Wednesday, October 2, 2013

Dave's Top 10 Indicators: Number Eight: "Expense Management"

Our Number Eight Indicator is very close to our top indicator for a very important reason. Expense Management is probably the most "under managed" duty and responsibility in most dealerships. It seems that, other than the dealer, many managers don't realize that you can't spend what you don't have!

Personally, I've always tried to manage my dealership expenses like I would my own expenses in my personal life. Managing our "check book", budgeting our expenses versus our income is an essential practice to maintaining a "healthy" standard of living.

I believe that these "core principles" that we abide to in our personal lives should also be reflected in our duties and responsibilities as a dealer manager. Our "belief system" has to be one where we not only understand the "checks and balances", we have to abide by them.

Although, in many cases, it's not quite that simple as there are many departments within the dealership. There are also a variety of expense allocations that can determine the "net profit" of any one individual department within the dealership.

Managing Expenses begins with the knowledge that it takes to properly read, understand and "dissect" the dealer's financial information that is provided to most managers.

It's hard to believe, but there are still dealers that do not provide this information to their managers. Managers should at least be provided a D.O.C (Daily Operating Control) on a consistent basis.

As most of us know, there are three main categories of expenses to manage which are Personnel, Semi-Fixed and Fixed. The guidelines for "expense to gross" in these three categories, including allocations may vary depending on the manufacturer or individual dealer.

The Parts Manager, as well as all managers need to know what these guidelines are in order to maintain a healthy "bottom line". The manager also has to have the mentality that they are managing someone else's "check book" and they have to treat it like their own.

Now, let's break down these three categories...

Parts Personnel Expense:  (Guide: 32% - 50%)

Most manufacturers and dealers allocate anywhere from 32% to 50% towards personnel expense with higher allocations to some European Manufacturers. This allocation range depends on the manufacturer or, my preferred reference, N.A.D.A.'s (National Automotive Dealers Association) guidelines.

Staying within this personnel expense budget also requires the proper "metrics" when selecting parts staff members. Having the right mix of people on the "front and back" counter, shipping & receiving, stocking, inventory, sales and drivers is crucial to meeting the appropriate guideline.

Not having the right "balance" of personnel can not only effect overall "expense to gross" targets, it can also impact the initial sales and gross profit numbers. As we all know, gross can take care of everything and if we fail to meet our gross targets, our personnel "expense to gross" percentages will rise.

Parts Semi-Fixed Expenses:  (Guide: 10% - 19%)

The Semi-Fixed category contains some of the most fluctuating and under managed expenses on the dealers' financial statement. Expenses such as advertising, freight, outside services, training, policy and supplies are just a few of the expenses that can vary considerably from month to month.

I recommend that many of these Semi-Fixed expenses carry limits set by the dealer and require authorization if over exceeded. Discipline is the key word and if there is one expense category that requires a "check book" mentality, it's Semi-Fixed. 

We also have to keep in mind that many of these Semi-Fixed categories have a "Fixed Expense" nature. Expenses such as Data Processing, Legal & Auditing, Vehicle, Telephone and Uniform, though categorized as Semi-Fixed are pretty stable and steady each month
Categories such as these should be budgeted in the "expense to gross" numbers and percentages, leaving the other fore mentioned controllable Semi-Fixed categories to carry dealer authorized limits each month.

Parts Fixed Expenses:  (Guide: 9% - 16%)

Well!...they call them Fixed Expenses for a reason! They are going to be there and we have to include them in our budget each month.

Many managers believe that Fixed Expenses are uncontrollable and we have to live with whatever number that the dealer throws in there such as Rent (the big four letter word!), Repairs to Real Estate, Taxes, Heat/Power & Lights and Insurances just to name a few.

Well?...I have news for those who think that we can't impact or control Fixed Expenses! We CAN impact those Fixed Expenses by increasing our gross! Unless the dealer changes the Fixed Expense allocations mid stream, we can actually lower them by being "gross minded".

Parts Overall Net To Gross:  (Guide: 25% - 40%)

This is what it all about...the "Bottom Line"! After all has been said and done, the dealer is going to read his/her financial statement from the "bottom up".

Expenses can be a "gross killer" and I have seen too often where records are made in sales and gross, but because of "under managed" expenses, so much hard work and effort is wasted. 

Bottom Line is..."The Bottom Line" and you don't have to be big to be successful and profitable. We just have to manage our "check book" and treat it like your own....

Struggling with YOUR Net Profit?

 ACG's "Smart Parts" can get you back on track and ready for the new year with this month's exclusive offer. Have your own exclusive and confidential Expense Evaluation which includes a one hour webinar with Dave. Offer also includes your own individual Staffing Metrics for the Parts Department to determine if you have the right mix of personnel as well as a detailed review of each expense category!

 This one time offer expires: 

October 31, 2013

ONE TIME PRICE: $149.95!!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at Vist our Website at