Included in a dealership CFO’s responsibilities is identifying operational weaknesses that affect financial performance, such as inefficiencies in asset management, excessive overhead costs, or missed revenue opportunities in sales and service.
By pinpointing these areas, the CFO can develop strategies to reduce costs, optimize processes, and improve profitability, ensuring the dealership’s financial stability and growth potential. By collaborating with department heads to align financial goals with operational improvements, the CFO fosters a culture of efficiency and accountability across the dealership.
One of the tools I’ve used to identify operational weaknesses is a S.W.O.T. Analysis.
If you’re not familiar with SWOT, it stands for Strengths, Weaknesses, Opportunities and Threats.
SWOT analysis is a strategic tool used to evaluate an organization’s internal and external factors by examining its Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal factors—such as resources, skills, or limitations within the company—while opportunities and threats are external factors, like market trends, competitors, and economic conditions.
By identifying these areas, a dealership can build on their strengths, address weaknesses, seize potential opportunities, and mitigate risks posed by threats. This analysis is commonly used in planning and decision-making to help organizations gain a clear, holistic view of their position and develop effective strategies.
SWOT analysis completely transformed my approach.
As a natural strategist, discovering SWOT was a game-changer for me. Until then, as a dealership CFO or General Manager, I’d managed stores and led teams instinctively, but I couldn’t quite put into words how I did it. SWOT analysis felt like the universe finally handing me the cheat codes—I suddenly had a clear structure and tangible evidence behind my thoughts.
Every good leader intuitively tackles weaknesses within their organization because identifying weaknesses is key to fending off potential threats.
Like many of my posts, this one stems from a real-life moment that inspired me to expand on an idea. The first of my eight tips is based on a recent discovery for one of my clients—a client who, while eager to master financial literacy, felt he wasn’t as savvy with his financials as he wanted to be. That’s where we came in, working together to bridge that gap.
8 Tips to Identify Operational Weaknesses in Dealerships
1. Accounting Schedules.
Dealers and managers are often not aware of the weaknesses in their operation and I’m about to tell you an easy way to find them. It’s not the first place you’d think to look but it’s very effective: Review all your accounting schedules (not just Contracts in Transit).
A “Schedule” in dealership accounting lingo is simply a listing of specific GL accounts itemized by a “control number” assigned to the customer’s or vendor’s name by the DMS. Each Schedule is reconciled weekly or monthly and dealerships typically have 25-30 schedules, although larger volume stores can have more.
Every outstanding item on any schedule that is over 60 days old (with very few exceptions) represents a process issue, a weakness in the operational flow of transactions, leading to lost revenue, customer issues or worse. Each item that’s older than 60 days, represents a whole in the dealership’s system that needs to be corrected.
2. General Manager and Controller are a united team.
Each brings essential strengths to the dealership and while they both report directly to the owner, the Controller sometimes carries additional fiduciary responsibilities beyond the General Manager’s scope. Their success relies on mutual respect, cohesive decision-making, and unwavering loyalty and support for each other’s roles.
3. Financial literacy.
Fiscal knowledge and financial acumen is essential for both the General Manager and the Controller in a dealership. Financial literacy empowers them to make informed decisions, drive profitability, and manage finances efficiently. With strong financial literacy, they can better align operational goals with financial realities, leading to smarter decision-making, increased profitability, and sustainable growth for the dealership.
When the GM and Controller both lack a financial literacy level required for their respective positions, it’s like putting two people who can’t read a map in charge of a road trip—they’ll drive in circles, burn through resources, and somehow end up further from where they started. The dealership spirals into missed revenue/sales opportunities, uncontrolled expenses, and cash flow chaos, all while wondering why things aren’t working.
Without a clear understanding of key financial metrics and their implications, the team may struggle to identify and address weaknesses, leaving the business vulnerable to threats. This lack of financial oversight can also result in missed growth opportunities and an inability to adapt to market changes, ultimately jeopardizing the dealership’s competitive edge, financial health and even its future viability.
