Garry Bartecki Think CASH in ’25
Last month, I suggested that dealers compare their 24 results against their peers’ accounting and cash flow budgets.
I also stated that the month’s topic would be free cash flow, which we will discuss after a few additional topics that need to be on your radar for ’25.
- Take a look at the markets that are used for your product line. How are the Fair Market Value (FMV) and Forced Liquidation Value (FLV) stats coming along? In some categories, they are sharply up and some sharply down. Some even show a surge in FLV as customers continue to purchase used equipment. Performing this exercise will assist with your pricing policies for 25. And what I hear on the street is there are deals to be had with the OEMs, which dealers will need as the used market pricing is softening up.
- Walter McDonald produced a 60-question form to help dealers review how they compare to Industry Dealer Fundamentals. These are questions for owners as well as department heads. And I would share it at department meetings and include all the employees who work in that department to help them understand the dealers’ game plan for 25. I assure you it is worth the read. If you do not score at least 90% after going through the questions with your sales, parts, service, and rental departments, I would figure out a way to decide which issues are most important and assign managers to report back with a program to correct the problem.
I asked Walter If I could include the list in this month’s column, and he gave me an “OK.” The article is included in this issue or can be accessed by clicking this link.
There is money to be made by performing this review of your dealership. Get it!
- Cybercrime is increasing and becoming more dangerous now that hackers can access AI. With AI, hackers can duplicate voices, photos, and documents to move money from corporate accounts to theirs. Unfortunately, even disgruntled employees could initiate a sophisticated cyberattack. You may want to review how money is transferred into and out of your accounts. Having more than one approval process is probably a wise thing. Work with your bank and IT folks to develop a program that works for you.
Let’s discuss Cash Flow Management
Some factors will surely get in your way of managing a cash flow that ensures stability. Let’s face it: goods and services remain costly. Those 4-5% wage hikes, higher insurance costs, and customer requests for lower-priced goods make it difficult to maintain adequate cash flows. A survey found that one in four finance leaders say they do not have enough cash to run the business for the next twelve months.
Interestingly, using new ways to control and measure cash flow requires a new level of expertise in the Finance Department to accomplish this task. I know this since my Grandson does this for a living. Gather the data. Make sure it makes sense, determine a billing cycle, plan out costs per period, fold in payment and collection programs, and move on to Budgeting, Forecasting, and Analytics. In addition, new processes and technology are also required to ensure reliable results, which can be reviewed and analyzed as the process progresses. Talking to Grandson, I am learning that this is a very tough job if you cannot get correct and reliable input, especially if deadlines and reports are required for management and financing sources.
This tells you that if you have a cash flow problem, ways are being developed to improve control over and maximize cash flow. We will discuss this further next month.
Free Cash Flow
Free cash flow refers to cash flow from Operating Activities minus one or two claims against the cash flow. You usually see it presented as:
CASH FLOW FROM OPERATIONS
minus CAPITAL EXPENDITURES
equals FREE CASH FLOW
If the result of this exercise is positive, you have cash flow that will cover the expenditures cost with something left over that you can use for other activities. In your business, however, Cap-x, including technology and rental fleet, probably exceeds the CF from Ops, thus telling you of a need to obtain capital to cover the cost of the rental and technology equipment. Wall Street loves FCF because they need to see stability moving forward,
Before further discussing CASH FLOW, I suggest you purchase a few CASH FLOW for DUMMIES books and make them available to your department managers and finance department. Since CASH FLOW is KING you may as well get them thinking cash flow and not book profits or losses. We all know that you can be profitable and be short on cash.
One positive note regarding this topic is having your entire management team on the same page regarding cash flow. And if you don’t seem to be getting anywhere, I will send my Grandson to teach you the ropes.
About the Columnist:
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail [email protected] to contact Garry.
