Category Archives: Dealership Sales Department

3 Tips for Effective Dealership Training

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If you got a cool new toy, like a drone, and you had never used one, you were probably dependent on reading the manual to get started.  (Just kidding, no one reads the manual.)  And you wouldn’t ask Tom to make a cheesecake without providing the ingredients or telling him what kind of cheesecake you wanted, would you? 

It would make it easier and faster for you if you had someone show you how to use your new drone or if Tom had step-by-step directions (a recipe) to make a cheesecake.  Similar scenarios play out at dealerships daily when managers ask employees (new or experienced) to do something without providing enough training or refresher training.

If the goal is to have a high-performing workforce, we need to be in a continuous, consistent training mode to develop employees’ skills.  While reviewing Profit Blueprints trend analysis reports for the past few years, I noticed some departments spend nothing on training, while others well exceeded the target percentage.  What I couldn’t confirm for many dealerships was a direct correlation between training (or not) and the net profit. 

I hope that when you invest in training your staff, you are able to measure its impact.  An additional measurement, besides increased net profit or better CSI scores, is the employee turnover rate.  If you’ve invested in training, your employees the turnover rate should be reduced from the previous year.  See the last paragraph for the math on that equation. 

You know you’ll invest time in training new employees as they learn about your company, your policies and procedures, and their roles and responsibilities.  But don’t forget aboutwith your existing employees – refreshers on how to best perform their jobs and to learn new skills to aid them in their career growth.  Receiving continuous education also means they’re always on top of industry developments.

Create an annual Training Calendar. Begin with the factory-mandated training.  If you have a time choice with factory training, don’t select from May-August as you will already be challenged with vacations.  Look at your roster of employees who will benefit from training.  Determine what topics you want to review or train on with the employees.  Decide if you want to hire a professional trainer or if you’ll do it in-house.  For a list of pros and cons for both, email me at Brooke@profits4dealers.com.

After training review with employees what they learned.  A 2015 study for the Harvard Business School found that “participants who were asked to stop and reflect on a task they’d just performed improved at greater rates than participants who just practiced a task.”  Your post-training review should reflect on what employees have learned and how it benefits them (and the dealership).  Your reviews help you gather information to continually improve your training program.

Use the following techniques for your in-house training or to supplement with third-party training:

1)  Use two videos with a “before” and an “after” scenario.  Create a video of the wrong way to do something, such as a Service Advisor writing up a new Service Customer.  Ask folks from Accounting or the Sales department to be the actors.  During a Service meeting or training session, play the video and ask the attendees to critique the performance – what could the fake Advisor have done better?  Make a list of the ideas for improvement, augment them with your ideas if needed. 

Later use a Service Advisor to create a new video on the proper way to greet the Customer and write up two repair orders – one Customer with an appointment and one without an appointment.

You can use these videos for one-on-one training for new Advisors.  Use videos for training Technicians on performing a Multi-point Inspection or for a Salesperson highlighting features of specific vehicles or to learn how to use those features.

2)  Let them teach themselves. Self-teaching is not a substitute for more formal training, but it works to supplement a skill set or knowledge base. 

There are many things your employees can learn best on their own like the benefits of regular vehicle maintenance items or for Salespeople to learn the difference between your vehicles and the competition’s vehicles.  Encourage employees to use materials at the dealership (service menus, factory information), to search the Internet for the answers, or to speak with other employees. 

The advantages of self-learning include the “student” may gain a broader view of the topic versus what you have ready to teach.  This knowledge will stick with the employee longer; it teaches self-discipline and responsibility. 

Set timeframes for the employee to learn.  When they finish, have them share with you, or with the other employees, what they’ve learned.

Create internal “courses” for consistent training.  The courses could cover product features, business processes, DMS protocols, etc.  Create quick reference sheets (laminated) for easy access during the learning period.  For high-turnover positions (employees who stay less than a year), break the training down to the smallest learning points to create efficient and effective training.  Think McDonald’s.

