In today’s economic climate, there are two things on marine dealers’ minds: How do I maximize my cash flow until things pick up and how do I get rid of all these boats aging on my lot? That the two topics go hand-in-hand is not a coincidence.
Many businesses are in the throes of staying in business right now. It’s rare to find a case of a dealer thriving, as most are buckled down into strict survival mode.
It’s already February, and the industry is emerging from the bulk of its boat show season. Now is the time to answer those tough questions. What will it take to make it?
Boating Industry’s editorial team has collaborated with the marine industry’s leading experts and its top dealers to package the following content. What we’ve amassed are 16 pages of actionable content — ideas, strategies, advice and best practices that you can use to help you through the next few months.
Survival School: The 16-question quiz you better not fail.
Cash is king.
We aren’t the first to say it, and we won’t be the last. The phrase speaks a simple albeit challenging truth about the times. Your business’ ability to survive depends on how much cash you’ll have on hand in the months to come.
Even if your projections suggest you’ll end the year with a profit, you won’t make it until the end of the year unless you have enough cash to make it through each of the months between now and then.
Numerous marine companies have gone out of business in recent months, and more will follow. But many will survive to enjoy the rebound. The actions you take today will determine to which group your business will belong.
In some areas of the country, marine businesses have been in a recession since late 2004. The most optimistic of experts predict the boating industry will slowly start to rebound in the middle of this year, which adds up to more than four-and-a-half years of sales declines for many boating companies. The most dismal predictions suggest the industry won’t see much relief until late 2010 – six years from the start of the recession for some regions of the country.
Between now and then, the marine industry – in fact, the entire U.S. economy – will hit bottom. Translation: Even the best strategic planners are feeling the squeeze of the downturn and looking for new ways to succeed in spite of it.
Many marine businesses are asking themselves whether they can stay afloat that long – and the rest are questioning how they can remain as buoyant as possible while positioning themselves for the rebound.
To answer those questions and more, Boating Industry magazine’s editorial team consulted with the industry’s most knowledgeable business gurus and took cues from North America’s most professional dealerships. Here is what we found.
Survival 101: How long can I make it?
The best way to answer this question is to create a cash flow projection chart. It’s not complicated. You simply chart out each month, using total gross profit and total operating expense projections to determine net cash flow and cumulative cash flow projections for each, according to Noel Osborne, Yamaha Marine University instructor and owner of recreational industry business planning consultancy Osborne & Associates.
The catch is that you must first have a financial plan that projects your sales, cost of sales, gross profits, operating expenses and net profits by month.
Many dealers choose to simply compare their current year financial results to the previous year, pointed out dealer consultant David Parker of Parker Business Planning in a presentation at the 2008 Marine Dealer Conference & Expo in Las Vegas this past November. While he acknowledged that is better than no tracking whatsoever, it has one major downfall: For most dealers, this year won’t be like last year.
It’s easy to question the value of a financial plan, no matter how good, in a recession like this one, which has caught us all by surprise with its twists and turns, ups and downs. But the beauty of such a plan is that it can be adjusted to reflect changes in your business. In fact, to be of value to your business, it MUST be adjusted, thereby giving you an idea of what to expect in the future and allowing you to tweak your strategy and your costs accordingly.
“Businesses do not plan to fail,” says Osborne. “They simply fail to plan.”
Without a financial plan, dealers are essentially flying blind, unable to see the obstacles ahead and thus unable to react in time and with the proper urgency to avoid them.
How to determine cash flow projections:
gross profit projection - operating expense projection = cash flow projection
Month 1 cash flow projection +/- Month 2 cash flow projection = cumulative cash flow projection
Do the same for each succeeding month for which you have a cash flow projection. This will give you an idea of where you’ll stand cash-wise each month under your current projections, and you can plan — and adjust — your business accordingly.
Survival 101: How can I plan for survival?
If you don’t already have a financial plan, it probably sounds like a great idea, best saved for when you’re not scrambling around in an attempt to stay afloat. After all, who has time to think about the future when you’re bailing water to keep the boat from sinking today?
But if your business is in jeopardy, you can’t afford NOT to have a financial plan, even if it’s a simple one. It may sound counterintuitive to sit down and put together a paper plan when your instincts suggest you should be selling your heart out in the showroom. But, as consultant David Parker told the record crowd at the Marine Dealer Conference & Expo, “Dealers who don’t have a game plan for survival have greatly increased the odds that they will not survive.” If you can’t make your plans for the future add up on paper, they probably won’t add up in real life, he explains.
Such a game plan, in an ideal world, would go beyond finances to also include your business’ strategy for its market, products, services, organization and management in the coming months and perhaps even years. Those are the critical components of a business plan, according to Osborne.
If your company isn’t operating under an overarching business plan, you’re not alone. Osborne estimates that less than five percent of all dealers have one in place. And you should have one.
