Be Safe But Not Sorry

The fact that the marine industry is currently going through a difficult period of time is not news to any of us. Some dealers, however, are prospering while others are wondering just how much longer they can hang on.

The principal difference between the two is simply this: Those who are prospering have solid business plans in place and are tracking their business against those plans. They know, on a daily basis, the exact state of their financial status.
If you are not one of these dealers, you might want to focus your energy on getting a solid business plan in place as soon as possible.

First, it is imperative that you know and understand what it takes for your dealership to break even financially. This is relatively easy to accomplish. Simply construct a list of all of your expenses from last year. Separate those one-time expenditures that are not reoccurring. The balance should be a good starting point for determining what your expenses should be for the current year.

Make sure to adjust for items such as higher fuel costs and higher floor-plan costs (you are probably paying more interest for your non-current inventory). If you are going to break even, then you must produce enough gross profit to cover these expenses. This is where things can get a little tricky.

Many dealers are not ordering current inventory because they have too much leftover product. The only problem with this approach is that the profit margins on distressed product are significantly less than on current product.

These lowered profits will only cover a small portion of your operating expenses. The rest of them have to be absorbed by the higher profits you would expect to receive on current year product. I suggest totaling your non-current product cost and then calculating the gross profit on that product at the reduced gross profit margin.

The balance of your required gross profit must be achieved through the sales of current-year product. Simply subtract the expected gross profit on the distressed product from your projected operating expenses and you know how much current-year product you need to sell to break even. If you do not have the current product you need in stock, then you need to seriously consider placing orders for it.

As you know, there are other departments in your dealership that also contribute to your total gross profits. If you know what those profits are, then you can adjust your formula accordingly. Unfortunately, there are many dealers out there who do not know whether they are making or losing money in service. Now is a good time to start correcting that problem.

The key to making money in service is high efficiency. Efficiency is easy to monitor. All you have to do is divide the number of hours a technician bills in a week by the number of hours he gets paid. A good tech should be a minimum of 70 percent efficient.

Now is also the time to be on alert for new opportunities. For example, quality manufacturers normally have very few openings for new dealers when times are good, but that changes when times are a little more difficult, like they are now. Quality and financially stable dealers can further prosper by taking advantage of these opportunities.

Finally, we have to recognize the fact that as dealers, we are in a partnership with our manufacturers. If we don’t support them when times are tough, then we have nobody to blame but ourselves if they are not there for us when the good times reappear.

I personally have survived as a boat dealer through a number of these downturns, starting in the mid 1980’s. This downturn, just like the others, will come to an end and dealers will prosper once again. The key to surviving and prospering is taking a proactive approach to your business.

Leave a Reply

Your email address will not be published. Required fields are marked *