Trying to be everything to everybody does not work," he adds. "Build your business around a single brand you believe in. Then supplement it with no more than one or two other lines."

Even if you are only carrying one unit from a manufacturer, it counts as a line. Barerra says, "Dealers love to cherry pick their favorite products from many manufacturers. This is deadly. It requires you to manage phone calls, visits, inventory, invoices, payments, credits, display space, POP, and many other time-consuming tasks for each vendor. You cannot afford this luxury in Tier 2. The narrower your lines, the faster you can cross Tier 2 profitably and get to Tier 3.

If you feel that you need to expand into other product categories—such as fun-karts or compact construction equipment to cover your slower times of the year—make sure the decision to add a new line or product category is preceded by thorough research so you know it's something your market needs and an investment you'll see a nice return on. Test the new line with a few units to ensure market acceptance and profitability before going whole hog. For many Tier 2 dealers, this kind of expansion is exactly the kind of distraction that isn't needed.

Also on the lean and mean side, Barerra says you should do zero-based budgeting. "Don't look at what you spent last year," he says. "Instead, ask yourself what the minimum amount you can spend is, without having a negative effect on productivity and customer service. Look at your phone bill, for instance. Do you really need three lines? Do you really need both a land line and a cell phone? On the other hand, you might need five to deliver great service, but you can lose that extra warehouse space if you consolidate your lines and get more efficient with your No. 1 line. Go through every line item in your budget and scrutinize everything."

Work the edges

You're actively seeking new customers to grow sales. You've trimmed all fat from your budget. Systems and processes have daily operations running smoothly, allowing you to keep your focus on revenue generation. "Now it's time to work the edges—identify the high-margin items and capitalize on them," Barerra says.