Car dealers face complex financial challenges that demand expert management. The immediate challenge facing dealers today is finding and hiring expert financial managers in a severely limited talent pool.
This scarcity of qualified controllers, combined with the overall deterioration in dealership financial expertise and experience, poses significant obstacles and has revealed a looming crisis. I feel there’s a tsunami coming that could have a very detrimental effect on dealers and on the auto industry as a whole.
I talk to people.
If you know me, you know I like to hear people’s takes on the car business. Like a lot of car people, it’s in my blood and honestly I could talk about the car business everyday. I’ve been talking to people about this absence of financial/accounting understanding in dealership personnel, including some dealers who don’t have a clear grasp of their financials, KPIs or how they measure up to manufacturer benchmarks.
Last week, I spoke with yet another professional who’s been observing the exact same phenomenon. She shared with me the following:
Having been a manager of onboarding a new DMS in hundreds of rooftops, I have seen this first hand. It’s shocking how far the skills and basic understanding of best practices in a dealership have slipped. Why some owners don’t see it and get more training is even more shocking.
Controlling expenses is the #1 concern for dealers. Get your FREE DEALER SELF-ASSESSMENT to see how you measure up against manufacturer-specific benchmarks. Get it today!
The financial health of new car franchise dealers is intricately linked to the financial health of vehicle manufacturers.
Car dealerships operate within a franchise system, creating a symbiotic relationship between dealers and their respective manufacturers. This interconnected structure means that the financial health of individual dealerships directly impacts the overall success of the automotive brands they represent. Dealership profitability is not just crucial for the survival of individual businesses, but also plays a vital role in the stability and growth of the entire automotive industry.
Given this close association, it’s surprising that there’s little discussion about the current shortage of dealership financial management expertise. This lack of specialized knowledge poses risks at multiple levels:
- For individual dealerships: Without proper financial management, dealerships can struggle with cash flow, inventories, funding, and overall profitability.
- For manufacturers: If dealerships underperform or fail, it leads to reduced sales, damaged brand reputation, and disrupted distribution networks for manufacturers.
- For consumers: Poorly managed dealerships result in higher prices, reduced service quality, or fewer options for customers.
- For the broader economy: As significant employers and contributors to local economies, widespread dealership struggles could have far-reaching economic consequences.
The unspoken reality.
The absence of dialogue on this critical issue is concerning, especially considering the potential ripple effects throughout the automotive ecosystem. This silence may stem from a lack of awareness, complacency due to recent years of strong sales, and/or a focus on the abundance of other industry challenges like affordability, digital retail and shifting consumer preferences.
I’m honestly perplexed as to why no one is talking about it. And it’s not like there’s a shortage of evidence to prove this is happening. I’ve worked with several dealerships with challenging situations where millions of dollars were at stake. Here are some general examples:
- I’ve witnessed dealers that are not familiar with their financials (even though that knowledge is generally required to become a dealer – this contributes to my bewilderment).
- In my conversations with dealership staff, I’ve discovered that many don’t fully understand certain aspects of financial statements or the business activities that generate these financial entries. This lack of comprehension extends to both the interpretation of financial data and the underlying operations that produce it.
- I am aware of an organization that went through 7 controllers in 18 months.
- I’ve witnessed a situation where vehicle selling expenses were almost equal to the vehicle gross profit. For those unfamiliar with financial analysis, this situation makes it impossible to cover the remaining three-quarters of total expenses. In this specific instance, it led to the New Car Department suffering a loss of over $1 million.
This situation is unsustainable and will eventually collapse.
While I can’t predict exactly when, I can tell you this has happened before. For a time, in both the 90s and in 2009-2010, banks and/or the DMV were forcibly closing dealerships. They would just come into the store with their guns and badges and lock the doors immediately. Fearing that their paychecks wouldn’t cash, employees absconded with office equipment and anything else they could get their hands on.
I sense a similar crisis approaching. Many current dealership employees and managers have never faced such dire circumstances. Although I don’t wish this on anyone, it’s crucial they understand the severe consequences that can result from poor dealership financial management.
One solution: an on-demand dealership CFO.
This post is supposed to be about the benefits of an on-demand dealership CFO (it’s coming, I promise), I just feel the need to spell things out so that dealers who care about their store’s financial health will understand what can happen without an experienced CFO’s insights and advice.
While some dealership groups may have the resources for an in-house Chief Financial Officer (CFO), the majority of dealers often find themselves in need of high-level financial expertise but either don’t want or can’t afford the burden of an in-house CFO’s salary.