3)  Use stories to help employees to remember. Storytelling is a strategic learning tool that conveys action – not static information.  For example, you could tell Technicians and Service Advisors the importance of completing thorough Multi-point Inspections and reporting ALL of the findings to the Customers or you could tell the story of the New Jersey dealership that paid out a $5,000,000 lawsuit settlement.  All because its employees were lax in doing their job, plus the lawsuit exposed that the dealership was making fraudulent claims about how the dealership inspected Customer’s vehicles.  Here’s how this came to light:

A tire blew out on a Customer’s vehicle and the vehicle rolled over. According to court documents, that happened three days after the Customer visited the dealership for a pre-vacation Inspection and services.  The Advisor failed to notify the Customer about the Technician’s concerns about a serious problem with the rear tire, along with the prior service records and Inspection reports that showed problems with tread depth and wear patterns.  I bet they’ll remember that.

Encourage employees to share stories during staff training meetings on how they’ve applied the knowledge they’ve gained.  As part of ongoing training, stay alert for stories that reinforce skills or knowledge and write the stories down to share when needed.

Keep a notebook of your stories that will reinforce a learning point.  How Kari sold a customer who said they were just looking.  How Miguel got a perfect CSI score from an upset customer.

Incorporate a variety of training methods to give your employees the skills they need for their success. Richard Branson, Virgin Group founder, sums it up: “Train people well enough so they can leave, treat them well enough so they don’t want to.”

Calculate Employee Turnover.  Use your W-2s (US dealers) for this exercise.  You can also do this for each department.  Determine how many employees you issued W-2s to who are no longer employed. Determine the average number of employees for the year (add the number of employees at the beginning of the year to the number of employees at the end of the year, divide by two). Take the number of employees who left and divide it by the average number of employees for the year.  Multiply that by 100 to get your percentage of employee turnover.  Example: 40 employees are no longer at the dealership. The average number of employees during the year was 80. (40/80) x 100 = 50% turnover rate.

5 Habits Of Exceptional Dealership Managers

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I hope you fall into the category of an Exceptional Manager. While the following is just my opinion, I’ve come with these points from speaking with managers and comparing their actions (both good and bad actions – not the managers) to their financial results (both good and bad) over the past 23 years.


Exceptional Managers Pay Attention to the Assets They Control. This may not seem like the most important habit but to me, it is indicative of how well a manager knows his or her department. If managers know these numbers, then it is likely they understand most of the numbers that pertain to their department and how their numbers relate to Key Performance Indicators and higher profits.


• Sales Managers should know: How many new and used aged vehicles are on the lot and how many new vehicles are in the pipeline to their lot. They should know the day’s supply of inventory by model.


• Parts Managers should know: The dollar value of parts over 12 months old and obsolete parts. They should be involved in the parts reconciliation to the General Ledger balance at the end of the month. They should know the day’s supply of their inventory, plus the day’s supply of Active or Normal Parts Inventory. They should know how much reserve they have to return unwanted parts.


• Service & Body Shop Managers should know: How many open repair orders are over 3 days for service and 7 days for body shop. They should know how many Customers are scheduled for the upcoming days and what the show rate is. What these departments sell is time, so they should know how much time is available every day.


• Accounting Managers should know: The bank balance is reconciled daily, and there’s enough cash to cover outgoing checks. The finance contracts are paid promptly, and the vehicles on floorplan vehicles are paid off when due.


Exceptional Managers Set Goals for their Department and Employees.
But Exceptional Managers just don’t set goals; they monitor them and coach employees who are falling behind and celebrate the victorious employees. They know how their numbers are tracking and anticipate where they will finish the month. The goals are the starting points for daily discussions with their staff.

Exceptional Managers Look at the DOC Every Day.
The name says it all – Daily Operating Control. Exceptional Managers know they can’t turn their back on their numbers even for one day; it’s like turning your back on a three-year-old. If you look at a DOC, set up with enough information, you know the exact day when something requires attention. I’ve seen some DOCs that were so long I wouldn’t even use them. I’ve seen DMS Dashboards that are so convoluted managers don’t both looking at them. Because DOCs don’t cost you anything extra, spend time to create numerous, useful DOCs for different purposes and the results will be DOCs that are reviewed every day.