In the midst of the recent credit crunch, for example, many banks have begun requiring a business plan – and sometimes even monthly financial statements – to consider a company for a loan. These types of requirements aren’t likely to go away anytime soon, either. In fact, they may become standard. In the meantime, having a business plan will at least increase your chances of securing a loan, should you require one.
But if you don’t have the basic financial plan, that is step one. And if you haven’t created one before, you most likely will need some help. Consultants like Parker Business Planning, Spader Business Management, Osborne & Associates and VRZ Consulting Co. are examples of some of the companies that provide such services.
Ironically, many dealers believe consultants are beyond their financial reach, especially now. But the money spent on a “survival consulting package” like the one currently offered by Spader – it includes the creation of a profit and loss budget and a cash flow projection – is worth it if it allows your business to make it through the recession.
“Paying close attention to your financials is no longer an option,” Osborne states. “Profitability and survivability require that you monitor your finances on a daily basis and take steps to correct problem areas before they threaten your dealership.”
Advanced Study: How can I prepare for the worst-case scenario?
One way to prepare for uncertain times is to take a cue from dealerships like The Sportsman. This San Benito, Texas-based company creates two budgets for the year ahead, a plan A and a plan B. In the case of most dealers that use this method, the first plan takes the middle ground, assuming their market will perform an average of the best and worst forecasts for the year. Plan B – perhaps best described as a contingency plan – assumes a worst-case scenario for the business. The benefit of this approach comes down to reaction time. If your business does encounter the worst case scenario, rather than taking the time to adjust your plan to fit the conditions, you can immediately switch to plan B and run with it.
An accurate profit and loss (P&L) statement starts with proper identification of all of a dealer’s profit centers. Osborne explains that many dealers lump their profit centers – and their cost of sales – together. You should divide up all of your profit centers and their respective costs of sales to make it easier to analyze where, specifically, you are finding success or may be having troubles and then adjust your business accordingly.
The information contained in your P&L statement must be adequate to allow you to determine your true financial position, according to Osborne. For example, don’t just list new boat sales. List new boat sales by brand, by model and by salesperson. Again, this will help you in analyzing where you’re succeeding and where you need work.
For every profit center listed within a department, there must also be a cost of sales associated with it, Osborne suggests. “This amount includes the cost of materials used in creating the goods, along with the direct labor costs used to produce the good,” he adds. For example, you should account for your technician’s compensation under cost of sales for the service department, not in operating expenses under salaries. Accounting for expenses like this will allow you to better monitor which departments remain healthy and which will need to be adjusted.
Advanced Study: How often should I get a financial check-up?
Seattle Boat Co. is an industry leader when it comes to financial controls.
It all begins with a detailed budgeting process. The company says its process encourages involvement, corporate transparency, acute thinking and most importantly, rigid performance. Through this system, every department manager sets productivity, efficiency, unit, margin, staff, facility and technology needs and goals to formulate their own annual plan. Sales, for example, are broken down per unit and per salesman. Service managers, similarly, set productivity and efficiency standards for peak and non-peak periods for all technicians, detailers and fiberglass members, including part timers.
This process provides a hands-on interactive tool that is used throughout the company’s management team on a daily basis. Each manager enters actual monthly results that compare to the apportioned monthly budget, which is unique to each department within the business.
But at this point, the company is merely getting started with its financial controls. Seattle Boat Co. then uses a series of reports and analysis to monitor its ongoing health.
On a monthly basis, for example, the company produces a Vital Factors Report, sharing it with all company management at a meeting held on the third Wednesday of every month. This report compares financial, productivity, quality and business development statistics to company goals.
To take its financial responsibility even further, the company then also produces two DAILY reports. First, its daily over/under sales reports break down individual boat and trailer sales. Then, the net sale amount flows to a monthly YTD margin and sales budget and reports the current “over or under” status.
Similarly, the service department creates daily health reports, providing a virtual glance at its operations. The report includes updates on productivity, efficiency, work orders billed, cash received and special order parts. This, the company says, is its most important document. It immediately reflects difficulties in attaining goals, and as CEO Alan Bohling points out, “rather than waiting until the end of the month, we can adjust daily.”
Like any business in the marine industry these days, Seattle Boat Co. has been impacted by the poor economic conditions. But its financial controls have given this company a solid foundation despite these tough times.
Survival 101: How can I cut costs and boost profits?
Once you’ve created a financial plan and a cash flow projection, you know how long your business can make it under your current projections.
Now it’s time for cash flow management. Under today’s conditions, your dealership will likely need to identify opportunities to reduce expenses and increase profitability to meet its goals, whether that’s survival or preparing for a market rebound.
One of the places to start is in identifying what Valerie Ziebron, Yamaha Marine University instructor and president of VRZ Consulting Co., calls “profit leaks.” The following are tips and best practices for avoiding some of the most common.
