How to Make More Money In Finance (or any department)

Rank the producers (finance managers, service advisors, salespeople etc) and display the ranking for all to see! Its that simple.

I can’t encourage this enough. In fact I blogged about it briefly a few years ago and people who know me know I harp on this a lot. It is so simple that everyone should be calling me and saying “John, I get it. I see how this can work magic in my dealership. Show us how to do this.”

Here’s how I do it:

  • Using Microsoft I create an Excel 2013 (or 2016) workbook and using the latest Excel feature (Power Query) I access the CDK Data Server/Repository I have setup (DAP, MDA or RPX)
  • I pull the data into the PowerPivot (new in Excel starting with 2010) create relationships and measures (stats)
  • I create a pivot table to rank and display stats
  • I add slicers so folks can interact with the data
  • I host it in a Site (SharePoint Online) in Office 365
  • I fine tune who is allowed to see it using Site permissions (Usually everyone)
  • I make sure automatic refresh of the data is setup so everyone is always looking at current data
  • I send everyone a link to the new report
  • I sit back and watch the numbers go up.

Here’s what it looks like for F&I Managers:

FI Store Ranking Obscured

If you need help, shoot me an email jdonnelly@jdonnelly.com

The Perfect CFO for the Automobile Dealership Group

I have been involved in some excellent discussions and debates lately about the financial management of automobile dealership groups and what the successful enterprise needs. The conversations pertained to the significantly sized group of automobile dealerships say, more than 5 physical locations, where, not only is it not possible to have a continuous physical presence, but it is extremely difficult to manage, new, untrained or inexperienced management and staff.

The debates did not pertain to public companies as in those enterprises, the CFO has an entirely different job description than in privately held dealership groups. In addition, Private Equity makes things interesting for the CFO of an otherwise traditional structure and typically indicates there is a dynamic and talented, albeit highly leveraged, entrepreneur to work with which, in my experience, is always a pleasure.

The cornerstone of the successful financial management of automobile dealership groups is the CFO. My experience has been that the CFO in the privately held arena is first and foremost, the business process expert. The one that knows how it should go given the goals and constraints of the organization. We maximize the amount of profitable transactions with checks and balances and internal controls baked into the process.

The good news is Automobile Dealership CFOs like this are available and this is who and what they look like:

  • They are well-trained in accounting and business policies and procedures. Not only to understand the environment where they are engaged, but to be able to be flexible and creative in the process. Think musician having a command of his instrument. They should have passed the CPA exam and gained at least 5 years experience in public accounting with mostly auto dealerships and their owners as clients. The majority of their public accounting experience should be in management advisory services not audit or tax. A person such as this will have seen what they need to see to have the depth necessary to be on your team.
  • They will have workout and turnaround experience. After their public accounting experience they will have sought out problems and gained experience in fixing them. They will have seen the ones that went broke and why and struggled to rehabilitate them and sell them off for the benefit of all, the owners, creditors and employees. They will know:
    • How to find cash where others find none.
    • How to find financing where others find none.
    • How to protect assets.
    • How to recover assets.
    • How to stage a come back in sales and profitability.
  •  They will understand what their mission is: to dedicate their business life to maximizing shareholder equity and minimizing risk; thereby ensuring the growth and profitability of the enterprise.
  • They will have Business Intelligence know-how. The will dedicate themselves to making sure all, on the front lines and in the executive suite, have accurate and timely information. Wikipedia says it very well:

    Business intelligence (BI) is the set of techniques and tools for the transformation of raw data into meaningful and useful information for business analysis purposes. BI technologies are capable of handling large amounts of unstructured data to help identify, develop and otherwise create new strategic business opportunities.[1]

  • There is no substitute for the right experience which is:
    • The right experience is ass-on-the-line, varied, cutting-edge and continuous improvement experience.
    • The best CFO will have experience in large groups as Business Manager, Controller, Owner, GM, Used Vehicle Director, Sales Manager and Sales Person (usually prior to, in college perhaps) and every and anything in between.
    • They will also have experience in small dealership groups and even single points where they have had to do it all.
  • They will keep well-trained and current in technology and new advances in their business environment. Training is not information gleaned from vendors. CFOs who stay current know what is concerning lenders, what new tools are available for improving productivity throughout the organization, and what new risks are presenting themselves. They know this by reading, not by traveling around the country taking courses and attending symposia.

I was declared the winner of the debate (naturally) because my argument is sound. I argued the proposition that the great CFO is one who can ensure the organization grows by leaps and bounds without losing control (minimizing risk). The great CFO seeks annual returns on assets (ROA) on the order of 25%. A return commensurate with the risk taken. The only way is with knowledge, experience and most important, understanding.

I stressed that one cannot know what one has not experienced and, experience, while being necessary, is not sufficient. What is required is understanding. Understanding comes from a mix of experience and training such that, to use the music metaphor; the jazz virtuoso, who has a well-trained ear and command of his instrument, can play wonderful music anytime with anyone. So the virtuoso CFO ensures the right things happen so that growth and profitability abound.

Auto Dealership Group Used Vehicle Department Objectives

This blog post originally appeared on our Auto Dealership Group Management blog.

Last year I rolled out what I considered a simple and effective objective for the Used Vehicle Departments in a large dealership group. I was addressing a room full of dealership General Managers (GMs) and Used Vehicle Department Managers (UVMs); about 60 people. My aim was to let our dealership teams know what was expected of them with regards to gross profit.

