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Jan. 19, 2009: How to make the right, but very difficult choices for your store

January 19, 2009
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The December ‘08 numbers are in. And it’s not good. The month is down in every measure, and in every region of the country. First time ever. Everything. Down.
OK. What do you do? Everybody is asking the same question, and here is what I am seeing in the stores I have visited the past 60 days.
First, as much as it hurts, dealers are cutting jobs. I have seen a headcount of 65 dropped to 42. A store normally at 80 is cut to 60. And, in one extreme case, each manager was told they would be on the floor, or at the counter, with only one other employee, open to close. Flat-rate techs stayed, but parts, sales and the office were all cut substantially.
A rule of thumb that I have developed during the years is X employees for every $1 million in sales. Ten years ago that number was
3.5 employees for every million. It has steadily decreased over time, and I now find that efficient stores are running around 2.25 employees per million. Check your ratio of employees to sales. If you are above 2.5:$1m, you have room to make changes. If you are in the 2-2.5 range, you probably cannot cut without hurting customer service to an unacceptable level.
Next tough one: rent. If you are paying true rent and you see you simply will not be able to carry the payment and still stay in business, you always have the option of talking with the property owner and negotiating some temporary relief (reduce, defer, re-write, whatever you can come up with). Don’t for a minute think that this is impossible. That landowner does not want that property to go dark. Yes, you have signed a lease. Yes, you are committed to pay. But know that there is always room to talk, and avert disaster. Don’t hesitate to open this avenue of communication. Your landlord will actually appreciate it, rather than dealing with rent that keeps coming later and later each month.
Cash flow: Jim Skeans, a consultant in the auto industry, likes to say that “profit is opinion. Cash flow is fact.” We all know you can have a banner year with tons of profit, but have no cash. And, it is likewise possible to have a terrible year, major losses and have tons of cash. It’s all in what you do with the money, and when you do it. Watch your cash expenditures. Watch those areas that like to drink up cash, and never spit it out again (can you say parts inventory?).
The term “frozen assets” really means frozen. You are not going to see that cash again for a long, long time, so now is not the time for capital improvements. That land you bought, that race-team truck and trailer, that new fence you just put up: all frozen assets. That cash is gone. I was recently at a dealership that was scraping for cash. They had run all the contracts, they had hammered all the bounced checks, they had leaned heavy on all the AR customers, and were still looking for dollars to meet the daily needs. Then, I felt a rumble coming from the shop below the office where we sat. I asked what it was, and the controller calmly said, “Oh, that’s our new bead blaster.” I couldn’t muster the courage to ask if it was leased, or if it was purchased outright. I just didn’t want to know.
Finally, do I have to say this? Get, keep and maintain a dead-on, absolutely accurate book balance for your bank accounts. You have got to know to the penny what your cash position is at every hour of the day. That means immediately booking every check that is cut, logging each ACH and debit that hits, and watching the cash coming in to the tills all during the day (remember in the old days running an x-tape on your cash register?). And even more important, know exactly what checks you have issued that have not yet cleared. Looking up the balance in your account on the bank Web site just doesn’t cut it. You must know your book balance at all times. When those bank charges for bounced checks start hitting, you are heading down a very, very slippery slope.
And now the good news. Yes, the whole nation is down. But, hidden in those numbers is this little jewel: In parts, for every three that are down, one is up. In service, for every one that is down, one is up. And in sales as in parts, for every three that are down, again, one is up.
Come on. We have been here before, and we can do it again. Make the hard choices, do what must be done, tighten it all up and we will come out the other end stronger and better.
See you there.

Hal Ethington has been associated with the powersports industry for more than 30 years. Ethington is a senior analyst at ADP Lightspeed. He can be reached at Hal_ethington@adp.com.

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