Cost Reduction A Back Office Perspective

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Cost Reduction- A Back Office Perspective

• Presented by
• Automotive Services Group
• Amper Politziner Mattia, LLP

2
Seminar Objectives

• Provide a starting point for locating
  opportunities for expense reduction
• Industry Guidelines
• Year to Year variations
• Expense as a percentage of Gross Profit
• Expense per unit sold
• Expense per employee

3
Seminar Objectives-Continued

• Moving forward from the starting line
• Benefits to be realized
• Challenging vendors
• A list of vendor alternatives to assist in cost
  reduction
• Provide ways to interact with department managers
• Identify department needs
• Consistent message and meetings
• Seek employee input

4
Seminar Objectives-Continued

• Sample of ideas
• Open discussion of cost reduction ideas
• Presenter ideas
• Participant ideas

5
Getting Started-Why Cost Reduction

• Benefits to be realized
• The office can help in the profitability of the
  dealership.
• A 1 reduction in expenses at a dealership that
  2.75 of sales drops to income has the same PL
  effect as a 1.04 increase in sales.
• Eliminating unnecessary expenses or wasteful
  spending can create additional cash reserves and
  company value

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Getting Started

• Plan to reduce expenses
• Dealership wide reductions
• Prioritized reductions
• Departmental reductions
• Budget reductions
• Reductions based on analysis

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Getting Started

• Cost Reduction Program
• Management planning on specific expenses not an
  expense wide 10 reduction
• Implementation of a plan of action with employees
  involved in the process
• Process to include a complete questioning of all
  expenses.

8
Getting Started-Identifying Opportunities

• Industry Guidelines
• A Benchmark is a point of reference for any
  measurement. These guidelines allow dealerships
  to measure themselves against an average, the
  best performers, or a geographic area.
• Comparing your results to benchmarks allows the
  dealership to identify strengths and weaknesses.

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Getting Started-Identifying opportunities

• Industry Guidelines
• Expense as a of Gross Profit
• This guideline can show if your expenses are
  relative to the benchmark as a percentage of your
  gross profit. Are you spending too much on an
  expenditure in relation to your gross profit?
• Year to Year Variations
• This analysis can identify expenditures that have
  increased from one year to the next.
• Utilize a Three Year Analysis

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Getting Started-Identifying opportunities

• Industry Guidelines
• Expense per Unit Sold
• This guideline indicates the amount of a
  particular expense per unit sold. Variable
  expenses such as advertising, vehicle maintenance
  and Floor Plan Interest can be measured per unit.
  
• Expense per employee
• This guideline can help indicate whether employee
  complement is appropriate

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Getting Started-Identifying opportunities

• Industry Guidelines
• Frozen Capital Analysis
• This analysis provides an indication of idle
  assets that if turned into productive assets may
  lead to additional profits.
• Cash Flow Analysis
• This guideline will show what happened to the
  profits of the dealership. Did the profits turn
  to cash. If not what happened within the balance
  sheet.

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Getting Started-Continued

• Sources of Industry Guidelines
• 20 groups
• NADA
• Manufacturer
• Under utilized programs
• Financing Arm
• CPA

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Getting Started-Continued

• Challenging Vendors-Best Practices
• Secure current bids for all major expenditures
• Create your specifications carefully to secure
  current bids
• Obtain volume discounts
• Challenges suppliers to bid price and value-added
  services
• Typical bids
• Insurance/Employee benefits
• Office Supplies
• Courier Services
• Data Processing
• Telephone
• Contractor Services
• Check guarantor services

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Getting Started-Continued

• Vendor Alternatives
• Utilize industry contacts
• ADAGP CFO 20 Group/ PAA CFO 20 Group
• Supplier competitors
• Industry Association members
• Internet
• Previous suppliers, bidders
• Request a new bid
• Attached list as a starting point

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Interaction with Department Managers

• Monthly Manager Meetings
• Moderated and agenda set by Controller
• Discuss analysis performed
• Bring vendor invoices
• Create a forum for ideas on expense reduction
• Coaching on Financial Statement
• Obtain Dealer approval
• Most managers have not had training on reading
  their departments financial statement
• Show the impact of their actions

