ATLANTA-It's often been said: The first step toward recovery is recognizing the problem. And struggling tire dealerships are no different.
That's why the National Tire Dealers & Retreaders Association earlier this year contracted with Seattle-based Business Resource Services Inc. to conduct the Financial Operating Ratio Study-1996.
The results, which are based on financial information provided by NTDRA members, were released at the NTDRA's annual convention and trade show in Atlanta, Sept. 5-7, in conjunction with seminars designed to help attendees decipher the numbers and apply them to their own firms.
The survey is based on data from between 300 and 400 participating dealerships with fiscal years ending during 1995.
``With this research, NTDRA is providing its members with an outstanding management tool for both evaluation and improvement of their businesses,'' said Paul Bobzin, NTDRA immediate past president.
To help dealers compare their operations with similar ones across the nation, the report classified dealerships into three categories: tire and auto service centers without commercial tire operations, those with commercial operations and retreaders.
Those groups were further analyzed by isolating companies within each segment that were among the top 25 percent of companies in terms of profits, by their distribution methods and by their sales volumes.
``The goal of this analysis is to identify the management efficiencies which exist in the topmost highly profitable companies,'' the report explained.
For instance, the survey showed tire dealerships without commercial operations generally achieve higher owner's discretionary profits than retreaders or dealerships with commercial operations. ``Owner's discretionary profit'' measures profitability (including the owner's salary) at the net profit level, the study said.
Among those dealerships with-out commercial operations, the report found companies ranking in the top 25 percent achieved a median 7 percent higher owner's discretionary profit. That difference amounts to about $77,000 in additional profit for a company with the study's median sales volume of $1.1 million, the report said.
The primary difference, according to the study, was in managing cost of goods sold. The top 25 percent companies were able to keep their cost of goods sold down to a median 44.9 percent of sales, compared to a median 51.4 percent when all of the companies were considered.
The top 25 percent companies with commercial tire operations boosted their owner's discretionary profit a median 8 percent over the median for all the companies in the category. Their management efforts reduced cost of goods sold down to a median 55.3 percent, well below the 61.3 percent median for all companies, according to the report.
But among retreaders, the top 25 percent companies increased their owner's discretionary profit a median 4 percent over the median for all the companies in the category. At 64.9 percent, their cost of goods sold was about 4 percentage points below the number for all of the companies.
In order to give dealers an accurate representation of the average financial condition of their competitors, the survey asked questions about both the income statements and balance sheets of participating tire dealerships.
``The balance sheet and the income statement are directly related-and together they show the economic functioning of the business,'' the survey reported. ``We can examine this financial operating flow by starting with assets and `working around' the financial operation of the business.''
The report also analyzed data to determine the median productiv-ity, profitability, asset efficiency
and working capital cycle management of the dealerships that participated in the survey.
The 70-page report concludes with suggestions for dealers interested in how their own financial data compares to the group.
``The study provides owners and managers with guidelines against which to measure their own financial performance, and suggests specific actions which, when implemented, can contribute to increased profits and improved cash flow and financial position,'' the report said.
The study urged dealers to:
Use their financial information to assess their present situation and identify trends;
Compare their information to the companies in the report and to their own past performances;
Identify the strengths and weaknesses of their companies along with the possible causes of any problems that might become apparent;
Develop an action plan for achieving better results;
Implement those plans; and
Repeat the entire process on an ongoing basis.
``Work with your professional accountant and outside business advisers,'' the report suggested, ``to get the most from this process and their expertise.''
Business Resource Services is a team of speakers and consultants specializing in financial management education for independent businesses.
Copies of the general report can be obtained from the NTDRA for $45 for association members and $125 for non-members. Survey participants also will receive a free copy of their own individual analysis report.