It has been so long since we’ve had a recession that some dealers have never been forced to consider what they’d do if their business shrank. This spreadsheet, developed by longtime roundtable leader and consultant Jim Enter, can help you get ready for the unpleasant.
The spreadsheet asks you to enter some key numbers for your business and then shows how your bottom line would change if a recession caused sales to decline by 20%. Notably, it assumes that occupancy and admin expenses will remain unchanged, and delivery costs can’t drop more than 50%. This means that if you want to keep your operating profit, you need to cut other categories, such as payroll. You can do that by adjusting the percentage figures on the far right In the example below, for instance, payroll would have to drop to 9.6% of sales in order to keep the operating profit at 2.28%.
Alternatively, if you adjust the right-hand gross percentage number, thus settling for less GP, you can see how much less you'd have to cut into your expenses.
It’s important to note that nobody is predicting the U.S. economy will backslide by 20% in 2019. Most call for the overall economy to merely slow its growth rate, while the relatively worse-off housing sector might just tread water. Still, Enter believes in doing what-if scenarios based on at least a 20% decline because they are big enough to require change and inspire imaginative responses.