Auto Dealer Monthly Magazine is the daily operations publication serving the retail automotive industry. This automotive publication serves dealer principals, officers and general managers with the latest best practices.
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By David Keller AC C OUNTING HOW TO ADD A NEW DEPARTMENT Diversifying your operation can bring new customers, new revenue — and new accounting concerns. The magazine's resident number cruncher asks the tough questions. ©ISTOCKPHOTO.COM/ GOLDENKB Are y th you thinking of adding a de new depart department to your dealership? ere i ership? Te are plenty of opions be s beyon tions beyond new- and usedsales, e car sales parts and service. Dealers ro e routinely add departDealers rou nts such as u ments such a subprime f nance, buy-here, pay-here (BHPH), leasing, body shop, rental cars, detail, quick lube, accessories and more. If you are wondering whether you should add a new department, there are a number of questions you must consider. Tese questions fall into three general categories: cash fow, personnel and marketing. Let's take a closer look at each. 1. CASH FLOW Te f rst big question that comes to mind is whether you have the cash fow available to add a new department. Determine what the launch will cost. List the inventory and capital items such as tools, equipment, furniture, f xtures and construction or renovation costs. Next, you must decide whether you have enough cash available to fund it yourself. If not, you will have to f nd a way to f nance it. Of course, your costs will increase due to the in- terest you will pay on the loan, which leads to the second big question: How much revenue do you expect your new department to generate? Will it cover the loan payments and the interest? Even if you don't have to borrow the funds, the new department has to outperform whatever returns you are currently making on the cash you have saved. Space is a major concern for David Keller is a partner with CliftonLarsonAllen, a Top 10 nationwide accounting firm with extensive experience in serving new- and used-vehicle retailers, heavy truck and utility trailer outlets, and BHPH dealerships. DKeller@AutoDealerMonthly.com 10 AUTO DE ALE R MONTHLY • SE P TEMBE R 2013 most new departments. Consider future space requirements today, because it may be cheaper to complete it all at one time. With that in mind, take a look at your facilities. Do you have enough space to house a new operation? How much will it cost to renovate? Is there room to expand if the department is a success? Do you have the option to rent an adjacent or nearby property? Finally, if you're considering adding a special f nance or BHPH department, you may need to rethink your inventory. What kind of vehicles work best for those deals? If you have to stock up, what sources are available and which ones give you the best bang for your buck? If the numbers add up, it's time to create a budget. Bear in mind that more costs will present themselves once the new department is up and running. Advertising, additional rent, utilities, sof ware, payroll costs, employee benefts and training are just a few examples. You will need to create a budget by month and year for the f rst year and then annual budgets for the next few years. A monthly budget is required for the f rst year because you are not likely to start out with peak sales volume the f rst month. You will need to ramp up and train your personnel in the f rst few months, work out the kinks and make sure you have the right people in place for the de-