DOCs help you scan your expenses quickly (DOCs should expand the expenses beyond lumped expenses like variable, personnel, semi-fixed, fixed expenses). If you have sub-accounts, detail those on the DOC to save time. For example, Service Policy Expense; we recommend sub-accounts such as lot damage, missed deductibles, warranty chargebacks, etc. If the DOC shows each of these account numbers, then the day the general ledger gets hit with a warranty chargeback, the manager knows the day and can research it now! The sales advertising account is perfect for subaccounts because of the variety of advertising expenses from pay-per-click to direct mail. When the manager sees a spike in an expense she can confirm she approved it.


DOCs allow managers to monitor Gross Profit Retentions; so the day there is a drop, the manager can examine the invoices from the previous day to see what happened.
For the sales department, DOCs let you know how many deals have been posted. Then if there is a large variance between what has been sent to the office and what is posted, the manager can check out what’s going on. You see which new models are selling and which aren’t – okay not a big deal this year but sometime in the future it could be important.
The power of using DOCs is frequently dismissed – that’s why I call managers who use them, Exceptional.

Exceptional Managers “Freak Out” When They See a Loss. Okay – not actually “Freak Out” but show enough concern to look into a problem before they assume anything. Whether it’s on a DOC or the financial statement, when something doesn’t look right, the exceptional manager doesn’t make assumptions; they ask why. They don’t Assume Anything. Once you understand why an Expense was high, or the Gross Profit was low, you can do something about it.

Exceptional Managers Don’t Make Excuses. There are very few problems that there aren’t solutions to – if you make an effort. “Oh woe is me, I can’t find any Techs.” “Because of COVID ___________ (Fill in the blank.),” “The weather..,” “Everyone else had a bad sales weekend so it’s okay.”
Many problems are exacerbated because of poor planning and failure to have contingency plans should something happen. “Waah, our computers went down, so we couldn’t write any repair orders” versus “okay, here are blank repair orders, start writing.”


Don’t let excuses be a default – it’s a bad habit to get into – you’re better than that! Benjamin Franklin said, “He that is good for making excuses is seldom good for anything else.”


These are just a few of the habits that help you be successful and show you are an exceptional manager. Take a moment and evaluate how you do on these crucial skills and if you think I should add more to the list – let me know!

What You Can Do at Your Dealership During the Coronavirus Crisis

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John F. Kennedy’s quote, “The time to repair the roof is when the sun is shining,” has never been more relevant. Don’t wait for the world to return to normal; seize this time to upgrade your processes and do all of the things “we don’t have time to do.”

Many or most of your current processes have built-in waste. With our free time, now is the perfect time to evaluate potential wastes. Waste is any step or action in a process that is not required to complete a process. Six-Sigma lists the 8 wastes of lean, as Defects, Overproduction, Waiting, Non-Utilized Talent, Transportation, Inventory, Motion, and Extra-Processing. I don’t know your dealership, but I’d wager at least one or two of your current processes embrace one or two of the wastes.

Besides reducing waste, consider implementing the 5S methodology to streamline your processes with visual control. The 5S Methodology helps a workplace remove items no longer needed. It starts when you remove (Sort) everything from a space. Then only bring back (Straighten) what you need and organize the items to optimize efficiency. Daily keep the area clean (Shine), so you can identify problems. My favorite step (Standardize) is to use labels and color-coding to be consistent. Finally develop the habits (Sustain), and implement the processes to best maintain your “new behavior” over the long term. (5S works just as well at home.)

New Behaviors

We will have to create new behaviors to accommodate Social Distancing (for sure the 2020 word-of-the-year) for your employees and customers. Consider flexible schedules for employees (half the accounting office works in the morning, the other half in the afternoon). For some positions, employees do their work from home. To engage your customers, create videos or flyers that answer their questions or solve their problems. Encourage your service customers to schedule their appointments (no more “just come on in”); maybe you want them to stay in their vehicle until your Advisor gets to them. Explain and show customers your “new” processes with videos and emails.

