We all know that owning an auto dealership is very cash-intensive. It takes cash flow for working capital, to carry vehicles and parts in inventory and to wait for warranties and incentives to be reimbursed.
Currently, our conversations with our dealer clients have involved excess liquidity, which is unfamiliar territory. This is a good problem to have. Here are some thoughts to consider with the excess cash you might have:
- Have you maximized your floorplan offset with your bank?
- Are you paying enough rent to your rental company? (See a previous article titled As an Auto Dealer, Are You Paying Enough Rent?)
- Should you pay down your debt with looming potential increase to interest rates? Managing your interest expense for 2022 and beyond might keep your dealership eligible for bonus depreciation. (See a previous article titled Will Bonus Depreciation End Earlier Than Expected for Auto Dealers?)
- Time to invest your earned premium accounts in your reinsurance company. Did you know once you have your premiums earned within your dealership that you can distribute this money, lend it to yourself for operations or invest it more aggressively within the reinsurance company because the contracts are earned out?
- Consider a life insurance review because premiums might be affordable now.
- Most dealers have kept all their eggs in one basket. Maybe it’s time to diversify!
- It’s time for you to start or add to your own personal portfolio.
- It’s time for you to invest in something besides a dealership. How about some real estate investments? We have some options.
Obviously, these are just some of the options that come to mind. Let’s discuss further. Many dealers are in a great position to be successful into the future.
It’s time to be as proactive as possible by putting your excess cash to work. If you have any questions, please contact Steve Barber or any of our SD Auto Advisors.
