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.
- 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.