We will adopt “temporary” practices to accommodate and protect our customers – you never know these new practices could become your new best practice. Remember the ad from Mr. Mom (1983), “We at Schooner Tuna can sympathize with all of you hit by the hard economic times. In order to help we’ve decided to reduce the price of a can of tuna by $.50 until the crisis is over. After that, we will resume our regular pricing. Schooner Tuna, the tuna with a heart.” They adjusted their pricing for the times.

As a temporary practice, deliver parts to your counter retail customers just like you would for your wholesale customers. Offer curbside parts pick-up for parts paid for online or over the phone. If you don’t already have the capability for customers to pay online, determine what works best for you—use a vendor like DocuSign or work with your website vendor to establish a convenient way for customers to pay and go!

If you now offer pick-up and delivery for service customers, vehicle salespeople can be those extra hands. Salespeople can help their fellow salespeople with remote vehicle deliveries. If the salespeople are unwilling to help to maintain a paycheck, are they the people who will be with you in the long run? The Controller in me says always have two people go to a customer’s home or workplace to reduce potential liability issues from a “crazy” customer.

The Great Toilet Paper Shortage of 2020
When you can’t buy toilet paper, the lesson you learn quickly is to conserve resources. My first job as a Controller was at a Chrysler-Dodge dealership before Lee Iacocca revived Chrysler, and we were thrilled to make $4,000 in 1981. We were so cash strapped, (How cash strapped were you?) I would use both sides of the calculator tape. I hope you will never be in the position where a roll of calculator tape makes a difference. Still, in this time of uncertainty, there is a valuable lesson we all will learn from and perhaps be better managers when business returns to normal.

You may have reviewed your expenses at the end of 2019, but now you have a different lens to look through, one that also focuses not only on the best price but on reducing what you are using. Look at want versus need. Maybe I can look at that on the computer monitor instead of printing it out. Hey, Tech, you don’t need to put on new gloves every time you get a little dirt on them—wash it off and save a few gloves for others. Disposable is removed from the lexicon and replaced with I bet I can make this work. What you learn over the next few months will pay off for years to come in better processes and reduced expenses.

Hang on to Your Cash
I’m writing the definitive manual for dealership accounting (to be released this summer), and one segment that is applicable today is the Cash Conservation segment. Although COVID-19 wasn’t part of the plan, the ideas are even more valid in uncertain times when you spend more than you take in.
• Floor plan used vehicles (especially if your lender is allowing a grace period)
• Keep a vigilant eye on frozen capital – those resources used ineffectively. Collect those receivables and sell the old inventories.
• Tighten the credit extended to wholesale vendors.
• Pay bonuses to managers whose salaries are substantial, quarterly.
• Send out Accounts Receivable statements early.
• Make payments on a company credit card to extend the time to pay.

What to Do? What to Do? What to Do?
No one knows when you might have to furlough or downsize your staff, hopefully, you won’t have to. The rest of this article offers ideas to keep your valuable staff busy and productive—staff that you spent time and money recruiting and training. If you have folks quarantined at home and you are paying their wages, keep them in the loop with quick calls via Zoom, Skype, or other internet communications options. Most of these providers have free options.

Create a list of projects you’d like to accomplish to “up your game.” You probably won’t get to all of the projects, but you’ll have a list for the future when things are slow. Some of these ideas you can use even if your department is closed due to government mandates. With Zoom, you can see all of the employees’ smiling faces.

1) Create training videos. Create  5 – 15 minute training sessions for your team. Get their feedback on areas they feel they could improve.

2) Roll play. Practice those skills that make a difference with your customers, such as Asking customers for referrals, Presenting service maintenance menus, Upselling on a body shop estimate.
3) Discuss bottlenecks. Have employees tell you or send you a message on why they think their work slows down due to bottlenecks. Discuss solutions and engage all of your employees for their ideas. Do not disparage their input, or you will stifle their input.
4) Do your spring-cleaning now. Remove and dispose of clutter around the dealership. Sort and shred files (as allowed by the IRS.), scrap warranty parts (as authorized by your manufacturer.), or shred outdated forms.
5) Review every page of your website – do all departments shine? Call every phone number to verify they still connect to the right department.
6) Update employees’ job descriptions.

