In the second of our series, thanks to legendary fixed operations trainer and consultant, Lloyd Schiller of LloydSchiller.com, and Brooke Samples of Profit Blueprints, Brooke looks at five practices you can implement to keep on top of expenses at your dealership.
“High Margins cover a lot of ‘sins’ and make it impossible to be efficient because you don’t need to be.” Jeff Bezos, Founder of Amazon.
Probably before Mr. Bezos was born, auto Dealers figured out high Gross Profits cover a multitude of sins. Instilling processes that will keep your expenses in shape when business is good and when business is not so good is a best practice that will yield great results.
This isn’t about taking the cheapest way out – just look what that did for Takata. 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, plus ones we don’t even think about. This article covers five ways to be smart about your expenses and ensure you get the best value for your hard-earned money. I’ve narrowed the types of expenses to 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. Examine these expenses carefully with the purpose of “how can we prevent this in the future?” versus who is to blame.
If you are plagued with lot damage, solutions can range from adding speed limit signs, speed bumps and convex mirrors (under $200) at blind corners to changing the lot layout to angle parking, including one-way lanes the way shopping malls are laid out.
If you have loaner vehicles or demos and find with every vehicle the wheels run into a curb or two, consider rim protection. Once the vehicle is ready to be sold, just transfer the rim protectors to the next vehicle. Your customers might just want to buy the rim protectors to protect their investment as an alternative to tyre and wheel coverage.
Inefficient expenses won’t show up as an entry on your financial statement, but could be hidden as not utilising your staff to their best abilities and their skill set. A tech waiting for parts at the Parts Counter is a prime example of inefficient use of your staff.
An A-skilled tech generates at least $100 in Labour and Parts Gross Profit for a flagged hour. By pre-pulling parts, having parts delivered to the techs or, in large shops, having a ‘parts counter’ in the centre or at both ends of the shop could increase the amount of time a tech has to spend working on vehicles.
One 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 much happier and more efficient now.
Wasteful expenses show up when we spend money and there is no benefit to the customer or the dealership. Think about paper floor mats placed in service customers’ vehicles. We should pull them 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 doe: a roll of heavy brown paper torn to the appropriate length gets the job done for less money.
There are necessary expenses – but are we the most efficient with them? Electricity is an expense we can’t do without, but are we spending those electrical dollars wisely? I was surprised to read that only 20 per cent of Dealerships have LED lights for their lots. The cost for this upgrade is recouped in a few years, plus improved lighting showcases your vehicles and provides better night-time security.
Five ways to be smart about your expenses
- Watch Your Expenses
Before expenses show up on the financial statement as being out of line, a Manager’s daily routine should include taking few minutes to review and pay close attention to expenses. 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 thought they were going to be.
- Bill review party
Even if you pay your bills online through your bank or via a company credit card, the bills still need to be reviewed. A bill review meeting will not cover all of 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? Review the invoices, check for fuel surcharges; these will fluctuate as the price of fuel does, but the surcharges shouldn’t be as high as a year ago.
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 completely 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 it is paid.
I was partial to cutting the cheques from the accounts payable schedule before posting invoices for the current month. This allowed me to see if there were any lone invoices we needed to evaluate before they were hidden by posting more invoices.
- Empower your employees
When you empower your employees they feel valued. This then improves the employee’s 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. This 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 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 employees, besides controlling expenses. One or two people from several departments will meet as needed and serve on a team for up to a year. Those Teams who find savings could be rewarded for their efforts. 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 foot gear 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.
Benefits Team: This is tricky because there are so many federal rules, but a small team can disseminate the reasons for the Dealer’s decisions on the health care benefits. This Team could spearhead a wellness program to help keep the healthcare expenses from jumping up.
- Use sub-accounts and schedules
There are several ways to quickly evaluate expenses habits. While your financial statement limits the number of expense accounts (200-300), your DMS can have unlimited accounts. Sub-accounts will show as one line on the financial statement, but will allow you to quickly analyse your spending habits.
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 compare your advertising expenses or examine where you spent your advertising dollars year-over-year, you have the data without a lot of effort.
Sub-accounts work for accounts when entries can come for a variety of sources and you want to monitor them. Even sales commissions could be broken down to spiffs, bonuses and commissions.
My preference is to expense the commission (offset on to salesperson payable schedule) when billing the deal and adjust the commission expense at the end of the month – this helps keep the DOC accurate. Your sub-accounts should also be on schedules for easy review.
If you don’t want to create sub-accounts, schedules sorted by specific control numbers can help. (You can have more than one schedule for an account.) For Advertising you could sort the expenses by vendor number or assign a number for the different contributors.
- Use technology
There are a myriad of options to be more efficient and save money when it comes to technology. 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 look into 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 for 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. Time is saved when you convert a time-consuming manual task to a technology-based task.
Miscellaneous best practices:
Have an executive hand out pay cheques/stubs— 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 solutions.
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) or all insurances.
When you sign a new contract with a vendor – like for uniforms – add a date a few months before the contract expiration date to your reminder calendar to review the contract and options. One option is to use a Google calendar with an email address of (dealername)email@example.com to schedule reminders years in the future. (You can forward the email reminders to your main email address.)
Regardless of whether business is great this year, remains steady or drops down some, smart expenses management will always pay off in a healthy bottom line.
Fixed Operations Consultant