Deflecting the next downturn

Asset plan analysis is critical before times get tough.

Boat and marine product sales plunged deep underwater during the recession, but the industry has roared back in recent years with consistent market growth. 

It’s never too early to implement strategies for keeping ahead. Managing key asset metrics and eliminating silent drags on your business now can create maximum efficiency and improve cash flow later. 

Although you may not be able to completely protect your business from an economic downturn, understanding how it could affect you will help you develop a plan to minimize its impact. 

Planning, reviewing, and monitoring your business should give you the information you need to make changes to help you stay financially viable. This should make it easier for your business to respond to, and recover from, an economic downturn. 

Asset plan analysis

Bad dealership financial habits are made in good times, and good habits are made in bad times, said Spader Business Management President John Spader, who addressed the topic of underperforming assets and downturn advance strategies during his 2017 Marine Dealers Conference & Expo Leadership Track presentation. 

“Most dealers are very passionate, hardworking, and knowledgeable when it comes to what their customers want,” Spader said. “They are very passionate about their product, business, and industry, but very often, that passion and enthusiasm does not carry over into financial plans, and especially into asset management.”

Spader said a great asset plan leverages good times while generating high profits and good returns. “If it’s done right, not only will it help us through, and to weather the soft markets, but it can even cause us to thrive,” he said.

After the last marine industry downturn, Spader Business Management visited with several groups of high-performing dealers in other industries and asked them for advice on what to do differently. The majority of dealers surveyed said they wished they had provided more shoring to their balance sheets, Spader said.

“Basically, what they said was have a better asset management plan,” he added. “You have the opportunity to do that in good times. Cash is king, especially before a downturn. Your hard assets – land, buildings, forklifts or any other equipment that may be paid off, are great assets to have, but they are not cash. You need liquid capital to weather the tough times, thrive, and take advantage of opportunities.”

Accessory turnovers should be higher than hard parts, Spader said. The rule? The trendier the item, the higher the turnover. He suggests breaking down parts and accessories into categories to effectively issues and opportunities. 

Establish a main strategy

It’s also critical to establish a main company strategy. “Do you have a clear and written strategy for company margin goals and have market share targets that create a good return and are fair to your manufacturers?” Spader asked. Margin and inventory turnover plans must generate a good to great average return. He suggests analyzing and managing by category brand and segment on a monthly basis.

“You need to consistently monitor and manage aged inventory levels to keep them within set guidelines,” Spader said.

Dealers need to force themselves to develop clear, effectively written and followed guidelines for stocking parts and accessories. 

Set “no sale” inventory levels at 12-month and 24-month monitoring levels. Cycle counts and have a “pure” parts and accessories margin. “Establish purchasing policies that create and protect proper inventory levels,” Spader suggests.

Spader advises monitoring and managing accounts receivables by age category on a weekly basis, as well as open repair orders and work in progress.

“One of the things that came out of our sessions with dealers is that if you’ve had two or three years of good profits and good sales, make sure your balance sheet is sparkling and your inventory is clean,” Spader said. “Make sure your cash flow is in a very good position. Assess yourself and see how you are doing, and review your pre-downturn list of ‘What I wish I would have done’ before it gets bad.”