In the latest of our series, thanks to legendary service advisor trainer, Lloyd Schiller, of LloydSchiller.com and Brooke Samples, of Profit Blueprints, Brooke looks at the benefits of smart expense management.
As you finish 2019 and plan for 2020, now is the perfect time to examine your expenses to see where you can make better decisions to generate more net profit. Smart Expense Management weighs your time against the expense and the value you receive for your dollars. Most of your expenses show up on your financial statement, but there are hidden expenses that could cost you thousands of dollars every week and ones we don’t even think about.
This article covers five ways to be smart about your expenses to ensure you get the best value for your hard-earned money.
I have narrowed the types of expenses into four categories: Avoidable, Inefficient, Wasteful and Necessary.
Avoidable expenses usually show up in the policy expense account but could also be shortages in the parts inventory. Scrutinise these expenses to understand “how can we prevent this in the future?” versus who is to blame.
Is your dealership plagued with lot damage? Add speed limit signs, speed bumps and convex mirrors (under $200) at blind corners, and change the lot layout to angle parking, including one-way lanes, the way parking is laid out at shopping malls.
If you have loaner vehicles or demos and find with every vehicle a wheel or two has been run into a curb, consider rim protection; once the vehicle is ready to sell, transfer the rim protectors to the next vehicle. Your customers might, however, want to buy the rim protectors to protect their investment as an alternative to tire and wheel coverage.
Inefficient expenses won’t show up as entries on your financial statement. Think about your staff and their skill sets; are we maximising their abilities? A technician who waits at the Parts Counter for parts is a prime example of inefficient use of our staff. For each flagged hour, an A skilled tech generates at least $100 in Labor and Parts Gross Profit. Pre-pulling parts, delivering parts to the techs or, in large shops, having a ‘parts counter’ in the centre or at both ends of the shop could increase the available time a tech has to work on vehicles.
Joseph, a parts manager in Texas, found he could pay for an additional counter person when he added a counter person to the truck shop. The techs are now much happier, more efficient and generate more hours.
Wasteful expenses show up when we spend money with no benefit to the customer or the dealership. Think about paper floor mats placed in service customers’ vehicles. We should pull the mats out when we deliver the vehicles to the customers, therefore we don’t need to buy paper floor mats with our name on them. Do as a Ford Dealership in Houston does: a roll of heavy brown paper torn to the appropriate length gets the job done for less money.
There are necessary expenses – but how efficient are we? Electricity is an expense we cannot do without, but are those electrical dollars spent wisely? I was surprised to read in America, that only 20 percent of dealerships have LED lights for their lots. You recoup the cost for this upgrade in a few years, especially if your state has incentives, plus improved lighting highlights your vehicles and provides better night-time security.
To save more and have a better employee experience, replace fluorescent bulbs with LED using a LED Retrofit kit. The LED bulbs last three-times longer and the work area is brighter. Mike, a parts manager, knows the money he spent on installing LED lights in his Parts Department has helped his folks be more accurate at pulling parts and putting parts orders away.
Five ways to be smart about your expenses
1) Watch your expenses
A trend analysis that tracks each month’s expenses is the easiest way to watch your expenses, versus looking at a financial statement where you only see the current month and the year-to-date values. It only takes two or three months to see a problem. (You can create a trend analysis with a DOC, Excel, or through a system such as that offered by Brooke on profits4dealers.com.)
Before expenses show up as being out of line on the financial statement, a manager’s daily routine should include taking a few minutes to review their department’s DOC, paying close attention to the expenses. If the expenses are lumped into categories like Personnel, Semi-Fixed, etc, have the accounting department expand the DOC to monitor individual expense accounts. If an account shows a large entry – investigate it now; don’t wait until the end of the month to find the profits aren’t where we expected them to be.
2) Bill review party
Even if you pay your bills online through your bank or via a company credit card, review and examine the invoices. A bill review meeting will not cover all your expenses (bank fees or policy expenses won’t show up as an invoice), but reviewing the bills is a good start.
Sort the statements and attached invoices into categories – necessary expenses, parts purchases, and services where there could be better options. Look for duplicate services – can we reduce the number of vendors? Question everything: why are we spending this much in overnight delivery fees for finance contracts – is there a better way we should be processing our deals for funding?
Examine each invoice for the appropriate purchase order amount and authorised signature. Are the purchase orders issued with a dollar amount or are they left blank? A body shop manager in Michigan was surprised to find a vendor had over-billed him (an extra zero to the quantity purchased) when I asked him to look at every invoice for a month. The invoices went right to the Parts Department, and Parts shipped it to the corporate accounting office – without the manager’s signature! Best Practice: issue and fill out purchase orders for all purchases from advertising to supplies. If Accounting has to contact a vendor for a missing invoice, the department manager still has to sign that invoice before you pay it.
