Historic Financial Analysis Can Improve Future Results… Particularly in These Fortuitous Times
By Phil Villegas
“They say it has no memory (the Pacific Ocean). That’s where I want to live the rest of my life. A warm place with no memory.” This was a famous line from the movie “The Shawshank Redemption”. It has always reminded me of the attitude of many dealerships towards historical financial statement analysis. For many dealerships, after being provided unit sales count, gross and net profitability, past performance is often forgotten, and the endeavor of the new month is ahead, with no memory of the past.
While it’s difficult to imagine an economically stronger outlook for dealers, the New Year often comes renewed energy for change and improvement. These resolutions should not in any way be limited to ourselves as individuals, but should also be incorporated into our businesses.
One resolution would be the incorporation of detailed financial statement analysis of the dealership. While the thought of detailed financial analysis is enough to get most dealers, GMs and even Controllers to immediately pound their head on their desk, particularly with times as good as they are now. However, the process doesn’t need to be as nerve racking as it once was years ago. DMS and other third-party software companies have developed solutions to facilitate the data gathering process where you can simply point-and-click to drill down into detailed financial information. With these sophisticated tools, dealers should compare their past month’s performance against the same month in the prior year, as well as completing comparative year to date performance analysis. The end goal is to proactively evaluate revenue and profitability opportunities while monitoring and controlling expenses. I feel we are at the positive edge of the financial pendulum swing, being disciplined about monthly financial reviews will provide you that slight edge as the pendulum begins to swing back at some point in 2022.
So unless you are planning on exiting the business like many dealers have this year and moving with Andy and Red to Zihuantanejo, Mexico, where its warm and the place has no memory, make 2022 a year of improvement for your dealership by looking into the past.