Everyone acknowledges the coronavirus crisis is an unprecedented time in our history, but we know it will pass. Heed the words of Zig Ziglar, “It’s not the situation, but whether we react negative or respond positive to the situation that is important.” Don’t let this gift of free time get away from you without making the best out of it.

If you would like a detailed list of projects, for each department, that you can do if business is slow, email me at profitblueprints@gmail.com or call Brooke at 877.316.7418.

Internal Labor Rates – Customer Pay Rate or Lower?

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The debate of what the Sales Department should pay for repairs and maintenance continues year after year.  Most Dealerships elect to do most work at a Retail Labor Rate, understanding that the cost of the work will be passed on to the vehicle Customer and the Dealership ultimately will make more profit, since the Sales Department typically sells from cost on Used Vehicles and the commission rates are probably lower.

However, there are still Dealerships whose Internal Labor Rate is 50% – 60% of the Retail Labor Rate and deeply discount the parts.  To those Dealerships, I pose the following question:

What if you’re the Used Vehicle Manager and every week you bring in a beautiful trade at a great price, and you expect to make $2,000 on it, plus finance income.  Now you’re told to sell it to an employee for $500 over cost.  (Even if the employee has plans to retail the vehicle.)  If this happens every week, the $104,000 Gross Profit you would have made for the year is now $26,000. 

Although the numbers may be more significant in this example (and maybe not), the effect is the same when the Sales Department “asks” the parts department, the service department, and the body shop to discount their efforts.

The Service Department, the Body Shop, and the Parts Department could be selling their work at a higher rate to retail Customers.  For Service and Body, there is no replenishing the time sold – once it’s sold at a discounted rate, there’s no chance of selling it at the higher rate.  The time the Parts Counter People spend tracking down the parts the Parts Department doesn’t stock could be spent providing excellent service to the Departments and Customers who pay a higher markup percentage.

As any Service Manager or Body Shop Manager can tell you, finding Technicians is a challenge; just like finding beautiful used vehicles at bargain prices.  The effort of finding, hiring, training, and coaching Technicians is valuable –just like the time spent by the Sales Managers finding, appraising, preparing a vehicle, and then ultimately working a deal to get the best price.

If the Labor Rate for Service work was only worth 60% of the Retail Labor rate, you can be sure that the Factory would pay claims at that Labor Rate.  If a parts Markup of 20% made sense, then the Factory would pay no more.  I’ve run the analysis many times, for many Dealerships, and a 25% Markup on parts will allow the Parts Department to break even.  There is little pride or sense in breaking even.

There will be times when the Service, Parts, and the Body Shop will need to help the Sales Department with a discount, but it shouldn’t be an everyday occurrence — we call them “Mulligans.”  Maintenance work should be done at the same price as Customer Pay – not more than the Customer Pay work.  If there is a “special” price, then that is what Sales should pay.  The Sales Department should also be part of the “Team” and not send work outside the Dealership because they can get it done “so much cheaper.”  This is a disservice to all involved, including the Customer if something on the vehicle fails because the cheapest guy on the block did the work.

The Service Department should be part of the Team and earn the right to charge the retail labor rate, by providing excellent service and not putting the vehicles from the Sales Department at the end of the line.  If it takes a week to get a car through reconditioning, then I can’t fault the Sales Department for demanding a discount, and now Service needs to figure out how to get the vehicle reconditioned in under 72 hours.

There are a lot of challenges and debates when running a Dealership and its departments; let’s not make the Internal Markup be one of them.

Improve Dealership Cash Flow With Best Practices

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Every business faces unexpected events which can strain its bank balance; the trick is to be prepared for them.  Stop-sell orders could destroy your annual forecast for New and Used Sales.  A tornado or a hailstorm could put a dent in your vehicle sales and tie up cash while you wait for the insurance check.  You finally got (and paid for) all of those recall parts, now you have to find the time to install them.  A significant increase in the factory Customer rebates, along with an aggressive sales campaign, could boost your sales to the point where you are stretched for cash because your profits came from factory money and IT’S NOT HERE YET – but everyone wants to be paid—NOW!!  These are just a few of the potential times when all of a sudden “Where did all our cash go”?  The financial statement’s balance sheet shows the two main areas to look for that money: Receivables and Inventories.

