Dealership 101: The Business Plan

Like most dealers, Art and Deb Olson of Farm Island Repair & Marine had a tough 2009. Economic challenges forced the seven-year-old business’ owners to lay off personnel and close a second location. As the boating season came to an end with few signs of recovery ahead, they found themselves asking, “What next?”

The 2009 Marine Dealer Conference & Expo was the first step toward answering that question, according to Deb. During the event, lenders, F&I experts and dealership consultants alike stressed the importance of dealers having an updated business plan in hand in order to survive the year ahead. Regardless of which combination of seminars dealers attended, the message was difficult to escape.

“The conference gave us that first kick in the pants to get us moving,” Deb explains. “We walked away with a few things. The first one was that we have to plan for our future no matter what. The only way we can have growth and opportunity is to plan. The second thing was that we have to face the new reality of the business we’re in and reposition ourselves in the marketplace. And finally, we had a list of action items, things we could do immediately to improve our business going forward.”

The top item on that list was to formulate a three-year business plan. In today’s marketplace, a business plan is a must-have. It’s an essential tool for dealership owners to maintain good relationships with their current lenders, attract new lenders or be considered for grants. It can help dealers campaigning for a new boat line or looking for more support from their vendors. And it can motivate and unite employees by giving them insight into how they contribute to the company’s success and by ensuring they are all on the same page, envisioning the same future.

But most importantly, a well-thought-out plan will allow dealers to adjust to the new marine business landscape as it evolves, a difficult environment unlikely to rebound as quickly as it fell apart. Without a true plan, dealers are putting themselves and their employees in serious jeopardy.

“Some dealers don’t think it’s worth the extra time and effort a business plan requires,” says Bruce Van Wagoner, president of GE Capital, Commercial Distribution Finance’s Marine Group. “I had one dealer customer that at his peak had $50 million in annual sales. But he wouldn’t invest in adequate planning tools. He just couldn’t adjust. Now, his company is out of business.”

The lending equation
For decades, a good business plan has been an effective tool for small business owners seeking loans. But with the recent tightening of the credit markets and the move to a more regulated lending environment, they have become essential for most businesses to successfully secure financing from lenders. At the same time, the sense of urgency of most marine dealers to secure financing has skyrocketed.

“Many boat dealers are fighting to find a new lender for their inventory management needs,” says Bill Thompson of Cardinal Points Network. “Many more find themselves fighting to keep their current floorplan source. Some feel they just can’t negotiate with any lender.”

In other industries, creating and maintaining a business plan – or some of its components – has become a standard practice. For instance, auto manufacturers require their dealers to submit monthly financial statements, a critical component of a well-maintained business plan. In the marine industry, however, dealers are often reluctant to share their financials, especially when they don’t paint a positive picture of the business. And many simply haven’t invested the time and energy required to create a weekly, monthly or even quarterly budget and cash flow projection for the year ahead. Experts estimate that less than 25 percent, maybe even as low as 10 percent of today’s marine dealers have a business plan.

It’s no surprise, then, that GE Commercial Distribution Finance’s Marine Group often struggles to obtain financial statements from customers in distress.

“We understand the financials aren’t always going to look very good,” says Van Wagoner. “Dealers are better off sharing their financial statements and what they’re doing to fix the situation. We can’t help them unless we have that information.”

It’s not enough for dealers to simply hire an accountant. “Once you look back at the end of the year, it’s too late,” Van Wagoner explains. “The advice you get from a CPA doesn’t include banking or vendor considerations. It’s based mainly on taxes.”

A business plan is the solution. It explains where the business is today, the strategies being embraced to drive future improvement and growth, and the financial results that are expected to come from those strategies.

Without that insight into where a business stands and where it’s going, GE Capital and other lenders have difficulty justifying the renewal of a dealer’s credit facilities, and if a customer is delinquent on payments, the combination could lead to termination.

On the flip side, a business plan can give a lender like GE Capital enough confidence in a dealership’s future to sell that story internally and stay committed to the relationship, despite the challenges the dealership may be facing today.

“Simply put, if you can’t paint a picture of your business into the future,” Thompson explains, “lenders cannot see you in the future and won’t be likely to provide you with funding.”

Creating a business plan isn’t as difficult as it sounds. GE Capital executives say the U.S. Small Business Administration’s recommendations are on target. Dealers can also turn to consultants like Spader Business Management, Parker Business Planning, Osborne & Associates and Cardinal Points Network for help, as well as the many off-the-shelf business planning books and software packages available.

