How to Get Most From Budget-Planning Process

The auto industry has done well this year compared to 2011. I don’t think we will see the same rate of growth in 2013, but it still will be a solid year of measured improvement. 

Obviously, unknown factors can influence actual results, but in general the new- and used-car sales outlook is positive. I believe we will see new-car seasonally adjusted annual rates in the 14.2 million to 14.5 million range next year.

I caution dealers not to take their eyes off the ball when it comes to net profits. Many dealers have capitalized on stronger vehicle markets and converted sales into additional gross and higher net profits.

But dealers face any number of challenges which can prevent net profits from increasing at the same level as sales. Primary among those challenges are margin pressures. 

It is important that dealers monitor individual performance and, when necessary, take quick and firm action to stop a decline in net profits. 

As a prelude to preparing 2013 budgets, dealers should take time to review 2012 results, note any areas within the current budget plan that may have fallen short and discuss possible actions to correct any deficiencies.

A budget is not a forecast but is by definition “an estimate of costs, revenues and resources over a specified period, reflecting management’s reading of future financial conditions.”

A budget is a plan for achieving quantified objectives, a standard for measuring performance and a device for dealing with foreseeable adverse situations. 

A forecast indicates what might happen; a budget shows what ought to happen based on our current knowledge.

My suggested format for the budget-making process is to take the management team to an off-site location where, without interruption, the group can concentrate on the business at hand. 

In advance of this process, hold a short meeting with your team to outline your plan. Explain what you want to accomplish and distribute forms for managers to provide financial data on their departments.

Give managers any available comparison data from Dealer 20 Groups or auto makers. An example of such a comparison chart appears below. Such information not only will help the team members compare individual performances, but also assist them in identifying potential areas of improvement.  

In filling out the forms, the management team’s work will be more tactical, such as focusing on anticipated sales and gross-profit generation, inventory levels and estimates of expenses and personnel counts required to generate gross.

The dealer provides a more strategic approach that takes into account the local and national economy and the 2013 industry outlook.

Complete a written agenda for distribution during the main meeting. Experience shows this to be a great tool in keeping the session on track and headed in the right direction of completing the budget plan. 

Following your opening remarks, each department manager should make a presentation to the group recapping his or her results for 2012 and identifying areas where they failed to accomplish the plan based on this year’s budget.

The managers then should present their individual departmental budget for 2013 along with a plan to accomplish it. 

Once all departments have presented their budget and plan, the comptroller will total the results, make required adjustments and present the finished product to the group.

This process not only determines the numbers but also helps energize your team. Since they have been totally involved throughout this process, they will be more inclined to take ownership of their plan and the dealership’s plan. This increases the likelihood of attaining budget goals.

The National Auto Dealers Assn. has provided a series of aggregated data points compiled from their Dealer 20 Groups as a reference for use in your budgeting process. 

These numbers are divided into four dealership classifications: domestic, import, high-line import and all members. This information will allow you to compare and plan your dealership’s performance in key areas with that of NADA 20 Group members.

Best wishes for your success during this important process.  It should help set the pace for your organization and help you begin 2013 on a positive note.

Good selling!

Tony Noland of Tony Noland & Associates is a veteran dealership consultant. He can be reached at tonynolandandassociates.com.