When it comes to the financial statement, most managers see their role to make the profit and control the expenses.  Cash flow is low on the list of priorities; after all, isn’t that accounting’s responsibility?

Actually, cash flow should be everyone’s responsibility!  On the last page of your Profit Blueprints© report, there is an analysis of key assets.  Not only do we track the monthly balance, but we put it into perspective by comparing the balances to the appropriate sales accounts.  The values highlighted in green show you how much cash, if any, is tied up in frozen assets.

Be familiar with the schedules and the accounts that concern your department to understand where cash could potentially be hiding.  The checklists on the following pages are for each department manager to make sure his or her accounts are always within target — and that processes are in place to keep the cash flowing.

SALES DEPARTMENT

VEHICLE INVENTORIES

  • Review the aging of your inventory; always be looking for “a sale” for the older vehicles. What are we doing to sell the five (or 10) oldest vehicles?
  • For new vehicle inventory, review the combination schedule that includes the inventory detail and the floor plan amount to confirm all vehicles are floor planned. For most dealerships, vehicles are floor planned.  If that is your policy, make sure dealer trades are either sold or floor planned promptly.
  • Look at your day’s supply of vehicles, either on the last page of your Profit Blueprints Report or on your own internal spreadsheet. Keep in mind handling costs and missing out on potential bargains are just two of the costs you pay if your inventory is too heavy.
  • Walk the lot; inspect the vehicles for faded stickers and cleanliness. Ask the question “if I were a potential customer, would this vehicle appeal to me?”  Don’t let “ugly” vehicles take up space and tie up your money.

Bottom-line: Don’t fall in love with a used vehicle and hope to sell it if it hasn’t sold after 45 days.
Sell it!  Free up the cash and move on to a better return on your investment.

 

RECEIVABLES

Confirm that you will be paid before you extend credit.  Review Receivables Schedules weekly and follow-up with past due amounts:

  • Customer deposits, full payments, and drafts.
  • Finance Contract Receivables.
  • Factory Rebates and Incentives. These could easily get out of hand or charged back if we have sloppy paperwork.  Clearly defined processes and continuous updates to staff will help collect and keep the factory money.
  • Finance Reserve Receivables. This should be reconciled when paid or the amount due is acknowledged by the finance source.  If there is a shortage, ask the finance manager to determine why and then adjust accordingly.
  • Service Contract/Programs Refunds. Any money you are expecting should be on a schedule.   When you refund a Customer, make sure you follow through and get your portion refunded also.

 

SALES PROCESSES

  • Move the deals from Finance to Accounting quickly. Eliminate bottlenecks and monitor pending deals daily.  The faster the deal gets to Accounting, the faster contracts are cashed; the faster the trade-ins are sold, the faster the cash gets to the bank.
  • Make the decision on trade-ins when the vehicle is brought into inventory. Retail or Wholesale – those are your choices.


SERVICE DEPARTMENT, BODY SHOP, and PARTS DEPARTMENT

SERVICE DEPARTMENT

OPEN REPAIR ORDER REPORT

This report could easily hide thousands of dollars of potential cash or potential write-offs.  Keep this report clean by closing Repair Orders promptly.  If not paid in full, CLOSE the Repair Order to a receivables account when the vehicle leaves the lot.  This will make it a “thorn in your side” when it starts to age but is better than the labor and parts sitting on a report that few people review.  Open Repair Orders should have a vehicle on your lot; verify this at the end of every month.

SCHEDULES

Receivables

  • Confirm that you will be paid before you extend credit. This includes Extended Service Contract companies.
  • Warranty Claims Schedule. Clearly defined processes and continuous training of staff will help collect and keep the warranty money.  The last page of your Profit Blueprints report tracks your Warranty Receivables in relation to your warranty sales.  If you are above the days supply target, the excess will show in green.

