Maintaining cash flow and profitability can be a delicate balance without a floor plan. Unfortunately, buying cars with cash doesn’t allow for much flexibility because dealership funds are often tied up in inventory. When funds are tied up in inventory, you have to work harder to ensure stability with your cash flow and profitability. Consider three different ways that a car dealer line of credit can help make your funds work for you.
Free Up Your Funds
Running a dealership takes a significant amount of capital. Not only do you need funds to purchase inventory, but you have to consider the amount of cash flow needed to maintain your office, lot and operations.
Let’s assume your dealership purchases inventory that can be bought at auction for around $6000 per car, and you can sell 15 of those vehicles per week. To keep the right amount of inventory on your lot, your dealership needs approximately $90,000 just to keep enough inventory on your lot! That’s a lot of money that could be spent elsewhere to sustain or maintain your dealership operations.
With a floor plan, dealers can purchase $90,000 in inventory on a line of credit all while keeping the rest of your capital liquid. Plus, until a vehicle has sold, dealers only owe minimal payments. Once the vehicle sells to a consumer, dealers can immediately pay off the loan amount and realize profits all while keeping funds on hand for other expenses.
Stay Attuned To Turn Times
It can be easy to lose track of how long a particular vehicle has been on a dealership lot, especially when it’s been purchased with cash. Accumulating aged inventory and the subsequent holding costs can seriously affect dealership profitability.
Dealers with a floor plan often aim to have their contracted terms match up with their aged inventory exit strategy. For example, many dealers use their second floor plan payment notification to trigger a vehicle evaluation and determine next steps. If the vehicle doesn’t sell within the next few days, should it be taken back to auction, or sold to a wholesaler? Was it a bad purchase? Taking a second look at a unit can further help dealers make proactive, rather than reactive, decisions.
Focus on Building Your Business
Developing a successful dealership can take a lot of time and effort. Though every dealer will have to complete a variety of administrative tasks to keep things running smoothly, taking advantage of partner services can help dealers focus on activities that contribute to the overall bottom line.
For example, dealers that use a floor plan line of credit can often take advantage of provided title services. Instead of taking time out of your week to do title work after buying a vehicle at auction, a floor plan provider can do that on your behalf. Once a vehicle is sold, titles are quickly and simply delivered, giving you time to focus on other priorities.
A car dealer line of credit is tailored to assist dealership cash flow, help you focus on other priorities, and in turn assist your dealership profitability. Supplement your current cash flow with a NextGear Capital line of credit. Have more questions about floor planning? Contact a local representative to discuss what a floor plan could do for your dealership.