— “If you don’t know where you’re going, any road will get you there.”
You may have heard quotes like this—they hold especially true for automobile dealerships. You can detail the future direction of your dealership, however, by drafting a formal, written business plan. This road map can help you make operational and financial decisions that best position your business for future profitability.
Going beyond instinct
Instead of creating a formal business plan, some owners prefer to go with their gut instinct when making important dealership decisions. This approach isn’t much different from setting out on a road trip without a GPS system or map and hoping you land in the right place.
Drafting a business plan is especially important because of the volatility inherent in auto sales. A plan can help you stay focused on your big-picture strategy, regardless of whether sales are up or down. This can keep you from taking short-term actions that could jeopardize your long-term future—or forgoing actions that could brighten years to come.
Creating your plan’s structure
Business plans can take several different forms; no single format is right for everyone. Most dealership plans incorporate a few common elements, however, including the following:
Executive summary. This will provide a brief overview of the most critical aspects of your operation and summarize the rest of the plan in one or two pages. For a dealership, this summary typically includes a broad description of the business—such as location, size (measured by sales volume and number of employees), and legal form of ownership—and a succinct statement outlining your overarching vision and mission.
Products and services. Here, you’ll describe your vehicle niche along with additional services offered, such as F&I sales, in-house financing, and parts and service. For example:
- Do you sell new vehicles, used vehicles, or both? If both, for what percentage of revenue does each account?
- Is your dealership a franchise or independent? If it is a franchise, do you also sell vehicles outside of your brand?
- Do you specialize in a price point? For example, do you mainly carry luxury, midpriced, or budget cars and trucks?
Leadership team. Identify the key members of your leadership team and describe their specific roles and responsibilities. At most dealerships, this includes the sales manager, operations manager, F&I manager, and manager of the parts and service department, along with their key reports.
Market analysis. Describe the geographic area where you focus your sales efforts. Include boundaries and population demographics, such as the total population, average resident age, average household income, and average number of vehicles per household. Also include any recent demographic changes—this will help you uncover potential sales opportunities or threats.
Competitive analysis. List your primary competitors for both new and used vehicle sales and describe their main strengths and weaknesses in relation to your store. This is a good place to include a SWOT analysis in which you describe your dealership’s main Strengths, Weaknesses, Opportunities, and Threats as they relate to your competition.
Include the potential impact of online competitors like TrueCar and Carvana. Explain how you’ll face off with these online dealers—for example, by offering a higher level of hands-on service to customers visiting your showroom.
Marketing plan. Marketing is a key success factor for most dealerships, which makes this a critical part of your business plan. Describe how you’re using social media as well as broadcast, print, and online advertising to generate sales leads and draw customers into your showroom. Also, detail your marketing and advertising budget, including the average marketing dollars spent per vehicle sold.
Financial plan. This section will contain all relevant dealership financial statements, such as the balance sheet, income statement, and cash flow statement. Include historical financial statements covering the past two years and projected (or pro forma) statements covering the next two or three years.
Analyzing your financial statements can help you identify departmental shortcomings, find areas to cut costs, and boost overall profitability. You should compare key performance indicators to industry benchmarks to see how your store stacks up. Compare data such as net profit as a percent of sales, gross profit per unit, days’ supply of inventory, and F&I gross profit per vehicle sold.
Keep it updated
A business plan should be a living, breathing document. Once you’ve drafted your plan, refer to it often during the year. And, update it to reflect changes in the industry and local market conditions.