Sublet Schedule – Service and Body Shop

There is nothing worse than when you have to write off a balance on the sublet schedule because when the work was done, you thought you were going to be paid for it…then something slipped through the cracks and now you have to write off a balance.  Compare the Sublet Schedule to the Open Repair Order report every few weeks to make sure the two are in sync.  Shore up your sublet processes when you see a problem.

BODY SHOP

OPEN REPAIR ORDER REPORT

To free up cash and avoid potential write-offs, close Repair Orders when the vehicle is delivered to the Customer, don’t wait until the end of the month.  Open Repair Orders should have a vehicle on your lot; verify this at the end of the month by touching every vehicle.

RECEIVABLES

The Body Shop should have a receivables schedule separate from the other departments.  The only balances on this schedule should be for Insurance companies you have a Direct Repair Agreement with; all other repairs need to be paid-in-full before the vehicle leaves the Body Shop.  Deposit Customers’ checks in accordance with your dealership’s policy.  Do all of this and you will have a picture perfect schedule.

PAINT AND MATERIALS

Because most paint suppliers deliver requested materials within hours of a request, there is little reason to stock more than a month’s supply.  If your financial statement’s balance sheet doesn’t breakout Paint and Material (P & M), we don’t analyze it on your report unless the inventory balance is supplied by your Controller.  Calculate your P & M supply of inventory by comparing your General Ledger Balance to your P & M Cost of Sales for the Month.  (Sales – Gross Profit = Cost of Sale)  Ideally, the inventory value will be around the average Cost of Sale.  Reconcile the General Ledger balance to the physical Paint and Material balance every month.  Do not let your paint vendor count this inventory!

PARTS DEPARTMENT

INVENTORY

The Parts Department is special because, even though the parts inventory can range from hundreds of thousands of dollars to several millions of dollars, there is no Accounting schedule to confirm that the General Ledger balance is accurate.

  • We recommend a monthly reconciliation of the General Ledger to the Parts Management Report to watch for growing gaps, but this does not assure that all the parts are on the shelves. Perpetual inventories (done 3 – 4 times a year) plus a physical inventory performed by an outside company should confirm all parts are present and accounted for 99% of the time.
  • Watch the days of supply as calculated on your Profit Blueprints© 30 days is too skinny while over 60 days may raise a red flag.  Parts managers will confirm when they got off the 30-day supply and stocked more parts, their sales went up!  Work towards the optimal range of around 45 — 55 days supply.
  • Keep your eye on your stocking status and aging analysis from your Parts DMS Management Report. You could show the ideal days supply — only to find out 30% of the inventory is over 12 months old.  Stocking Status (Normal or Active) is another indicator of the quality of your inventory with a target of 70%+ for most franchises.
  • Do everything you can to minimize Special Order Parts. If the part(s) could be here tomorrow, hold the vehicle.  If it is a Customer Pay Part, the part(s) needs to be pre-paid.  If it is a warranty part(s), the Customer has to confirm an appointment before the part is ordered.  If we saw those Special Order Parts sitting on shelves as hundred dollar bills, we’d do what we could to get them to the bank.

 

RECEIVABLES

The Parts Department should have a receivables schedule separate from the other departments.  The only balances on this schedule should be for approved Wholesale Customers.  Approved means you also have on file a complete credit application and, if appropriate, a sales tax exemption number.  Only extend credit to companies who have good references, continuously pay on time, and have a low percentage of returns.  Being wary of a Customer suddenly buying more than usual – this may indicate they have been cut off from other vendors—or it could mean you are doing a great job!  The Parts Department should be vigilant for Customers who drag their feet on paying.  By the third week of the month, most wholesale accounts should reflect only current purchases.

Each department manager has the responsibility to keep the cash flowing.  Review your responsibilities for your department’s cash flow.  With the proper processes and continuous monitoring, the bank account will be flush and, you can focus on selling more and controlling expenses.

If you’d like a cash flow analysis, call us at 877.316.7418.