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Linking Employee
Performance to Company Goals Pays Off for Auto Dealer
The Challenge
The owners of a
local auto dealership couldn’t figure out why
they seemed to continually fight the cash flow
battle. Increases in sales just never turned into
cash. In years past, since they had no way of
knowing or forecasting their business situation,
the owners had to wait until the end of the year
to see if any cash remained for them to make distributions.
After talking to a Business Advantage Performance
Management specialist, the dealership decided
to put performance management tools to the test.
The Results
Only eight months
after hiring the consulting team for the performance
management engagement, the business owners were,
for the first time ever, able to pay themselves
on a monthly basis.
The Performance
Management Solution
The dealership
hired the consulting team to operate as its outsourced
CFO through the CFO as You Grow program and to
also identify areas that were adversely affecting
their ability to extract any profit from their
business on a monthly basis. The team pinpointed
problems and adopted remedial measures.
“Traditionally,
businesses use lagging indicators such as monthly
or quarterly financial statements to analyze their
business performance. Examining these numbers
after the fact is like closing the barn door after
the horse is gone,” states the lead consultant.
“Instead of chasing what the problem is, performance
measurement enables a company to focus on leading
indicators – that is, real-time operational areas
that are affecting the company’s profitability.
Once these areas or Key Performance Indicators
(KPIs) are known, they can be corrected quickly
to make the business operate more effectively.”
To determine the
possible causes of the company’s problems, the
consulting team focused on workflow processes.
“We developed benchmarks or baselines to use for
comparisons. We monitored such KPIs as hours required
to complete certain kinds of repairs and the number
of sales closed relative to the number of leads
generated.” The data was then analyzed, reports
presented and specific areas identified that needed
improvement.
“One of the major
problem areas, we discovered, was the slowness
of receipts for contracts in transit,” says the
performance management specialist. To remedy the
problem, the company decided to call lenders every
seven days rather than waiting for a cash crisis
to call. The national average is approximately
three days while the dealership’s was, on the
average, 30 days. According to the team leader,
by keeping on top of their receivables, the company’s
cash flow has increased and paper flow has become
more efficient throughout the business.
Critical to the
success of the engagement, the team involved everyone
at the company in the performance improvement
campaign, from accounts receivable clerks to business
owners. He conducted a financial literacy class
for accounts receivable staff to show them how
their work was affecting cash flow. “Once they
realized how their individual efforts affected
the bottom line and how they could share in the
profits if they improved their performance, their
attitude and work patterns changed,” says the
specialist. To reward employees for their efforts,
the company has decided to adopt a bonus system
based on growth in annual profits.
The dealership
owners are delighted by the results the team delivered.
They are looking forward to seeing how their business
will continue to grow as a result of their newly
implemented practices.
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