Profit Planning

The discussion taking place across the desk of Debbie Hayes has a renewed urgency to it this year.

Amidst the computers, calculators, notebooks, bottled water and reams of financial paperwork, Hayes, who owns MasterCraft Boats of Arizona along with her husband, Jim, has found herself scrambling in an otherwise exciting situation. The excitement has been building, literally, just a couple miles away from the Hayes’ current facility: a 23,000-sq.-ft. floorplan where the company is planning to relocate in the next few months.

The scrambling … well there are mounting reasons for that.

There are the two tenants that will fill two of the remaining three suites in the 60,000-sq.-ft., $8 million building the company bought. And there’s the remaining 17,740 square feet the company has yet to find a leasee for.

There’s the 25-year, new-building loan the company has begun paying back. And there’s the interest-only loan, meant for tenant improvements, that has also been billing monthly costs.

There’s the architect’s e-mail that just popped up announcing that the plans were done (finally!) … and, with it, an additional $6,200 to the permit expense line item that has already demanded $5,000 of the company’s off-season cash flow.

And, as if that wasn’t enough of a financial challenge, when the dealership changed its current facility’s lease to a month-to-month schedule, the landlord doubled the company’s rent.

One can understand the urgency.
These types of scenarios would put most dealers right out of business. In fact, David Parker, who has been punching away at the spreadsheets on his laptop across the desk from Hayes, regularly tells his clients that one of the fastest ways to get into financial difficulty is to buy a facility you can’t afford.

But that’s exactly why Parker, president of Parker Business Planning, is here today. For each of the past four years, he has consulted with the couple and has helped them take MasterCraft Boats of Arizona from a business mired in the red to a thriving company whose profitability has enabled it to buy such an incredible facility.

Against all odds
Not every dealer faces a situation as daunting as that in which MasterCraft Boats of Arizona finds itself. But every dealership faces its own challenges on a regular basis. And it’s exactly that reason that underscores the need for dealers to fully engage themselves in a strategic profit-planning process.

Most dealers don’t commit to such an endeavor, however. At least 95 percent of them, according to Parker, don’t even know how to budget properly. And if most manufacturers really understood the financial condition of the majority of their dealers, Parker says, they’d have trouble sleeping at night.

It’s amazing, then, that the dealers can get sleep themselves. But it’s what they don’t know about their financial situation that can and currently is putting them out of business. And as Debbie Hayes can attest, even those who do budget rarely stick to the numbers they work so hard to create.
“We used to do a plan on our own,” she says. “We’d say, ‘Here’s what we’d like to do,’ and then we’d throw it in a drawer. Then we’d pull it out on Dec. 31 and say, ‘Oh no.’ Then we’d throw it in the trash and do it all over again.”

“We’d just bust our rears all year long,” Jim Hayes adds, “and halfway into the next, we found out that we either made or lost $35K, and we couldn’t tell you why.”

It was not so long after this realization that they met Parker. As one of the founding members of Parker’s MasterCraft 20 Group, Hayes says the value of the peer collaboration they found in that group was immediately noticeable. In fact, for a company that had been having difficulty making money on its own, three simple recommendations from their first 20 Group meeting added $68,000 to the company’s bottom line. In the first four months.

In fact, the owners of MasterCraft Boats of Arizona never find themselves repeating the mistakes of their past. Through their relationship with Parker, and by using his consulting services and the Phase 2 Reports he prepares for them, they know, at all times, where their business stands financially.

Today’s meeting is a personalized consultancy that Parker offers to any dealer who’s interested in his services. The value of these meetings is that Parker can relate to their needs from first-hand experience. At one time, he found his own business in a situation similar to what the Hayes family had formerly faced.

From 1969 to 1977, his Orlando-based family dealership had spent eight years paying on an interest-only loan without even touching the principal. His banker asked him, “Are you going to keep paying the interest on this loan for the rest of your life?” and followed that up by asking, “When are you going to start working smarter instead of harder?”

That single comment changed Parker’s business fortunes forever. He now uses the same directness to operate a number of 20 Groups and client strategy sessions like this one. And with all the factors working against profitability in this instance, the use of the term “strategic” seems quite appropriate.

“You can do the 20 Group deal, but this planning just takes it to a new level,” Debbie Hayes says. “When you’ve got a new building, David can tell you exactly what you need to do.”

And Parker is doing exactly that in today’s session: working to determine how to help the Hayes family dealership not just maintain its profitability but also to help the business successfully transition into its new facility by maximizing cash flow.

“If we can accomplish what we just laid out,” he tells Jim and Debbie at the end of day one, “it won’t be too bad.”

Planning for growth
“Not too bad,” in this case, is still much better than the typical marine dealer. Especially considering the circumstances. “Not too bad,” in fact, means almost a 6-percent net profit, nearly 4 times the average marine dealer’s net.

That underscores the value of strategic profit planning. Despite a financial situation that demands an inordinate amount of rent and mortgage payments; despite the fact that there will be no income from the new location for at least four months; despite the fact that interest expenses have nearly tripled since last year, by properly forecasting revenues and expenses for the entire year — and by sticking to the plan — MasterCraft Boats of Arizona can budget accordingly, knowing which months to expect to make money and which ones to expect to lose it.

This year’s budget, in fact, calls for growth: growth in unit sales, growth in total revenue, growth in the number of sales people, growth in the number of technicians.

Most dealers hope for growth and have a makeshift plan to achieve it. But successfully achieving growth — not to mention profitability — begins and ends with sticking to a plan.

The numbers that define the plan didn’t just appear out of thin air. They were arrived at through a detailed review of the previous year’s results, the plans, opportunities and challenges for the coming year, and some tough decisions about how to bring them to reality.

The plans for the increase in staff, for example, would allow the company to have people in place who can continue running the business smoothly, even when Jim and Debbie occasionally take time away from working at the business so that they can work on the business (see “B.I. Book Club”
sidebar, above). Both owners have felt the need individually for this growth. As their roles have evolved, they’ve both recognized the need for someone who can add discipline to their processes.
“I love to sell,” explains Jim Hayes, “but with this building thing going on, it just consumes you. What we need is somebody who can handle the whole process from helping close deals through to the final paperwork in F&I.”

“We need somebody who can do the whole sales process,” agrees Debbie Hayes, who doubles as the company’s F&I manager, “because if I’m not here, the whole thing falls apart. Nobody else knows how to write a contract, do the paperwork, or do any of the bank stuff.”

So suddenly, what appeared to be merely the hiring of an additional sales person has become, through this planning session, a part of the overall strategy for the company — a component in helping the dealership achieve its goals for total profitability and for a lifestyle that allows the owners the ability to come and go from the business, having confidence that it will run well with or without them. Without this type of thinking and planning, the dealer principal becomes too busy working in the business and doesn’t take time to strategically plan for the growth and success of the business. And critical concepts like this are far too often overlooked by today’s marine dealer.

“It seems like we would all know this process,” Jim Hayes says. “But you’re juggling all these bottles, and you start dropping them. And as soon as you bend down to pick up the one you dropped, the other four fall to the floor.”

Strategic profit planning is the tool that melds together the enjoyment of running a business with the true reason any business exists: achieving profitability. It ensures that you’re running your business instead of having your business run you.
“You’ve got to work your game plan out on paper,” Parker explains, “because if it doesn’t work out on paper, it surely won’t work in reality.”
“And if it wasn’t for this,” Debbie Hayes says, “we wouldn’t be moving into a new building.”