Here is where the concept of an on-demand CFO comes into play. By bringing in a seasoned financial professional on a part-time, on-demand basis, dealerships can access top-tier financial guidance and strategy while keeping costs low.
A CFO is different from a Controller or office manager.
The roles of a Chief Financial Officer (CFO) and a Controller are both crucial but distinct, each contributing differently to the financial health and management of the store(s).
A dealership Controller manages daily financial operations and accounting practices. They ensure accuracy in financial reporting and compliance.
A dealership CFO plays a strategic leadership role. They focus on long-term financial planning and growth, while overseeing all financial activities, reporting directly to the CEO.
The personality traits of dealership controllers and CFOs reflect their distinct roles and responsibilities.
- Controllers are typically detail-oriented, methodical, and focused on accuracy, making them well-suited for managing financial processes and compliance.
- In contrast, while CFOs also possess detail-oriented accounting expertise, they are strategic thinkers with strong leadership skills, focusing on aligning financial strategies with business objectives and driving long-term growth.
What are the benefits of hiring an on-demand dealership CFO?
Let’s explore 14(!) benefits that hiring an on-demand CFO can bring to a car dealership.
1. Cost-Effectiveness
You’d likely agree with me that one of the primary advantages of hiring an on-demand dealership CFO is the cost savings. Unlike an in-house CFO, an on-demand CFO provides high-level financial expertise without the expense of a full salary, benefits, and bonuses. As profit retention becomes more challenging in the months and years ahead, this on-demand CFO approach allows dealerships to allocate resources more efficiently while still benefiting from expert financial oversight.
2. Enhanced Financial Oversight
An on-demand CFO brings a wealth of experience and knowledge that can significantly improve financial oversight. This is particularly beneficial in situations where the dealership’s controller may not have the expertise to identify irregularities in accounting reports or operational activities.
- The on-demand CFO can spot discrepancies and implement corrective measures, ensuring that the financial statements are accurate and compliant with regulations.
- A CFO can also optimize cash flow, which is crucial in the capital-intensive retail car business by negotiating better terms with lenders and vendors.
An on-demand CFO can also be instrumental in detecting discrepancies and irregularities that might indicate theft or fraud. Their expertise in financial analysis and oversight enables them to identify unusual patterns and inconsistencies in financial reports, transactions, and operational data.
By conducting regular audits and scrutinizing financial statements, an on-demand CFO can spot red flags that might go unnoticed by internal staff who are too familiar with routine processes. Their external perspective allows them to approach financial records with fresh eyes, reducing the likelihood of bias and increasing the chances of detecting fraudulent activities.
3. Improved Financial Management and Expense Control
The on-demand CFO helps ensure that financial strategies support growth and profitability. An on-demand CFO has the ability to benchmark performance against industry standards and identifies areas for cost reduction without compromising operational quality, while simultaneously pinpointing opportunities for revenue growth. This might include optimizing F&I products, improving service department efficiency, or exploring new revenue streams.
4. Strategic Planning and Forecasting
on-demand CFOs excel in strategic planning and forecasting, which are essential for long-term business growth. Due to an on-demand CFO’s unique understanding of dealership-specific financial metrics and KPIs, they can help dealerships develop robust financial plans, analyze market trends, and identify opportunities for expansion. By leveraging their expertise, dealerships can make informed decisions that align with their strategic objectives.
5. Operational Efficiency
In addition to financial oversight, an on-demand CFO can streamline dealership operations by identifying inefficiencies and suggesting improvements. They work closely with management to optimize processes, reduce waste, and improve overall productivity. They can assist in developing strategies for efficient inventory turnover and financing. This operational efficiency can lead to cost savings and increased profitability.
6. Flexibility and Scalability
The flexible nature of an on-demand CFO arrangement allows dealerships to scale their financial services based on their needs. Whether the dealership is experiencing rapid growth or facing economic challenges, an on-demand CFO can adjust their level of involvement accordingly. This scalability ensures that the dealership has the right level of financial expertise at the right time.
7. Expertise in Dealership Operations
An on-demand dealership CFO possesses the extensive specialized knowledge to understand the unique challenges and opportunities within the car business and can provide tailored advice on operational structure, expense control, and business growth opportunities. They can act as the dealer’s consigliere, or trusted advisor, to ensure plans are sound and don’t create liability for the organization.
8. Risk Management
on-demand CFOs can identify and mitigate financial and other risks specific to dealerships. They help safeguard the dealership’s financial health and long-term viability in a volatile market.
