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Fundamentals of Financial Forecasting

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These days, Travis Pettit studies forecasts with all the fervor of a TV meteorologist. His forecasts have little to do with rain, sleet or snow, though.  

Pettit, the general manager of Crain Hyundai in northwest Arkansas, is concerned with helping his employer avoid any dark days, and he accomplishes that through exhaustive financial forecasting.

“Inspect what you expect,” he suggests. “The more time you spend looking at what you’re doing and diving into the numbers, drilling down into each account, you’ll be more likely to find some sort of trend.”

Whether they concern parts department inventory, or elements like compensation, numerous factors can considerably impact a dealership’s percentages of profitability. As such, financial forecasting needs to be done with a thorough examination of every department within a dealership.  

Here are some methods of financial forecasting that have paid dividends for Pettit, a 13-year industry veteran.

 

Assemble Thorough To-Do Lists

At Crain Hyundai, Pettit works off of daily and weekly to-do lists, which feature 10 things that fixed operations aims to accomplish soon.

“The daily list is something that we don’t usually stray from,” Pettit explains, “because it’s something where you can be involved in every department at your dealership. So, my day is filled with tracking appointments for the business development center, to … meeting with service and parts, getting involved with pre-owned inventory pricing and reconditioning, checking our market presence online.”

 

Don't Just Look at History

One of the most important things to keep in mind when forecasting finances is looking at where your business has been, Pettit says. For example, he will examine what his service and parts departments have done in the past in terms of daily financial figures and will make projections based off those numbers.

But, it’s equally important to realistically gauge where your business is headed. Pettit considers what preparations Crain is making with an eye toward the future, with regard to elements like incoming inventory, and then plans accordingly.  

“Most people look at history to base [financial forecasting] off of, but there’s a lot [more] things that can go into that,” Pettit says, like “what kind of processes you have, the market, the industry in general―if it’s up or down―and what kind of effect that has. So, sales may be down, but service might be up, because people are a little leery of the economy or whatever.”

 

Be Consistence and Persistent

In his work, Pettit tries to embrace both micro and macro perspectives. He studies financial figures in daily, weekly, monthly and yearly increments, and carefully assembles strategies. Each day, he examines reports provided by Crain’s fixed operations director, for instance. Additionally, Pettit studies figures compiled within Crain’s Reynolds and Reynolds DMS setup, and tracks any variances from what the dealership’s projected dollars were versus the actual total collected.   

Additionally, each Friday, Pettit implores his staff to close out open RO tickets, so the dealership’s management can truly gauge where the facility is at financially.

Considering the rapid evolution of vehicle telematics, Pettit feels that technology will soon be streamlined enough to legitimately help fixed ops both retain customers at a higher rate and improve financial forecasting. After all, telematics should allow dealerships to confidently project when customers are due for services, for example.

As far as his employer’s immediate outlook, Pettit is cautiously optimistic, as Crain’s ROs remain consistent. With projections for next year’s new-car sales being gloomy, though, the powers-that-be at Crain are trying to ensure that all of their processes are in place, allowing the dealer to retain as much profit as possible, in fixed ops as well as sales.

“It’s never enough,” Pettit says of the dealerships’ growth. “We always want to tweak processes, and try to make sure that we’re maximizing everything."

Ultimately, as Pettit looks ahead to his employer’s financial future, he’ll embrace one of his favorite philosophies: inspect what you expect.

“Drill down to the numbers and get engaged with all your department heads and managers,” he says, “so that everybody’s going in the same direction.”

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