RVBusiness September/October 2024
The middle of summer is not usually the time when dealers need to think about cash – but this year is not like others. For the second year in a row, many dealers are still fighting aging inventory, lower margins, and inflated costs in nearly all areas of the business.
Consider: The average RV dealer reporting data to NCM has earned just 1.5% of sales in operating net profit through June 2024, a far cry from normal profitability. So, it makes sense to look forward a few months and make sure that we’ve all taken the needed steps to ensure adequate cash reserves through the upcoming slower months. Controlling costs and maximizing sales opportunities are the obvious starting points – but dealers would also be wise to look to their balance sheets for other sources of frozen cash.
First, identify inventory equity and focus your team on selling these units. Owned used inventory comes to mind, of course, but also prioritize new units that you’ve paid significant curtailments on. Add a column for flooring balance on your inventory analysis. Most dealers are surprised to see the aggregate total of their inventory equity – it is not uncommon to see 5% to 7% equity, a truly significant amount of cash. Nearly by definition, the most curtailed units are generally your oldest, so there is the obvious dual benefit of selling these units.
Second, look carefully at your receivables. Broadly speaking, dealers are owed money from their customers and their manufacturers. If you have significant customer receivables, investigate. These are most commonly related to open (or closed but not paid) work orders. Check the dating on these and ensure that your service advisors are prioritizing collecting these balances (and getting the units picked up if they are still in your shop).
Manufacturer receivables are generally holdbacks/incentives or warranty claims. Holdbacks are on a regular payment schedule, but make sure that any incentives or specials you’ve negotiated are collected as agreed.
Warranty receivables also require regular attention. Develop the weekly habit of reviewing your warranty dating report – a properly-documented and filed warranty claim should be paid within 30 to 45 days. Unpaid claims more than 60 days old almost always indicate some sort of problem – a missing part, serial number, or prior authorization. There’s no short cut here; each aging claim needs to be individually reviewed and managed.
An unseen but often material cash impact of warranty work is the accumulation of manufacturer parts, either incorrectly ordered or waiting for customer pick-up. Run a purchase analysis by vendor to determine how much you have tied up in these wholesale parts. They generally cannot be retailed, so develop processes to return incorrect parts immediately, as well as notifying customers that their warranty parts will be returned if the work is not scheduled in a timely manner.
Finally, look to your parts inventory as a source of cash. Not uncommonly, dealers have nearly as much cash sitting on their parts shelves as they do in their bank accounts. Be a stickler on your parts inventory. While it is certainly true that some hard parts are difficult to turn more than 2 times, dealers should expect 3 to 4 turns for accessories, and much higher than that for PDI parts. It is not unreasonable to plan for 3.0 to 3.5 turns for the entire department. The math is straightforward: A dealer with $1,000,000 in parts inventory currently turning it 2 times could do the same sales with $300,000 less inventory if turns were increased to 3. That is welcome cash in January!
Dealers should develop a cash-flow forecast that covers the entire off-season. Contact us if you need assistance with this.
If this exercise reveals any close calls, take steps now to arrange additional financial resources in the form of used unit flooring or business lines of credit. Projecting cash needs is a critical function of business management. Take a few hours this month to make sure your business doesn’t find itself in a crisis during the off-season.