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Your Reputation Shows in Your Financial Statement

September 22, 2014

As you already know, your dealership’s reputation ultimately shows up in your financial statement. In fact, it is in every department. But how do you find it?

Your reputation can either hurt or help your financial results. As we all know, a dealership stands out in most communities, especially rural areas. If you treat your customers badly or just don’t care about them, your financial statements are eventually going to show you how badly you are doing. Your sales will decrease, your low customer satisfaction scores could possible hurt your incentive income, and your service business will also slowly but surely decrease.

When I review a dealership financial statement, I look at various expenses and cost of sales accounts to try and get a “pulse” of the store. One such account I like to run a detail of is policy expense for parts and service. This account can be a good indicator of how well you are taking care of your customers’ needs.

If it is high, then you have some customer satisfaction concerns you need to address. It could be comebacks you had to eat because it wasn’t fixed right the first time, your diagnosis was incorrect due to lack of training, or you may have lacked the right equipment. You should be reviewing this account activity each month and finding out the reason why you had a charge off of gross profit. Each policy expense could be a potential unhappy customer who may not be back.

Cost of Sales

Another account I look at is unapplied time in cost of sales. If this is high, I try to pin down what makes up the amount. Is it because you are not charging out your technician’s pay correctly for the actual rate of pay, which includes their normal incentive pay? Or could it be you are just not busy enough? I will normally look at your historical sales on prior year financial statements to see if your total sales are trending downward, or if just a certain type of sales is decreasing. I will look at the number of ROs for each period to see if they are also decreasing or if the dollars per RO are decreasing instead. If your service department is not busy, is it because you are struggling with getting customers fixed the first time and they stop coming back?

I will sometimes look at the detail for your cost of sales accounts for used vehicles for a few months. What I look for are entries from parts and service tickets charged after the sale of the vehicle. If I find more than a few, it indicates to me you may not be reconditioning the vehicles well enough, and the customers are probably coming back complaining about something you have to fix to keep them happy.

If you add up the entire year and then average it out over the number of retail vehicles you sold, you will get an average reconditioning cost you maybe should have incurred before you sold the vehicle. Normally when you have to fix the car after the fact, your sales people don’t share in the cost, and it doesn’t reduce the gross on which you pay.

Customer Chargebacks

Another thing I look at are your finance chargebacks as they compare to your finance income. If they seem too high I will review a few months of activity to see how long it took the customer to charge you back. If there are quite a few recent ones where they cancelled various contracts with buyer’s remorse, you may be pushing too hard and ruin the future relationship with the customer.

If you aren’t paying some of your vendors in a timely manor, more than likely there are other vendors you deal with who also know this. This may make them reluctant to sell to you or they may want to charge you a higher price to make up for the delay. Word normally travels very quickly in the car business, and more times than not, more than 50% of what is said is nowhere near the actual truth. Since some of this can be harmful to your store and your reputation in the community, you need to protect yourself as much as possible.

I know most dealers go out of their way to keep their customers happy as every customer is a valuable commodity these days. It seems that some dealers are much better than others at achieving this. You can almost detect the atmosphere just by walking around the store. Is your store a cheerful place to shop? Does it need a paint job or sprucing up in various areas? Does your service department look grungy and in disarray? Maybe some better storage shelves and workbenches can increase the productivity of the store and make it easier for your technicians to find things. Remember, every minute they are looking for something costs you gross profit.

Sometimes a good thorough cleaning is all it takes. Yes, I look at your repairs and maintenance accounts to see what you are doing to your store on a regular basis. There is a very direct relationship to what is spent in this area versus the condition of your store.

I also try to look around your store as if it is the first time I have been there. Have you ever done this?

Put on a fresh pair of eyes and walk into your service department as if you were a customer. What do you see? Is it an easy, clean, organized and a simple process you go through? Walk into your showroom and look around as if was the first day you bought the store and you were full of ideas in what you wanted to change. Most dealers lose some of this outlook because you gradually adapt to your surroundings.

If you were sitting in your F&I department trying to buy a vehicle, is the process fun or just a dreadful thing you go through? You may want to actually go through the process of “buying a car” so you know what your customers are sitting through.

As you can see, there are many things tied to your reputation, your status in the community and increased sales with how you approach your days in the store. Sometimes it is just as easy to find it in your financial statement. Take a look and let me know what you find.

 

Advisors | Auditors | Consultants | CPAs - Blum Shapiro is one of the premier public accounting firms in the northeast and a Top 100 CPA Firm in the U.S. Our professionals serve businesses, individuals and organizations in Boston (MA), Hartford (CT), Cranston (RI), Shelton (CT) ,Quincy (MA) and Newton (MA) with audit, tax and business consulting services. Our firm has developed practice areas in automotive, construction, education, government, healthcare, hospitality, manufacturing, nonprofit organizations and professional service firms. New Haven CT, Fairfield CT, Norwalk CT, Waterbury CT.