In addition, GE Capital, Commercial Distrbution Finance has recently created a Dealer Health Kit to aid dealers in preparing the information the Marine Group needs from them, complete with cash flow analysis and income statement templates. But it’s not enough to just create the documents. For a business plan to be an effective tool, dealers also need to update them on a regular basis. Experts agree that a business plan should be a constant work-in-progress, a living, breathing document that evolves with a business and the economy.

“Once they have that plan together, there needs to be constant adjustment to it,” says Van Wagoner. “If they add or drop a brand or location, what impact does it have on the long-term plan, for instance.”

The first step
One of the first steps the Olsons took when they returned from the conference was to lock themselves away for a few days and write their business plan. While they had written a five-year plan when they started their business seven years ago, they decided to start from scratch this time.

First, they used the Internet to look up and review business plans from a range of industries, borrowing pieces from those templates that made the most sense for their dealership. One Web site they borrowed from quite a bit is the U.S. Small Business Administration site, (See “How To: Write a business plan from scratch,” page 14, for the SBA’s business plan recommendations.)

Then, they began talking and writing. Three days later, they had a 24-page report, including a 16-page business plan and another eight pages of financials, a package that Deb describes as “simple and concise.”

The executive summary – the introductory section that is standard within most business plans – begins with a quote from the SBA Web site. “Companies that out-market, out-sell and out-promote their competitors emerge from the recession with increased market share and better long-term profitability.” And that is exactly what Farm Island Repair & Marine plans to do.

As Deb puts it, the business is “sticking with what we do best and what is most profitable for us.” Art has a background in manufacturing, which he is using to begin manufacturing the dealership’s own aluminum and wooden dock line. In the past, the dealership has lost business when those customers who aren’t interested in the high-end docks they carry turn to their competitors. With the addition of the new docks they’ll be manufacturing, they’ll be able to offer customers both types of products.

The dealership has also eliminated its non-core products, such as ATVs, snowmobiles and outdoor lawn equipment, to focus on its profitable product lines and its service department. The dealership currently carries Skeeter boats, G3 boats and pontoons, Yamaha and Mercury outboard motors, Yamaha PWCs and Floe docks and lifts. It also is finalizing the addition of a new pontoon line.

“We are aligning ourselves with strong product brands and strong financial companies that will be around for the future and can grow with us,” says Deb. “That’s important now with all the manufacturers going out of business.”

In addition, the company is leveraging its strategic competitive advantage – one of the highest educated service departments in Minnesota, according to Deb. It features a Yamaha Master Technician who receives two to three weeks of schooling each year, she says.

Farm Island Repair & Marine is also focusing on lowering its inventory levels by working with manufacturers on inventory turn ratios and partnering with other marine dealers to share inventory.

Finally, through discussions with its bank, the dealership has negotiated lower interest rates on its business loans and then continued to pay the same amount toward the principle, allowing it to pay the loans off quicker.

“Recessions are market growth opportunities,” the Olsons wrote at the end of their executive summary. “The playing field is less crowded, and our competitors are adopting a surviving approach, but we’re adopting a thriving attitude.”

Putting it to good use
Once Art and Deb finished their business plan, they started sending it out to their business partners. A copy went to their local credit union, which handles all of the dealership’s business loans and many of its customers’ boat loans.

“She’s a partner with us, and we want her to know our road map here,” Deb explains.

They also sent it out to GE Commercial Distribution Finance, which provides the dealership with floorplan financing for G3 and Skeeter boats and with which they hope to gain floorplan financing for their new pontoon line.

Finally, Art and Deb sent the business plan to the Aitkin (Minnesota) County Economic Development Department, with which they have been working closely regarding their new manufacturing business.

“We wanted to make sure they had it in their hands to see where we are going and how they may be able to help us,” she said.

But the most significant action the duo says they have taken has been sharing it with their employees. It has ensured the entire team is on the same path, heading in the same direction.

As the experts point out, the marine dealer of the past has been living in a world in which they had enough flexibility to survive, but many are finding out that their level of sophistication is now inadequate for the business climate they operate in. As dealers look to evolve over the months ahead — whether that means securing the loans they need, managing their financial situation better or aligning their employees toward a common mission — writing a business plan and adapting it to fit a changing marketplace will be critical to their survival.

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