If you are not doing everything you can to be the BHPH dealer of choice, it may be time to ask the question: Why should the market allow your business to exist?
In this very consumer-driven market, cars are commodities. Start-up dealers should not operate as BHPH based on a few self-financed used cars. It is too expensive a proposition and too regulated without a clear business and community purpose.
Are you fulfilling an unmet need? Are you offering a wide selection? Do you accept trade-ins? Are you a fair dealer with a service focus? What is different about your dealership that will build a solid foundation for referrals?
Many new business owners begin with a business plan, usually to satisfy bank or partner requests. But a plan is also good for the owner to outline the exact research, steps and benchmarks to support success.
After writing the plan, expect to make changes along the way. You don’t have to follow things that aren’t working. You should also anticipate what-if scenarios and be ready with alternative steps.
Some key KPIs for start-up dealers can include:
- Customer visits/calls per day to sell one car
- Gross profit per car
- Net income projections (gross minus expenses per month)
- Cash on hand (2.5 times monthly expenses recommended for 2017)
- Retained earnings (to put back into buying cars rather than bank financing)
Following a few key KPIs can help you measure whether the dealership is on track or if it will run out of money. KPIs can also help you monitor and identify unnecessary expenses or staffing issues.
At first, start-up dealers will be wearing all the hats. They will buy the cars, manage the books, sell the cars, communicate with customers and collect payments. When it’s time to hire some help, dealers usually hire office support staff to answer phones and handle repetitive processes. Then comes a salesperson or someone in collections. Before hiring, dealers should understand what they do best and where their time should best be spent for the benefit of the business. Hire employees who are strong in key areas to balance the dealer’s strengths and skills.
As you hire more people, you will need clear, repeatable processes for operating the business — even if you’re not there all the time.
- What is the process for purchasing? Reconditioning?
- What is the process for taking in trades, selling and delivering and servicing vehicles?
- What is your process for accurately remitting sales tax?
- What is your collections process?
A process manual should be part of every independent used car department, and used for training and a back-up plan if a key employee isn’t available to perform the tasks. Once created, it needs to be updated annually or as necessary to remain relevant.
Like any business, a buy here pay here dealership is created to serve a market demand and to make a profit for its owners. It can also have the side benefits of creating good jobs and helping other people keep jobs by having reliable transportation. The pressure to succeed is higher as competition increases, but the most successful dealers will put the right tools and safeguards in place to scale up and build a positive reputation.
If you are looking for a strong CPA partner to assess your software, budget, KPIs or processes, talk to the business services group at Cornwell Jackson. We work with dealers on a monthly basis to keep their accounting and reporting organized for proper compliance, better cash flow and enhanced profitability. Plus, we understand the regulatory issues and competition that impact the bottom line of this industry.
Download the Whitepaper Here: How to Add More Structure and Scalability to your BHPH Dealership
Scott Bates, CPA, is a partner in the audit practice and leads Cornwell Jackson’s Business Services Department, which includes a dedicated team for outsourced accounting, bookkeeping and payroll services. He provides consulting to clients in healthcare, real estate, auto, transportation, technology, service, retail and manufacturing and distribution. Contact Scott at scott.bates@cornwelljackson.com or 972-202-8000.
