OVE.com or attending a physical auction in-person or virtually, the one consistent piece to your puzzle should be your inventory finance provider. While the avenue in which you source your vehicles may change, your inventory finance company should be your rock. You should feel confident that your inventory finance provider understands the nature of your business and the flexibility you need, and its relationship with you should mirror that flexibility. This includes providing insight on potential market opportunities for your business, improving income opportunities and counseling you on the latest and greatest industry tools.
Maintain Your Business
For many dealers, once they get over the hump of actually starting their dealership, the biggest challenge that remains is being able to maintain their business. As with any business venture, there are certain concepts you need to keep in mind to make sure that you are keeping your business viable.
1) Know when to turn your vehicles
A term that is thrown around in the industry is velocity, which is the rate at which a dealer should turn their inventory. It is a simple concept: the longer a vehicle sits on your lot, the greater the risk that vehicle becomes. According to the NIADA’s Director of Dealer Development Joe Lescota, dealers should not be keeping a vehicle on the lot for more than 45 days, a point which he stresses in the NIADA’s Certified Master Dealer course.
2) Buy smart
It might be tempting to buy a sports car because it looks nice, but is it a good price and does it make a potential profitable addition to your inventory? Going to auction with a plan of how much you are willing to spend can help save you from those “impulse buys” that may turn into buyer’s remorse down the road.
Another thing to keep in mind is that different cars sell better in different markets. Make sure you’re buying vehicles that will sell well to your customer base and won’t be sitting on your lot.
3) Be more efficient with the use of working capital
Floor planning is a great way to balance credit and working capital to maximize your cash flow. However, ineffective use of working capital and under-capitalization, among other factors, can contribute to a dealer going out of business because they can’t keep up with their working capital. Simply put, the more cars you buy and sell, the greater the need to manage your cash flow.
4) Recognize the importance of your cash flow
It is a well-known fact that exhibiting cash flow is important, as it shows your ability to handle money. However, while many dealers can typically tell whether or not they made a profit for the month, they don’t know how they got there. It is important to look at what your money is going towards in your business, because it’s the dealers that don’t understand their cash flow that end up falling into the red. Taking the time to figure out how much you are spending on advertising, maintenance and other business costs can be the difference between a dealer that makes money versus a dealer that just gets by.
In conclusion, to fully maximize your options in the market, you need to ask yourself the following question: “Do I have a financial partner that completes the final piece of my business model?” If your business is building equity and turning a profit, having some additional buying power can surely help you shift into the next gear.
By John Peacock
John will be joining HIADA's Floor Plan Panel at the March 8th Crawfish Boil.
Regional Director