10 Reasons Why You Must Prepare an Annual Budget for Your Dealership

1. Your management team will take ownership of monthly and annual goals. When managers bring their
projections and goals to the budget meeting, the team’s mindset shifts from what the owner wants to what the departments can contribute. Managers take ownership of the plan and become more invested in the outcome.

2. People do what’s inspected, not what’s expected. Managers will track their department’s results daily, weekly, and monthly when it’s their own goals they’re trying to achieve. Knowing that the results will be compared to their projections motivates them to meet or exceed the goals.

3. Plans give owners peace of mind. A realistic budget gives comfort to both the owner and top management. If a month has a loss on the bottom line and it was budgeted as a loss, there’s no ugly surprise!

4. Hope is not a plan. A good budget will tell you when to worry and when not to. A written plan shows the owner where the dealership is and where it’s going. Budgets eliminate fingers-crossed, wishful thinking.

5. Budgets increase lenders’ confidence in your management team’s abilities. Well-prepared plans shared with bankers, investors, and family members confirm that your team has managerial competency. Budgets show your creditors you’re on top of the game and can help you obtain credit. And adequate lines of credit are essential to keep your business open.

6. Comparing actual results to the budget can alert you to potential problems. This process, also known as “management by exception,” points out when your systems and procedures are less than optimal. Focusing on the red flag areas will improve your bottom line.

7. Budgeting is a fundamental process of well run companies.  Systems, procedures, and processes are the foundations of successful businesses. Without these in place, you’re managing by the seat of your pants.

8. Budgets help improve your accounting.  Budget meetings give managers an opportunity to ask questions and challenge the numbers when they have that “something’s just not right” feeling. This is a good system of checks and balances for your accounting.

9. Managers will come to realize the importance of departmental cooperation. The budget process shows your management team how departments depend on each other to operate, how each affects the others, and how improved cooperation between departments improves results. The whole really is greater than the sum of the parts.

10. Preparing monthly balance sheets is critical to cash planning.  Do you find yourself asking, “Why is cash so tight when I made $150,000 last month?” Preparing monthly pro forma balance sheets should be part of the budget process. Expenses aren’t the only use of your cash. Dealers have to invest in assets to operate their business such as non-floored RV inventories, parts inventory, accounts receivables, equipment and even work-in-process. Pro forma balance sheets will point out uses of cash for these types of assets as well as sources of cash when these assets are reduced or liabilities increased. Preparing pro forma balance sheets is critical to your cash planning.


This article originally appeared in an earlier version in RV Executive Today.