Editor’s Note: This is the latest in a series of stories on the topic Find Hidden Cash written by Hal Ethington and contributed by ADP Lightspeed. Along with the articles, the company is sponsoring “webinars” which cover the information in the articles and show how they can be implemented in your systems. Here is a link to the next one: https://www2.gotomeeting.com/register/897031531

We’re not talking about Every Deal For Every Dollar here. We are talking about the things we do that waste money during and after the sales process, things that cost hundreds of thousands of dollars every year for dealers. Think about the following:

A dealer asked me for a new report that would calculate a salesman’s commissions. I sat with the office manager to learn the method used and was shown a report that had been in use for years, but was hard to read and run.

I looked carefully at the old report and found that it was based on Gross Margin in the deal, multiplied by a certain percentage. I didn’t think too much about it until I looked carefully at the way Gross Margin was calculated. It was simply Selling Price less simple Cost of the unit. I asked the office manager how over-allowances were handled. When he responded with a blank stare and, “What is an over-allowance?” I knew we were in trouble.

A little work soon revealed the extent of the problem. The trades were being booked at the proper values, because Lightspeed did that automatically, but the report that the office manager created had ignored this adjusting entry, paying salesmen instead on the inflated sales price of many units. Total cost to the dealership? About $60,000 in excess pay per year. And this had been in effect for many years. Not only was the sales team overpaid, but the employer had paid payroll taxes and benefits based on the incorrect amounts. Cost over the past several years was easily a half million dollars.

Lesson? Make sure that your pay plans are accurate.

In this same line, you must make sure that all costs are in the deal before you calculate commissions. I see cost of sales for sublet coming in as a guess (usually understated), rather than documented with the actual expense paid to the vendor. I see deals finalized before all service work is processed and booked against the unit. Again, cost is understated, margins are overstated, and commissions are overpaid. Repair orders may be properly booked, but parts or labor may be added to them after the deal has been finalized, again resulting in an understated cost of sales. And what about parts that are added to the deal, and never booked? Happens all the time.

Other areas of hidden cash in the sales department on the cost side:

  • Trade lien payoffs payable must be watched carefully. Any payoff deadline passed results in additional interest expense which must be paid in order to obtain the title to the unit. But there is a cost here that goes far beyond the simple interest dollars wastefully expended. That missed deadline for payoff may trigger a notice to the original owner that his or her normal monthly payment has been missed, and a demand made for payment. This is obviously disconcerting to the owner, and will be some of the worst publicity you will ever receive. The cost here is incalculable.
  • And speaking of payoffs, don’t ignore those flooring payoffs. Yes, I know. It is the easiest float you ever had. It is also the most dangerous. SAU, OT, call it what you may, it is the first sign to your flooring company that you are in trouble. And once you are in the pit, it is almost impossible to get out. You will think that you can work your way out of it, but that is almost impossible. You will end up covering those flooring payments with a loan of some sort. Get it before you write the checks, and keep your most important source of funding safe and happy.

Just a couple of additional thoughts, you already know these things, but here they are to remind you:

  • Birthday units are not funny. Sell oldest units first. Control your list of available units so that the oldest of each color is always next up. Use every source available (Internet, post on the Major Unit Locator) to make sure your inventory keeps moving.
  • Stop the flooring interest. Move from free flooring to your best source (sometimes local), and do it on the day the free flooring stops. Floor your used inventory if you must. That is a legitimate source of funds. Some one person must be responsible for this. Make sure you have that person, and you track their performance. Also, some one person must be responsible for program dollars-knowing what they are, and getting them submitted and paid. Again, big money here.
  • I have not said one word about the front end of deals. You certainly know that you should be selling F&I. You know that you must work each deal and each customer with respect, with humor and with good will, but knowing what the customer can afford by pulling a Credit Check report early in the sales process which is a good idea in today’s financing environment. You know that you must move the stock, freshen the floor, keep public and employee interest high and motivate your sales team. That’s just for starters.

Ignore the back end – the things we talked about before – and all of your hard work in selling can be dissipated in an instant. Don’t let that happen.