Ben Goodman, 20 Group Senior Moderator
Securing necessary capital is a fundamental challenge for buy-here pay-here dealerships. BHPH dealerships operate a unique business model that requires significant upfront investment and carries inherent risks.
Unlike traditional dealerships, BHPH businesses provide in-house financing to customers with poor or no credit, which means they must have a substantial amount of capital available to finance sales. According to a recent industry report, more than 60 percent of BHPH dealerships cite capital constraints as their biggest obstacle to growth.
As someone who has spent years in the trenches of dealership financing, I understand firsthand the challenges that BHPH dealerships face in securing capital. Because capital is crucial for growth and day-to-day operations, here are some strategies that have helped numerous dealerships like yours not only survive but thrive in a competitive market.
Understanding Your Capital Needs
The first step in securing funding is understanding your capital needs. A thorough financial assessment involves several critical steps:
1. Examine current cash flow: Assess your current cash flow, debts, and overall financial health to identify areas for improvement. For example, if your cash flow is insufficient to cover upcoming expenses, you may need short-term financing.
2. Calculate funds for specific goals: Determine the funds required for specific goals like purchasing inventory, upgrading facilities, or launching marketing campaigns. Create a budget outlining exactly how much capital you will need and where it will be allocated.
3. Focus on high-impact areas: Invest in areas that will drive growth and profitability. For instance, buying a popular car model with high demand and good profit margins can boost sales and revenue. Prioritize investments that offer the best return and avoid spreading your resources too thin.
See the rest of the article in August issue of UCD.
