Understanding the Cash Flow: Impact of Various Deal Types

This analysis demonstrates how different deal types in a dealership can dramatically impact cash flow, even with consistent profit margins. It highlights the importance of understanding the immediate financial implications of each transaction.

Assumptions

• Average sales price: $42,000
• Average cost (invoice): $39,000
• Current program: $1,800 "Cash Back" to customer

Deal Breakdown

Deal #1: Simple Cash Deal

• Sale Price: $42,000
• Rebate: $1,800
• Net Price: $40,200
• Cost: $39,000
• Gross Profit: $3,000
• Net Cash: $1,200

Effects: This deal boosts cash flow, providing immediate funds after the floor plan payoff.

Deal #2: Finance Deal (Missing Signature)

• Sale Price: $42,000
• Rebate: $1,800
• Net Price: $40,200
• Cost: $39,000
• Gross Profit: $3,000
• Net Cash: -$39,000

Effects: Missing paperwork creates negative cash flow until the deal is finalized. This needs quick resolution.

Deal #3: Finance Deal (Hold Check)

• Sale Price: $42,000
• Rebate: $1,800
• Net Price: $40,200
• Cost: $39,000
• Gross Profit: $3,000
• Net Cash: -$3,800

Effects: Delayed customer payment affects liquidity. Requires close monitoring of the hold check.

Deal #4: Cash Deal with Trade (Clear Title)

• Sale Price: $42,000
• Rebate: $1,800
• Net Price: $40,200
• Cost: $39,000
• Gross Profit: $3,000
• Net Cash: -$5,500

Effects: Trade-in value reduces immediate cash. The deal may become more profitable if the trade-in sells quickly.

Deal #5: Cash Deal with Trade (Lien Payoff)

• Sale Price: $42,000
• Rebate: $1,800
• Net Price: $40,200
• Cost: $39,000
• Gross Profit: $3,000
• Net Cash: -$10,300

Effects: Lien payoff creates the most severe cash flow strain. Requires careful management.

Scorecard Summary

• Total Gross Profit: $15,000
• Total Net Cash: -$57,400

Key Takeaway

Even with healthy gross profit, dealerships can experience significant negative cash flow depending on deal types.

Actionable Advice:

• Implement strict policies on hold checks.
• Establish fast follow-up procedures for missing finance documents.
• Develop a clear strategy for managing trade-ins with liens.

Share your cash flow policies with us.

We'd love to learn the cash flow management policies that work well in your dealership! Please share your tips and insights. This information could be compiled anonymously to help the greater dealership community.