It’s finally here. 2009. My dad used an old line about someone who kept hitting himself in the head. When asked why he did that he replied, “because it feels so good when I stop.” While all the pain may not have stopped. Yet, many of us are glad that 2008 is in the history books. Here we are with a bright, shiny new year. Full of promises and resolutions. Plenty of challenges and opportunities.
It’s always good to touch on the basics at the start of a new year. Let’s talk about having a budget. We use that term widely in this industry. It’s really a sales forecast and budget. The budget has more to do with the expenses and the forecast with revenue. All managers should forecast revenue. Doesn’t it just make sense to have a plan? Plans are a lot like goals. We all know that not having an annual goal is to say that you are willing to accept the mediocre offerings of a misspent year.
You could say that it’s futile in this market to do a forecast. You can think whatever you plan will be somehow thwarted. Not having a plan is a far worse idea than possibly spending time planning for things that might change.
Forecasting sales is done by looking at the number of units you think you’ll sell. Look at each manufacturer and type as a “chunk.” Look at how much that chunk sold for as an average selling price last year. It’s simple to multiply the number of units times your average selling price to have the revenue projection. Knowing the target margin tells you the gross profit (available income) that will result. Run the number you are selling against the average number you stock throughout the year and you will know about turns. If you aren’t getting at least a 3 turn from that chunk, consider making a change.
Used is done in virtually the same way. It’s harder to know how many used you may have in stock unless you have tracked your history.
Finance is easy. Look at the total sales dollars from New and Used. Pick a number between three and five percent of that number. If your finance department does well, pick the five. If not, pick the three. Better yet, see how much of total New and Used you have done historically in Finance as a percentage. Use that number if you have it. From there it’s a matter of filling up the buckets with the proportion coming from reserves or extended service contract or any other categories of sales made by Finance.
Service comes from the number of techs. Take 2080 hours times the number of techs times the labor rate times the productivity. It’s gonna give you a good round-about number for the year’s revenue. Same thing applies about splitting it up into categories or buckets of customer, warranty, internal, prep and body.
Parts is a bit more challenging. Look as what you did last year in proportion to the shop. Then dial it in from there.
These are simple ways to approach sales forecasting. You may have more elaborate ways. You might still use these as examples for reality checks as your managers bring the forecasts to you.
Finally, on the forecast side, you’ll want to know how much to put in each month. For that you will need to develop sales trends. It amounts to looking at the percentage that each month is of the total year’s sales. You need to do it for each department. You should do it for at least the past 3 years. When you have that number for each department, you use it to split out your year’s revenue into that department’s monthly revenue forecasts.
The budgeting side is harder. Your controller, office manager (or your friendly consultant) can help sort through much of that. I always start with the people and the pay plans. From there I look at the format of a DMS statement to break expenses down into annual numbers. Some are split into the month’s in 12 equal monthly amounts (like rent). Others are done as a percentage of gross profit. In the end, I have a set of monthly statements that feed to an annual statement and show what the year and months will look like on a pro-forma basis.
Don’t blow this exercise off. I’ve found great value for the dealer in sitting the manager down to go over his or her thinking about what the new year brings. It’s one way to get them to buy into their own plan. Getting them to buy in just makes it that much more likely that it will actually happen.