When using a floor plan, dealers do not have to use cash to purchase inventory. They can put the inventory on their line of credit and have the flexibility to use their cash for other needs of the dealership. However, dealer floor planning comes with its own set of management responsibilities. When it comes to managing a floor plan, dealers should be aware of these general guidelines.
Communicate with Dealer Floor Planning Company
Communication is key in maintaining a successful dealer floor plan. Not able to make a payment on time? If so, dealers should get in touch with their floor plan financing company. If a dealer is proactive and honest, their floor plan provider will be more likely to work with them to resolve any issues or problems that they may encounter. Dealer floor plan providers also appreciate hearing what’s going right as well as any trouble you may be having with floor planning.
Manage Cash Flow Properly
Since floor planning relieves dealers of using their cash for inventory, dealers should have a plan for how to manage their cash flow. The extra cash should go towards other dealership expenses. Using dealership cash for a service center, advertisements or improvements are typically safe investments. Many dealers can increase their profit margins when they manage their cash flow properly and floor plan responsibly by spacing out inventory purchases.
Understand Dealer Warning Signs
Dealer floor planning providers keep a close eye on certain signs that can indicate that a dealer might be struggling. The three main signals floor plan providers watch for are collateral audits, insufficient funds, and inventory turn times.
Floor plan finance companies conduct collateral audits to ensure that they can verify inventory. Floor plan auditors will typically conduct an audit based on a time frame that is determined in a dealer’s contracted terms. If a floor plan company can’t verify a dealer’s inventory, it can be seen as a red flag. Dealers should let their floor plan provider know if inventory needs to be moved from a lot to another location for repairs or for a sale– just to make sure that auditors can verify that information.
To help combat this, NextGear Capital offers dealers a tool designed to empower dealers to take charge of their audits and unreconciled units through a simple three-step process. Once dealers log in to Account Portal, they’ll be able to easily see the vehicles that need to be cleared, select a vehicle, take and submit a few photos and clear their audit in real-time.
Insufficient funds are an indication that dealers can’t make their payments on time. This is one of the biggest signs that there is an issue with a dealer’s account management, and it affects how the floor plan provider views their chances of being repaid.
Floor planning companies also keep a careful watch on average inventory turn times. Holding on to a vehicle for an extended period of time, or aged inventory, is a drain on cash flow and dealer resources. An increase in aged inventory means that is a bit more difficult for a dealer to earn back the initial vehicle investment, which in turn can make it harder to pay a floor plan financing company back because aged inventory compresses profit margins.
Don’t Floor Plan Irresponsibly
Mistakes happen when dealers use their floor plan irresponsibly. Just because a dealer is cleared to use a $240,000 line of credit, doesn’t mean that a dealer should use that entire line of credit on one day. In addition, if a dealer purchases more inventory than what they can reasonably sell, they’ve put themselves at risk to not be able to make floor plan payments, especially if they use their entire line of credit. There are dealer floor planning formulas to help dealers decide how much inventory is right for their business and floor plan successfully.
Don’t Ignore Your Floor Planning Company
A floor plan company will want to know about the health and wellbeing of a dealer’s business. Not communicating potential issues to your dealer floor planning provider can make it harder to remedy potentially preventable issues. Eliminate any potential miscommunications by keeping regular contact with your representative. Responding to your floor plan provider in a timely fashion will also keep any potential issues at bay.
If you’re considering NextGear Capital as a dealer floor planning partner please apply, or contact us or your dedicated representative with any additional questions.