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Interaction with Department Managers

• Open Lines of Communication
• Create open dialogue between managers
• Create a team approach-All oars rowing together
• Motivate through Pay Plan
• Have a component of pay to reduce expense and
  improve departmental profitability.
• Include employees in discussions
• Monthly cost saving memos
• Celebrate success

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Ideas

• Limit Expense Authority to Department Managers
• Hold departments accountable for Purchasing
  decisions
• Enforce purchasing policies
• Use a purchase order system
• Eliminate waste
• Place dollar authorization limits on different
  levels of authority in the business
• Consider having a purchasing Champion

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Ideas

• Monitor Departmental Budgets
• Overall budgets without departmental budgets are
  like having no budgets because there is no
  accountability
• Restructure accounting department
• Force your accounting department to become a
  profit center by allocating and monitoring
  budgets
• Use your budgets to adjust your plans

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Ideas

• Link Bonuses to Performance
• Establish rewards and consequences system
• Pay incentives frequently
• Set clear and measurable goals
• Set team goals and incentives
• Set company goals
• Tie compensation to the achievement of goals

20
Ideas

• Eliminate unnecessary Utility Costs
• Most utilities offer no-cost audits
• Check into
• Rates available
• Time of day usage
• Billing practices and accuracy
• Energy saving technology
• Policies and Procedures
• Culture of conservation
• Hiring a utility consultant

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Ideas

• Reward your Employees for Bright Ideas
• Who is the most qualified consultant for any
  business
• Suggestion boxes dont work, require that
  everyone contribute ideas
• 5-5-5-5 Program
• 5 ideas to improve the company
• 5 ideas to improve their department
• 5 ideas to improve their own role within the
  department
• 5 ideas to improve customer service

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Ideas

• Reward your Employees for Bright Ideas
• Employee empowerment comes when they know they
  have the ability to create change. You must act
  on every suggestion
• Pay for suggestion

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Ideas

• Lock the Supply Cabinet
• Office supplies expense increase every year at
  Labor Day
• Instituting controls provides a typical supply
  savings up to 30 of what you are spending
• Refilling cabinets with excess supplies in desks
  with an Amnesty Day
• Standardizing the supply purchases-------all
  non-standard purchases require purchase orders
• Substituting generic products for name brands
• Encouraging re-using and recycling supplies
  (Binders, scrap paper)

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Ideas

• Trim the Cost of Credit Card Processing
• Negotiate discount with vendors
• Accept debit card payments

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Ideas

• Lease your Employees to Other Businesses
• Administrative people (title clerks, warranty
  clerks)
• Level out seasonal needs
• Full staff requirements Partial expense

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Ideas

• Take advantage of Purchase Discounts
• 2/10 Net 30 35 per annum
• Negotiate discount with every supplier
• Negotiate long term debt repayment discounts
• Schedule payments to take advantage of discounts
• Set up a new general ledger account Purchase
  Discounts Lost

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Ideas

• Use Spare Cash to Pay Down Lines of Credit
• Set up a cash management account to offset floor
  plan expense
• Use an automatic sweep arrangement against lines
  of credit
• You can re-borrow when you pay the line down, as
  opposed to paying off term debt.

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Ideas

• Form a Cost-Cutting Committee to Trim Waste
• Create cross-departmental teams to assist each
  other in increasing efficiencies
• Find out what reduces productivity ( ask the
  people who do the work)
• Let employees set goals and help them achieve
  them
• Employees are part of the process
• Encourage a profit culture

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Ideas

• Keep Tabs on Your Competitors Prices
• Shop your competition
• Labor Rates
• Parts pricing
• New Used vehicle sales
• Compare vehicle offerings
• Find out if your price is too high or, worse, too
  low

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Thank You!

• Chuck Diegel Jerry Shinfeld
• cdiegel_at_amper.com jshinfeld_at_amper.com
• 215-881-8882 215-881-8875