From the September issue of UCD
By Mark Anderson, Anderson’s and Sons
Lacking vehicle sales or service experience and any type of business plan, we started our BHPH operation in 2017. I relied on my determination, focus, marketing, business skills and some extra funds to launch our business.
Looking back at the last 8 years, I am proud of what we have accomplished. Today in Southeast Illinois, we have three locations and are growing!
A BHPH business is one of the most rigorous business ventures a dealer can enter. It requires more drive, patience, time and capital than anyone expects. The mental strain can lead to emotional exhaustion.
I stated the above to set the tempo for this article.
Business 101 states you must have a mission, vision statement, goals and values statement. Our mission in the first few years was to survive. Once we made it past the “survival” mile marker, however, we needed to chart a future course.
So, I pose the following question: Do you have a mission and vision statement as well as goals and values?
To successfully own and operate a business, it is essential to establish a clear mission, vision, goals and values.
- Mission tells the world what you do and why.
- Vision tells where you are headed.
- Goals give you specific, measurable steps to get there.
- Values are the principles and behaviors you promise to uphold while on your journey.
At this point, you might be asking, Mark, where is the advice about opening and operating a new location? I pose you this question: What is your desire for growth? I ask this to make sure you have every intention of growing.
If you intend to grow, growth needs to be woven into your mission and goals. I wanted to serve more customers, create more opportunities, and become a stronger presence in the marketplace. Charting the next course began with a positive attitude and a plan.
I spent countless hours studying the market around our locations for expansions. At industry events like NIADA’s annual convention and 20 Group Meetings, I had detailed conversations with fellow dealers and peers, asking a range of questions about growth and operations. In the process of opening two more locations, I compiled a list of important talking points for growth.
Distances/Location – The million-dollar question: “Where?” A dealer friend in Kentucky suggested 50 to 60 miles apart in our rural setting, and that was based upon them having locations within 20 to 30 miles and the realization that they were too close. We are 60 miles apart, or a one-hour drive, and it does seem to be an appropriate distance. As far as location is concerned, that is your preference. You do need to consider cost in relation to cash flow. The exact location for expansion must consider population, competitors’ accessibility, space and room for growth.
Business Model – What’s your flavor? Buy Here/Pay Here, Lease Here/Pay Here, or Rent to Own? Depending on your state, each one of those has its advantages and disadvantages. Our primary business is in Illinois, where we do BHPH. But with our newer Indiana location, we are implementing LHPH. Regardless of your current model, if you are considering a new location, you need to visit with industry leaders and other dealers that have experience in the model that you are considering and review state guidelines with sales tax, title, licensing and repossession. Indiana is a great state for LHPH, as it complements a more positive cash flow. Take time to consider other models and be open to switching.
Budget/Forecast – You have your historical data to formulate a budget and forecast. You must determine breakeven points, which in turn can help drive your forecast or at least expectations.
Banking/Capital – An obvious, but serious question is “do I have or have access to the capital that it is going to require”? Capital requirements should include such things as location, operational and payroll expenses, inventory, transportation, in our case State of Illinois sales taxes, as well as title and license, fees and ancillary products. Add another 25 percent to the requirement for items not thought up. Discussing with your bank or lending institution early in the budgeting stages is a must. Your lending relationships are more delicate today than ever before. An open and honest discussion can pay dividends down the road.
Cash Flow – You need to model out the cash flow for the new location based on your existing data. Having that data will help you understand a breakover point. We can all agree that point is longer than we ever thought it would be. My earlier models were not even close. If you have done this modeling before, this part of the equation is something that you need to be mindful and honest with. You might not like the answer at first, but keep running the numbers and you will find that breaking point. The unknown variable – repossession, wrecks, totals and skips – is hard to calculate. In the BHPH operation, cash flow is everything!
Related Finance Company – Depending on the model you choose to operate the new location, you need to consider an RFC. This is one area that you don’t want to overlook!
Team Members – We never have enough “qualified” team members in our regular operations, so how are we going to fill those positions at a new location? We could write three articles on this. But if you review this list and this is the only one that is tripping you up, I would say lean forward and make it happen!
Inventory – Can I get enough to manage the requirements? When I state, “get enough,” that encompasses the whole vertical movement of the inventory (purchase, recon, detailing, transportation, as well as keys and GPS).
Service – Are you performing service or outsourcing? In our case, we perform most service in-house. Additional locations will put additional strain on our service department.
Marketing – Can I use my existing marketing tools (web page, social media outlets, etc.) at a minimal to no cost factor? There are about three or four that I would consider bleed-over topics that the main location has already taken the hit and additional operations require very little to the budget. Consider how to take full advantage of shared marketing.
Software – Start by asking your current software providers (DMS, CRM, etc.), “How does a new location affect what I have and will it work?” This might be an unforeseen expense to consider early on in the expansion discussion.
Collections Operation – Do you have enough collectors and will you need to add? This is an expense that I consider a relational expense. As your portfolio grows, so does your collections department.
Repossession – Do you use a third party or repo yourselves? Third party takes a load off, but does impact cash flow as a larger expense. If you repo yourselves, do you have the vehicle and manpower to do so, or are you having another expense?
Lastly, management/accounting/legal/insurance/state fees – These for the most part, can be shared and having an additional operation doesn’t impact costs, other than insurance and state fees.
These are key topics to consider when evaluating an additional location. I can assure you that I never thought about this list when we started our business. But over the years, the experience that we have gained has become invaluable! I believe we all have days when we wonder, “Why am I still in this crazy business?” Then we take a minute to look around at all the hard work and dedication we contribute to the success of our business, and realize, it’s not that bad after all.
I started by talking about having a mission/vision/goals/values statement and that my friends will be your road map to success! I always say the best time to grow is today, and if additional locations are part of that, great. But if focusing on your main location is the answer, I say, great, again!
To close, I like to quote a line from the movie “The Shawshank Redemption,” “Get Busy Living or Get Busy Dying.” I believe you can apply that to business life. What do you choose to do?
