If you’re tasked with creating a budget in these uncertain times, here are some things to consider.
Dealerships have seen high highs and low lows and we’re just over halfway through the year. Some have thrown out their budgets completely. Those still clinging to the idea of a budget, either because they crave the emotional torture or need a reference for making important decisions, are likely revisiting them. If you’re tasked with creating a budget in these uncertain times, here are some things to consider:
Dealers that are used to doing a full year budget at once have likely thrown out the 2020 budget. Don’t make this mistake. Build a budget template. The template should let you input expectations and those inputs should drive changes in relevant income and expense accounts. You should be able to drill down to the month and make changes. The only thing certain for this year is that things will change. Whether that’s for better or worse, a good budget template will allow you to respond to these changes to make decisions.
Going into 2020, there was a clear line between variable and fixed expenses. A good budget would have allowed you to change something like “new retail units sold” or “customer repair orders” and that would change budgeted income. Fixed expenses, or “the nut” were just that—fixed. As you’ve seen through the first half of 2020, for the business to survive, some of those fixed expenses needed to change. For dealerships with reduced staffing levels, making decisions to rehire, or for those who emerged stronger, adding to the team, it’s worthwhile to build in drivers for these expenses as well.
Realistically, dealers rebuilding the budget for 2020 are doing so because they have decisions to make. Another benefit of using a flexible template for budgeting is your ability to look at different scenarios. If the decision would change based on whether the best-case or worst-case scenario plays out, then look at both. Save a copy of the most likely budget. Then, change the key inputs to show best-case and worst-case, saving copies of each. These are the guardrails for the decision.
It’s impossible to perfectly predict what’s coming. If you’re building a budget you’re going to rely on, it should at least consider your best guess at some key unknowns:
For most dealers, their non-dealership businesses are heavily dependent on the dealerships doing well. If these businesses were just a single line on a master budget, consider breaking them out and making those budgets flexible as well. It may take some discussion, calculations, and trial and error to find which demand drivers best predict income and expenses for these businesses.
There’s a balance between wasting time trying to be perfect and completely sticking your head in the sand. Creating a flexible template that incorporates what is likely to happen is a great start. Remaining flexible and being reasonable about what you don’t know is the best way to proceed. Using this as a tool to get on offense while competitors are defensive can be a competitive advantage.