I was partial to cutting the cheques from the Accounts Payable schedule before posting invoices for the current month. This practice allowed me to see any lone invoices we needed to investigate before they were hidden by posting more invoices.
3) Empower your employees
When you empower your employees they feel valued. Valued employees show a higher level of effort and commitment to ensure the department’s and dealership’s success. The employees make better day-to-day decisions and feel more connected to your vision. Employee empowerment also frees a manager’s time to contribute to the department’s success in other areas. Big bonus – you can groom future leaders for your dealership!
Train the Accounts Payable person to examine the invoices, not just post them. If he/she sees duplicate vendors for the same services, have him/her speak with the managers to see if we can select just one vendor for that service. If there are invoices from a new vendor, bring it to the controller’s/office manager’s attention. Best Practice: have a limited number of vendors and vet each one as carefully as you would a wholesale account.
Teams are a great way to build camaraderie with the employees and control expenses. One or two people from several departments will meet as needed and serve on a team for up to a year. Reward those teams who find savings. Some possible ‘teams’ for your dealership:
- Go Green Team: Focus on reducing waste and operating expenses such as utilities.
- Safety Team: These extra sets of eyes can help keep your employees safe. When you make sure techs are wearing eye and hand protection and the detailers are wearing waterproof/slip-resistant footgear, you can stop your workers’ comp insurance rates from creeping up.
- Charity Team: With guidance, have the team evaluate the charities and decide which will get how much.
4) Use sub-accounts and schedules
There are several ways to examine your expenses quickly. While your financial statement limits the number of expense accounts (200-300), your DMS can have unlimited accounts. Sub-accounts allow you to analyse expenses with minimal effort, and they will merge to one line on the financial statement. One example would be to have different sub-accounts for advertising: Newspaper, Direct Mail, Third Party Leads, Website, Internet, Radio, etc. When you want to examine where you spent your advertising dollars year-over-year, you have the data without a lot of effort. The breakout of advertising expenses also allows you to compare your advertising expense allocation to your budget and to other dealerships’ advertising expense allocations.
Sub-accounts work best for accounts when entries can come from a variety of sources and you want to monitor them. Even sales commissions could be broken down to spiffs, bonuses and commissions. Your sub-accounts should also be on schedules for easy review.
If you don’t want to create sub-accounts (e.g. you are part of a Dealer group and you can only use its chart of accounts), schedules sorted by control numbers can help. For Advertising, you could sort the expenses by the vendor number or assign a specific control number for the different expense types.
5) Use technology
Technology offers a myriad of options to be more efficient and save money. Just because making a choice could be daunting, don’t let that stop you. If a purchase doesn’t meet your needs or a vendor is a bad match, learn from that and move on.
Your Go Green Facility Team could investigate ways to reduce electric expense: LED lights, motion sensor switches, programmable thermostats, high-speed service doors and big shop fans.
Improve your employees’ efficiencies by having enough bandwidth so they can do their work quickly. For a cleaner look and less money, upgrade factory posters or other signage with large flat screen monitors.
Third party vendors save you money and time when they help your staff be more efficient. For every step someone takes in a dealership, there is probably someone selling a solution to expedite the task. For example, stocking parts and vehicle inventory audits become faster when you switch to barcoding. There are companies that do a good job at affordable prices for dealerships, or you can purchase barcoding equipment to set up your own system. Either way, employees save time when you convert a time-consuming manual job to a technology-based task.
Miscellaneous Best Practices:
- Have an executive hand out pay cheques/slips — ensure all employees are actual employees – and to say thank you.
- If sales spiffs get quickly out of hand, use an ‘Envelope System’. Set a budget and that is it – “Here’s your $2,000 for the month – spend it wisely”.
- Have a process to approve purchases. Example: Fletcher Jones of Fletcher Jones Mercedes-Benz knew the dealership could easily afford a $500 printer for the finance office, but after much discussion they found they could take from the accounting office a printer that was barely used. Your approval process should quantify the cost-benefit, the need and if there are other options.
- Plan for major purchases. This allows you to budget accordingly and have time to make the best decision. Create a calendar for reminders to shop for replacement equipment (computers every five years), paint the building, pave the lot, or bid all insurances.
- When you sign a new contract with a vendor – for uniforms, for example – add to your reminder calendar a date a few months before the contract’s expiration date prompting you to review the agreement and options. One option would be to use a Google calendar with an email address of (Dealer name)email@example.com to schedule reminders years in the future. (You can forward the email reminders to your primary email address.)
Regardless of the strength of your business in 2020 – if it is great, if it remains steady or if it drops down some – smart expenses management will always pay off in a healthy bottom line.