- By implementing robust internal controls, they help prevent fraud and financial mismanagement.
- The CFO monitors broader economic indicators that impact the auto industry, such as fuel prices, regulatory changes, and shifts in consumer preferences.
- They create contingency plans for potential economic downturns or supply chain disruptions, ensuring the dealership’s financial stability.
- They manage and optimize insurance coverage, and ensure compliance with evolving financial regulations.
9. Mergers and Acquisitions
For dealerships considering expansion or sale, a CFO can provide valuable guidance and financial analysis. They conduct thorough financial due diligence, assessing the true value of potential acquisitions or the dealership itself. The CFO’s analysis covers critical areas such as profitability trends, asset valuation, debt structures, and synergy potential. They also navigate complex financial negotiations, structure deals to maximize tax efficiency, and ensure compliance with regulatory requirements. Whether a dealership is looking to expand through strategic acquisitions or prepare for a lucrative sale, an on-demand CFO’s guidance can significantly enhance the outcome, potentially saving millions in the process.
10. Technology Integration and Process Improvement
An on-demand CFO’s expertise often revolutionizes an auto dealership’s financial operations. By evaluating and implementing advanced Dealer Management Systems (DMS) and data analytics tools, they can streamline financial processes, automate routine tasks, and provide real-time insights for better decision-making.
The on-demand CFO can oversee the integration of financial systems with other dealership operations, implement robust cybersecurity measures, and ensure compliance with data protection regulations. Through these efforts, dealerships can achieve greater efficiency, accuracy, and financial visibility, while also leveraging data-driven insights to optimize inventory management, sales forecasting, and customer strategies. This technological transformation, guided by a seasoned financial expert, positions the dealership to adapt quickly to market changes and maintain a competitive edge.
11. Compliance Oversight
CFOs ensure adherence to financial and other regulations, as well as tax and regulatory laws specific to car dealerships. They provide guidance to ensure that all financial operations adhere to the latest legal requirements, including federal, state, and local regulations specific to the automotive industry. An on-demand CFO can develop and implement internal controls to prevent compliance violations and suggest regular audits to identify and rectify potential issues. An on-demand CFO can protect the dealership from legal penalties, financial losses, and reputational damage.
12. Performance metrics
An on-demand CFO can significantly enhance an auto dealership’s performance by establishing key performance indicators (KPIs) that provide measurable and actionable insights into the business’s financial and operational health. By developing specific departmental KPIs tailored to the dealership’s objectives, they can track critical aspects of performance and identify areas for improvement. This data-driven approach enables the dealership to set realistic goals, align strategies with business objectives, and make informed decisions based on concrete metrics. Implementing KPIs allows for continuous performance monitoring, helping the dealership to swiftly address challenges, capitalize on opportunities, and ultimately improve overall efficiency and profitability. The expertise of an on-demand CFO ensures that these metrics are relevant, accurate, and aligned with the dealership’s strategic vision, fostering a culture of accountability and continuous improvement.
13. Digital Marketing Expense Oversight
An on-demand CFO with expertise in online reputation management and digital marketing can significantly enhance a car dealership’s strategic positioning and overall performance. While rare, an on-demand CFO’s expertise can guide dealers to save thousands of dollars in marketing/advertising spend due to two factors that provide the perfect storm of wasteful expense:
- Marketing/advertising is one of the largest monthly expenses in a dealership, and is often lacking in oversight.
- Dealership digital marketing solutions have become a billion dollar industry, where dealers often get the “minimum viable product for the maximum viable price.”
14. Objectivity
An external on-demand CFO provides an impartial perspective on a dealership’s financial management. An on-demand CFO can provide an unbiased perspective, free from internal politics or preconceived notions that might affect decision-making. This impartial viewpoint allows them to evaluate financial data and operations without being influenced by existing relationships or internal dynamics, leading to more transparent and effective financial assessments. They can identify areas of inefficiency, suggest improvements, and challenge assumptions that In-house staff may overlook due to familiarity or bias. By offering objective insights, an on-demand CFO helps ensure that financial strategies are based on accurate data and aligned with the dealership’s best interests, fostering sound decision-making and long-term growth.
An on-demand dealership CFO might be a good fit for your situation.
Employing an on-demand CFO offers car dealerships a cost-effective solution to enhance financial management, workforce skills, strategic planning, and operational efficiency. By leveraging the expertise of an on-demand CFO, dealerships can navigate the complexities of the industry and position themselves for sustainable growth without breaking the bank.