How can I avoid the cost of customer complaints?
Be aware that, sometimes, when you absorb the costs associated with a product or service, you risk losing trust with customers and co-workers, Ziebron warns. For example, if you quickly waive a shop fee when a customer complains, they often come to the conclusion that the fee was unnecessary and then question other fees, which creates an even bigger problem.
“This does not mean you should never absorb fees like shop supplies,” she explains, “but it does mean that you need to handle it in such a way that it becomes the exception more than the rule.”
An alternative might be to apologize to the customer and then pull out your wallet and offer to pay it with your personal credit card.
“Often, when employees offer to pay personally,” she explains, “the customer softens, trusts them, listens to the explanation and usually offers to pay for it themselves, thus putting an end to the leak both now and in the future.”
Other dealerships build into the pricing of their products and services a certain amount that is set aside specifically to assist in boosting customer satisfaction without eroding profitability.
Advanced Study: How can I transform accessory giveaways into profit?
One way to avoid giveaways is to have in place a system for encouraging new boat buyers to purchase parts and accessories. For example, some dealers give each new boat buyer an accessories shopping spree, which is built into the price of the boat. If a customer asks the salesperson to throw in a certain piece of equipment with the purchase of the boat, that’s the perfect time to transition into a discussion of the benefits they’ll receive with their purchase, including the spree, as well as discounts, customer events and seminars.
Another way many dealers approach this issue is to give new boat buyers parts and accessory discounts they can apply toward purchases, either for a limited time frame after a purchase or for as long as they own the boat.
If these approaches don’t solve your giveaway problem, you might consider making your sales team financially accountable for giveaways. We know at least one dealership that takes the value of each product or service given away out of the salesperson’s commission.
How can I stop losing money on giveaways?
Salespeople often find themselves throwing in parts, accessories and other equipment with the sale of a boat, which quickly erodes profitability, according to Ziebron. Instead, consider building the average value of those giveaways into the price of the boat.
Advanced Study: How can I prioritize my customers?
Texas dealership Sail & Ski Centers prints out hard copies of work orders from its dealer management system on different colored paper depending on the priority with which the job should be completed. For example, comebacks are placed on red paper to suggest the urgency they require. Blue paper equals a sold unit. Yellow is a customer’s first service or warranty work. Green paper means the work is owed to a customer as per the original boat deal. Manila equates to an external pay job. Pink notes used boat reconditioning. And purple is for work pertaining to monthly maintenance contracts. The color-coded work orders are then placed in the appropriate wall bins for scheduling, and the complex process of prioritizing is made easy by the visual system the dealership has embraced.
To read a best practice on how Pride Marine Group of Bracebridge, Ontario, Canada, prioritizes its service customers, please visit the Best Practices portal.
How can I clear up customer misunderstandings?
If you start the paperwork on a boat sale without presenting the customer with a list of everything included in the final cost of the deal, it can lead to misunderstandings, which often translate into poor customer satisfaction and more giveaways. Instead, build into your sales process the required use of “we owe” forms signed by both the salesperson and the customer, detailing all add-ons, accessories and style requests, suggests consultant Valerie Ziebron.
Advanced Study: How can I shrink lost receivables while growing satisfaction?
Pride Marine Group once allowed any customer to set a charge account at its ship’s stores. The company’s in-house accounts had been unintentionally given to any and every customer in its database. Anyone with a work order in the system would receive a customer card, and store purchases were being charged to it.
As the company’s database had grown, it had accumulated numerous repeated names. “Smiths“ from one location were disputing charges at other locations, and the company says its “slack front lines” were exposed. The problem was compounded by a massive influx of customer goodwill, which had become an easy way to make problems disappear … temporarily.
Over time, through examining its large lost receivables and the entire role of the company’s accounts receivables position, Pride found that it was giving away fuel sales and store revenue through a slack and dated accounts system. All told, the five-location dealership realized its problems were costing it six-figures, and they went looking for a solution.
The company settled on a Pride Pass, a 1-inch, by 2-inch fob that customers can use to make purchases at all locations. The Pass is a simple numbered scan card, which can be scanned with the company’s regular product scanner and calls up the customer’s account information. Customers are granted their Pride Pass once the company can secure up-to-date credit card info on file. And PMG processes the account charges monthly.
Customers are now required to have this Pride Pass for all charges as a method of payment, and the system is working great, the company says. So great, in fact, that it expects to see an annual savings of more than $100,000 in lost receivables.
How can I avoid special treatment in the service department?
Dealership employees and even owners often find themselves trying to sneak special jobs into the service department as a favor to a friend or to satisfy a customer concern. However, that can make other urgent jobs late, requiring the techs to work overtime or leading to more “special favors,” both of which take away from profitability, Ziebron suggests.
