Is Your 2018 Budget a Goal or a Wish?

Most dealers agree their goal every year is to grow their business. Without annual growth, your business is actually shrinking. So every year you set a new goal. Let's say you want to end 2018 with a year-over-year increase in net profit of 12 percent. That sounds pretty good. 


How are you going to accomplish that goal? After all, a goal without a plan is just a wish. You can't just say that you're going to sell 12 percent more cars, because there are too many variables. If you're a Toyota dealer, you may have had a good year because Toyota introduced the revamped 2018 Tundra. But Toyota isn't introducing a new Tundra for 2019, so you can't count on the same excitement level or sales volume. 


If you're predicting a flat year in sales, then you know that you'll have to increase your service revenue by 12 percent. 


You could just as easily say that you're going to meet your goal by spending 12 percent less. If you take this route, you must know your 2018 capital expenditures, new personnel requirements, advertising costs and more.  


In other words, your budget is your plan. Your budget is the roadmap that will help you achieve your goal.  


The first step in putting together a realistic budget is to do a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities and threats. This process is where the management team identifies internal and external factors that will affect the performance of your dealership. Your strengths and weaknesses are internal factors, while threats and opportunities are external factors.  



Have your management team brainstorm and create a list of all your dealership's strengths. If you're an auto group with eight stores and eight brands with new products launching, that's a strength. A strong management team with zero turnover is another strength. Do you have any corporate identity (CI) requirements next year? If not, that's a strength. If yes, chalk it up in the weakness section. Do you have a great reputation? That's a strength. 



Is your advertising and marketing budget bloated? This could be a weakness. Do you have a good handle on the ROI for all of your advertising and marketing sources? If not, that's a weakness. Is your gross profit per employee down year-over-year? If yes, that's a weakness. Is your used car to new car ratio 1-to-1? If not, that's a weakness. How is your service capacity? If you don't have enough stalls, technicians or time to meet demand that's a weakness.  



Now list the external opportunities that your dealership has to grow. Has a competing dealership recently changed hands? This could be an opportunity or a threat, depending. Is there a new business in town that's creating good-paying jobs? That's an opportunity. Have you recently joined a 20-Group, or purchased new business analytics tools? New partnerships and external guidance are opportunities that can help you manage your dealership more efficiently.  



Is a local business not doing well, and therefore may be planning layoffs? That's a threat to your dealership's revenue potential. If you had a large insurance claim this year, your insurance rates may increase in 2018, which is also a threat. Is there a new dealership or independent repair shop opening in town? That's a threat. Changes in the regulatory environment can have an adverse impact on performance. 


Completing a SWOT analysis is important because it allows you to create strategies for maximizing performance in strong areas, as well as strategies to minimize poor performance in weak areas. You can also create strategies to take advantage of opportunities and guard against threats.  


You may also want to perform a SWOT analysis on your competitors, so you have a better idea of how to position your strengths against their strengths, and your weaknesses against their weaknesses.  


Once you've completed your SWOT analysis, it's time to tackle the expense side of your budget. This blog is the first in a three-part series. In my next blog, I'll break down variable expenses, personnel expenses, semi-fixed expenses and fixed expenses. I'll also discuss volume budgeting and gross budgeting. In Part three of this series I'll cover net budgeting. Stay tuned! 

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