The Profit Promise II
What is your business worth?
At the peak of new record breaking sales in the U.S., a new group of interested buyers are coming into picture. After Warren Buffet’s some $4 billion acquisition of the Van Tuyl Group, private equity groups and large family offices are now aggressively pursuing opportunities to acquire large dealer groups planning to spend in some cases to the tune of $ 1 billion.
First thing that comes to mind is that similar to the time public companies were formed to acquire massive amounts of auto retailers when the business valuations went through the roof; it is time to expect that, it is about to happen again.
Large or small, as an automotive retailer this is the time to pay attention to some basic principles to enhance your business value. I predict that most successful auto retailers have little or no accounting or finance background therefore their only interest in their financial statement is the bottom of page two where the pre-tax net profit is reflected following gross profits and the expenses. I believe that majority of the retailers do not even look at the first page which we call the”Balance Sheet”. If I were to summarize the impact, I would say that everything on your profit and loss statement flows from your balance sheet. Things that have been paid for but not yet have been recognized as expense, or revenue that have been cashed but not recognized as income are all residing in your balance sheet. The translation is, if your balance sheet is not accurate and clean neither are the profits that are reflected at the bottom of the page. More importantly, no one hardly ever keeps track of the trend and variation in balance sheet accounts which in most cases may be tell tales and warning signs of economic hardship or operational deficiencies.
Undoubtedly most of you have great business offices and controllers that you depend on and trust extensively. Innocently or intentionally in book keeping things always have a tendency to get out of line. It is always safer to have an unbiased cross check to make sure that they are in order and your profit numbers are reflecting reality. After all when and if you decide to cash in, or if you just want to know what your business is really worth, aside from selling and servicing cars, you have to make sure that what you thought profit, was not really fluff. I would respectfully recommend that you pay close attention to your balance sheet accounts and their variances from one month to another.
You can always find more on the subject on our web-site or better yet my phone number is at the bottom of the page. Stay healthy, happy and prosperous, talk to you next month.