The solution? Create a system for technician scheduling that allows for a certain amount of “emergency” time. Some dealerships create their own systems, and others turn to software available from dealership management solution providers.
How can I reduce the number of unpaid invoices?
Lots of businesses waste time and lose money on unpaid invoices. To solve that problem, dealerships can plan ahead to avoid such situations. At Causeway Marine, for example, employees have a policy of taking a credit card when scheduling service appointments so that they can bill to the card if the customer doesn’t pay within one week of invoicing. “This keeps us from having big money on the street at any given time,” says Paul Terzian, a partner in the business.
For more cost-containment strategies, scroll down to the Web Exclusives section of www.boatingindustry.com
Advanced Study: How can I make quality a priority?
Florida dealership Marine Connection has put several checks in place to ensure that both its boats rigged for delivery and those that come in for service leave the dealership better and cleaner than when they arrived. According to its service department standard procedures, after all repairs are finished and paperwork is in order, completed boats are inspected for quality of repair by the service or operations manager.
Regardless of why it came in for service, each unit gets a full systems check so small problems are caught before they become large ones. Only then can the boat be released to the detailing department for cleaning and customer pick-up. Ultimately, each unit is inspected three times by separate individuals to ensure the company, not the customer, catches any issues.
Marine Connection also has modified its technician compensation structure to penalize workers for comebacks. When boats are quality checked prior to delivery, any deficiencies to be corrected by the tech are deducted from billable hours at a rate of 1.5 hours per actual hour.
How can I decrease comebacks?
Comebacks hurt your dealership by ruining your efficiency and decreasing customer satisfaction. But many times they can be prevented with the adoption of a checks-and-balances system involving water tests, inspections and detailing.
How can I stop losing money on fees?
Dealerships can sometimes forget to add up costs like freight on parts orders, administrative duties and hazardous material disposal when they set prices for their goods and services. Instead, they should create a policy of building those costs into their prices, ensuring that their forms have a designated place for each.
Ask the right questions
The following statements are samples from a Spader Business Management tool used to assess dealerships’ ability to survive in tough times. The more statements that are true of your dealership, the better prepared you are to survive, according to Spader.
1. We have sales, available income (gross profit) and expense budgets and forecasts in writing that are consistently measured, monitored and managed for:
a) The total company
b) The departments
c) Individuals (goals for salespeople, technicians, etc.)
2. We have forecasted our cash flow needs for the next 6-10 months and have plans in place to meet those needs.
3. We know our true cash position daily.
4. We have reasonable expense controls in place and systems that show red flags when expenses are out of line at a:
a) Total company level
b) Department level
5. We have a written inventory stocking plan by product type based on that product’s sales goals that will give us a reasonable inventory turnover and good interest expense ratio.
6. We have analyzed and put in writing a plan for the number of product lines needed in our business.
7. Our market share is staying the same or getting better (even though sales may be down).
8. Service is looked at and managed as an opportunity vs. necessary (evil) to support sales. (It is a true profit center vs. breakeven or losing a little.)
9. Our parts inventory is managed in a way that obsolescence and excess inventory is kept at a minimum (we do not have bins full of obsolete parts & accessories worth a fraction of what is on the balance sheet).
10. We have the right organizational structure and level of people for the volume of business we are doing.
11. We are sharing the truth of the tough times with our people in a positive way (not trying to hide it from them).
12. We and the people in our business are motivated and have the ability to change and adapt.
To receive a free software tool and online video on creating a quick basic budget and expense ratio analysis for your dealership, call Spader Business Management at 800/772-3377. For more information on all Spader products and services, visit the company’s Web site at www.spader.com or call the number above.
These are just some of the many ways your business can plug its profitability leaks. Perhaps the best method for evaluating such opportunities at your dealership is simply to ask your employees for their suggestions.
You can adopt Pride Marine Group’s strategy of making increased efficiency and profitability the theme of its annual meeting (see the article “Pride = Profits” from Boating Industry magazine’s November issue or online in the Boating-Industry.com Best Practices Portal). Or you can post an “employee ideas” box in the lunch room and take five minutes during your normal weekly meetings to ask for employees’ help in overcoming the recession. Either way, you’re sending the message that employee input does matter and that it can make a difference in their company’s future.
For those dealerships whose future is being threatened by the recession, survival may come down to management’s willingness to embrace new ways of doing business, big or small.
As Osborne says, “One approach is to hide under your desk. Or you can do every single thing you can think of to survive and to prosper when the industry rebounds. It’s not business as usual. You have to do things to get through this that you’ve never done before.”
In today’s economic climate, there are two things on marine dealers’ minds: How do I maximize my cash flow until things pick up and how do I get rid of all these boats aging on my lot? That the two topics go hand-in-hand is not a coincidence.