4. Customer feedback, online reviews and satisfaction surveys.
CSI is a manufacturer-mandated program that helps establish structure for operational policies. While CSI surveys offer valuable insights, they aren’t the only way to understand customer opinions. Real-time online reviews often provide more immediate and impactful feedback, offering a clearer perspective on how your dealership is perceived by customers.
Regularly gathering customer feedback, especially after key interactions (e.g., service appointments, sales transactions) can reveal pain points and indicate areas where expectations aren’t being met.
5. Employee feedback and engagement.
Encouraging thoughtful input from employees, especially those on the front lines who work directly with customers and processes, provides great insight when identifying operational weaknesses. Team members often have valuable insights into operational challenges that may not be immediately visible to management. When they feel their perspectives are heard and valued, they can see how their input contributes to improving overall operations, fostering engagement and a sense of purpose.
6. Benchmarking against competitors.
Regularly compare your dealership’s performance, customer experience, and service times with those of similar dealerships. This practice helps identify areas where your dealership is either falling behind or standing out, providing insights for improvement or further leveraging strengths.
7. Financial analysis.
Review financial KPIs (key performance indicators) such as “Expense as a percent of gross profit.” Unusual trends or declining performance in any area typically point to process weaknesses.
8. Root Cause Analysis of recurring issues.
If certain issues keep coming up, use a root cause analysis (such as the 5 Whys technique) to get to the source of the problem rather than just treating symptoms.
The 5 Whys technique is a problem-solving method that involves asking “Why?” five times (or as many times as needed) to drill down to the root cause of an issue. It’s based on the idea that asking successive “why” questions can move beyond the symptoms of a problem to uncover its core source. Developed by Toyota in the 1930s, this approach is particularly useful for tackling complex or recurring issues.
How the 5 Whys Technique Works
- Identify the Problem: Clearly define the issue you’re facing.
- Ask the First “Why?”: Start by asking why the problem happened. The answer should point to an immediate cause.
- Ask the Second “Why?”: Using the answer from the first question, ask why that happened.
- Continue Asking “Why?”: Repeat the process until you reach the root cause. Often, this takes about five “whys,” but it can sometimes take fewer or more.
- Identify the Root Cause and Take Action: Once you reach a fundamental cause, devise solutions that address it directly.
Example of the 5 Whys in a Dealership Setting
Let’s apply the 5 Whys technique to a common problem in car dealerships.
Problem: Customer satisfaction scores for the service department are declining.
- Why #1: Why are customer satisfaction scores declining? Because customers are complaining about long wait times for their vehicles.
- Why #2: Why are there long wait times? Because technicians are taking longer than expected to complete repairs.
- Why #3: Why are technicians taking longer to complete repairs? Because they often have to wait for parts to be delivered.
- Why #4: Why are parts not readily available? Because the parts inventory is not being managed effectively.
- Why #5: Why is the parts inventory not being managed effectively? Because there’s a lack of technician training that causes holdups, and there’s no system in place for tracking parts usage and reordering efficiently.
Root Cause: The lack of an effective parts inventory management system is causing delays in repairs, leading to long wait times and decreased customer satisfaction.
By using the 5 Whys technique, the dealership has identified a systemic issue rather than just treating the symptom of long wait times. This approach leads to a more sustainable solution that improves operational efficiency and customer satisfaction.
Remember, while the technique is called “5 Whys,” you may sometimes need fewer or more than five questions to reach the root cause. The key is to continue asking “Why?” until you’ve uncovered the fundamental issue behind the problem.
The 5 Whys technique is straightforward, making it easy to implement in day-to-day problem-solving. It helps avoid quick-fix solutions and instead focuses on addressing the fundamental cause of an issue for more lasting improvement.
Bringing it all together
Identifying dealership operational weaknesses can often feel overwhelming, especially when you’re also focused on generating revenue, controlling expenses, and keeping customers satisfied. Balancing these priorities is no easy task, and the tips I’ve shared come from my own experiences managing these challenges. My hope is that by applying one or more of these strategies, you’ll find ways to ease the burden and improve your operations.
Is your financial health in the fast lane or stalled on the side of the road? You want experience on your side without the huge salary. Let’s talk and figure out if an On-Demand Automotive CFO is right for you!