Where Did All My Cash Go?

As I travel to various states offering consulting services to RV/Marine/Auto dealers, they often request that I examine their accounting books in order to develop a report detailing their profitability for the year. Many dealers don’t trust the financial reports generated by the accounting department or by their computer system, because the information appears to be inaccurate – and often times it is! One of the main things that disturbs owners and general managers is the fact that even though they may have been profitable for the year, they have no money in the bank – where did the profits go? The answer, of course, can be revealed by investigating the dealership’s cash flow. Before we talk about cash flow, let us begin with a discussion of working capital.

How much wood could a woodchuck chuck if a woodchuck could chuck wood?

When a dealer is asked how much money he or she needs to run the business, the answer usually goes something like this:

Owner/GM Response: “Well, it all depends on the season.

Sometimes we need more cash when we are having more shows, hiring people, and advertising more and more. It just depends on a bunch of stuff.”

Best Friends Consulting: “I realize this fact, but how much cash do you need to have in the bank on average in order to keep your business running smoothly?”

Owner/GM Response: “The answer to your question is very simple. We need enough cash to pay our bills! Our dealership usually has about $200,000 per month in expenses. So we need to have at least $200,000 available to pay our bills.

Best Friends Consulting: “So, how do you plan to get this

$200,000?”

Owner/GM Response: “Well, when you’ve been in the business as long as I have, you come up with good ways to keep on top of this machinery. What we do is set a goal to get at least $5,000 per copy on each deal. So, we tell our sales staff that we must sell at least 40 units each and every month. We all know that 40 times

$5,000 = $200,000. That’s how we do it!”