The crux of the presentation was to set an objective that each car should contribute 10% of its cost to the dealerships gross profit in 45 days. Basically to state it conversationally, our inventory age and gross per unit expectation was:

“If you are going to take the full 45 days to sell the car, I want to see a 10% (of cost) gross profit ($1,500 on a $15,000 car) in the till. If you turn it in 23 days, I’m satisfied with a 5% gross profit. If you are going to drag it out to 70 days, I want 15%.”

The constraint was lot space, not the target percentage. I wanted them to know that if they wanted to sell volume, it would be fine if they had a lower GP% target. That is, if your average turn is 20 days, $750 gross profit on a $15,000 unit is fine.

I had more than one GM tell me it was complicated so I drew him this:

My objective seemed unusual because most believed that, in practice, after a certain age, a vehicle’s expected gross profit drops (or at least that is what most of them experienced).

Its true though, when a car doesn’t sell in 45 days we feel we most likely screwed up somewhere in the process of stocking and selling the car. But maybe not. If we didn’t screw up then why didn’t the car sell? It could be any number of factors such as:

  • The vehicle wasn’t in pristine shape. That is, something was wrong with the car that kept customers from offering us top dollar for it.
  • The salespersons involved in showing the vehicle didn’t use their best selling skills nor did they always follow the approved selling strategy.
  • The Desk Manager didn’t use their most aggressive negotiating position in working offers up to the 45 day mark.
  • The car wasn’t well represented on the internet. That is, it wasn’t described well or the photos weren’t good enough to get the car on the customer’s short list.

One factor I didn’t include in the list is that the car wasn’t “right for the lot”. In the days before internet marketing I would say that could be a big factor; not so today. If you have a new car franchise, then your lot is fine for most cars you want to stock and market on the internet. I say most because, even though your lot may be a good place to sell all vehicles, your staff may not be skilled enough to represent Lamboghinis and Ferraris.

So the same graph above may actually, in practice, look like this for some dealerships:

If a UVM experiences a relationship like this, it does not prevent him from meeting our expectations, it simply compels him to make sure all units are sold prior to the 45 day mark. If, for some reason, he keeps a car beyond 45 days, he knows he is expected to make a home run on the eventual sale of the unit.

Advice for the Toxic Manager

Toxic Managers
Over the years starting when I was a Partner in charge of Management Advisory Services at an Automotive CPA firm in Los Angeles, I have met many toxic owners and managers of car dealerships. They weren’t toxic to me so much as their employees. The car business seems to attract these folks because relatively untrained and uneducated owners and managers of car dealerships will hire them. I have had to gently counsel these folks over the years and my advice is always very similar:

“If you have hired and fired hundreds of people over the last few years the problem isn’t the employees, its you. Get some training. Try Dale Carnegie Training or anything.”

In other words if you have these problems it is an indicator you may be short on interpersonal skills.

The toxic manager can have many characteristics. Here are a few:

  • Ridiculing or insinuating an employee is stupid or beyond hope in some way. Especially bad in front of others.
  • Dismissing employee’s suggestions out of hand acting as if they couldn’t possibly have the best interest of the dealership in mind.
  • Pressuring employees for better performance; acting as if all employees are mooches and need constant whipping to get one’s money’s worth.
  • Criticizing an employee’s performance at their job when they were covering a more important function (selling or customer service) because another toxic manager couldn’t.

There’s more. If the spirit moves you add some to the comments.

Easy Forecasting and Tracking for Car Dealerships

Over the last several decades I have been associated with the automobile retail business and have always been a huge proponent of monthly and annual forecasting. It has been very cumbersome and difficult for some stores but I have found a great system that does not take up an inordinate amount of time for our important sales management folks and yet motivates them to set new records in sales and profitability every month.

With the improvement of Microsoft’s online Sharepoint application even the smallest of dealerships can have an effective and very secure internal management reporting website. A highly secure website for dealership employees with extremely detailed permission levels (IT guys call it extremely granular permissions). Communication is a key component of motivating our people.

Part II: Understanding and Expectations (continued)

(Part of the section Understanding & Excellence Part II – Understanding and Expectations)

Training is a resource for our employees that I prefer to separate from all other resources such as equipment, tools, desks and computers. Training is so fundamentally necessary to the functioning of the human mind and body that it cannot be ignored. We sometimes take it for granted and yet at times, we find ourselves with an employee who is unable to complete critical tasks and unfortunately is unable to figure it out. In my career, like most new managers without an ounce of training, I took an egocentric approach to management. I assumed that all of my employees are basically trained similarly to me in the fundamentals, the fundamentals being how to learn, how to evaluate, how to change and how to improve. I found myself assuming that they had similar grade school, high school, and college educations even though I knew that most of them hadn’t been to college. This egocentric approach to employee capabilities was a grave mistake; not from the standpoint of the employee being able to complete a task, but rather them knowing how to do, evaluate, change and improve.  I realized that in order to be successful I would have to train my people on how to learn, evaluate, change and improve.

All other resources are simply the materials, technology, support and fixed assets needed by our people to do the tasks assigned to them. Resources are critical to our success and easily understood. If thought about creatively and researched, their acquisition can lead to wonderful competitive advantages.

Expectations are an essential component of achievement. Where our expectations lie is where our target is. This is true whether or not we have consciously determined a target or not. If I expect my salespersons to make contact with ten prospects every day then that becomes the target. If I don’t really expect anything, then I don’t monitor prospect contacts and no contacts will become the norm. The entire purpose of this book is to develop understanding, then develop expectations, and then improve through pondering the results and developing new expectations. More to come….