Putting words to the P&L

matt_new-mugJoe Cavarretta has sat through enough budget meetings to know that it can be tough to live up to numbers that were put to paper months prior. In today’s economy, “tough” can be an understatement of magnificent proportions. But Cavarretta has devised a method, along with fellow managers at Riva Motorsports, a seven-brand powersports dealer in Pompano Beach, Fla., that helps him and Riva’s three-location company unearth valuable information that aids the dealership in improving its business.

“How often do dealers look at their forecast and say, ‘wow we’re not going to be anywhere close to where we were last year?” Cavaretta, Riva’s vice president of operations asks. “I believe that by revisiting our past, with accurate and timely information, we can better understand what exactly got us there and how we can repeat some of the actions that lead to our success. And just as importantly, how we can avoid some of the mistakes that hurt us.”

All dealers could suggest that they learn from experience, but Riva, through a Bold Idea award presented by Boating Industry‘s sister publication Powersports Business, has put a process in place to ensure that it happens. Last January, the company began requiring its managers to log entries in a monthly diary, a term about which they joked regularly.

“As simple as this may seem, it has brought back tremendous amounts of information that most of us had forgotten,” Cavarretta explains. “The journals [as they are now called] have evolved into a very valuable tool. They are a way to put into words what the P&L tells you.”

The P&L was telling Cavarretta a negative story when the idea came to him. But other than the downturn in the economy, there was no way to explain why Riva’s numbers were off. Already into 2009, Cavarretta had a revelation when he suggested the team use last year’s journal entries to understand what the company could do differently going forward.

The thought worked so well at the time that, now, in every first management meeting of the month, where the companies 11 leaders come together, each manager reads, out loud, his or her journal entry from the prior year.

The process is quite simple. Each manager writes his or her journal entry and forwards it to the company’s controller via e-mail. She compiles them into a Word document, prints them off and hands them out prior to the meeting. During the meeting, every manager reads their portion of the report. And it’s interesting, Cavarretta says, how the managers will suddenly stop about half way through reading their entry, and “you can see the light bulb go off.” The whole process takes only about 15-20 minutes.

“Knowing that we will revisit them,” Cavarretta explains, “now managers are putting more detail into them. And that’s the most important thing we could get out of them.”

The topics within the reports vary from covering staffing levels, weather conditions or a large or unusual sale in a particular department. And typically, those things are forgotten even a month or two later. But not with the journals.

The reports have given Riva the opportunity to better adjust to today’s economic conditions. The biggest challenge the company faced going into this year, for example, was with its suppliers. The company was spending an inordinate amount of money on supplies because its vendors had taken for granted that it would always order the same amount. So in reviewing its journals together with its P&L, the company made the decision to appoint an employee as purchasing manager. Now, that person funnels all purchases through her.

“In just a P&L, that expense gets lost,” Cavarretta explains, “but we were able to go back into the journals and fish that out. When you’re making a lot of money, you don’t pay attention to your expenses. But when you’re watching your margins, you sure do.

“In these very difficult times, we need as much information as possible, both in the present and from the past. These journals are just loaded with information, and they are a great way for us to reflect.”

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