Magazine for the professional limousine, charter and tour industry.
Issue link: http://lctmag.epubxp.com/i/765069
LIMOUSINE, CHARTER & TOUR JANUARY 2017 37 tors to maintain their incomes and lifestyles, Goff says. Learning The Money Dashboard If you do not correctly estimate and track spending amounts, they could over time distort outcomes, Goff says. Opera- tors need to clearly see if key barometers are getting better or worse based on a simple, reliable tracking method. Unfortunately, tools such as Quick Books and IRS report- ing are not designed to cap- ture the most releavant metrics for running a limo business. "Our industry is in transi- tion, and we are under attack with the TNCs tearing out the least profitable parts of our business," Goff says. "At the same time, we have great up- side potential as we become a potent force in the motor- coach and minibus industries. With these changes, our own- ers cannot rely simply on de- cades of experience to plot the future. The ice is moving un- der our feet and we have to be nimble. We need to make more decisions faster and we need to know how they are affect- ing the health of our compa- nies. We need to see the effects of staffing, fleet, and market- ing decisions, etc. on our own take-home pay." What often ensnares new- er, successful operators is the growth trap, Goff says. You can't count on growth that never stops. "A limousine busi- ness often goes through a cy- cle during the first six or seven years when growth outruns the inefficiencies of operations," he says. "You get busy, add cars, and can be in business three or four years before dealing with the issue of selling vehicles. If sales are growing and you put on an extra layer of overhead, you can absorb that even if as a percentage of costs it wasn't a great idea. Eventually, growth slows, and the wave of spend- ing and commitments you made catch up with you and push you from behind." Appreciate Potential Goff advises operators to make sure they have assets that appreciate, such as build- ings and houses. If a business is only based on assets that dwindle in value every day, then they will lack the equity and stability of hard assets that deliver value over time. Another way many opera- tors trip up over finances is failing to fully understand how depreciation on vehicles works, Goff says. "People don't know what to do with depreciation. No one counts depreciation until they try to sell a vehicle and they are up- side down." If you write off a sold ve- hicle as a 100% expense, then you could get a big tax bill, Goff says. "Owners don't have an easy way to keep track of how much they are spending or losing in depreciation." In running a fleet-based business, you don't need to split car payments into prin- cipal and interest, Goff says. "What you know is you have a $500 monthly payment, and with an $80/$420 split, you did not increase your net worth $420 because the vehicle's value is diminish- ing every day. With simple tools you can get a handle on those things you can mea- sure once a month and get usable, actionable data in a visual format." An acquisition strategy Goff advocates for opera- tors looking to grow is to go into a second- or third-tier market, buy a small, healthy operation of 10-15 cars, and then buy a building. "The location might not be wildly profitable for three or four years, but we are paying down principal on a build- ing, which rises in value." Rates Before you can reap prof- its, you must get right with rates. Goff charges among the highest in his markets because he promotes quality and reliability among his 70+ employees and 50+ vehicle fleet. He requires all chauf- feurs to be parked around the corner at least one hour before pick ups, no mat- ter the location or time. It guarantees a 100% on-time performance. He also takes farm-ins, but doesn't do farm-outs, opting to recom- mend companies where cli- ents are traveling to. "We look for clients who are service sensitive versus price sensitive," Goff says. "We don't take service as a mind- set, or a goal, or take pride in it. It's a function of mechan- ics. If you want to make sure you're never late, that chauf- feur makes sure he's there one hour early polishing the car. The data tells us it's very prof- itable, and it will be most re- silient approach to TNCs and driverless cars." More Money = Duty Calls While status vehicles and a community profile might provide psychic rewards for operators, success stems from running a business that meets needs. "You can run new vehicles, but own- ers' obligations extend be- yond themselves," Goff says. "Business owners have many more duties than just trying to look good. They have to feed, clothe, educate, and house their families, pro- vide stable employment for their workers, and pay taxes so communities have roads, hospitals and emergency services. The real question is, are you stable and a posi- tive contributing factor to your family, employees, and community? If so, you have to be profitable. It doesn't matter if you are running a hair salon, a wine store, or a limo company." And for all this advice, ex- perience, and insight, what does Goff, a father of three children, take home at the end of the balance sheet? Just over 20% on a $2.5 million annual revenue business. "I enjoy a lifestyle at 10 times my neighbors' when you consider the $50,000 median household income here in Albemarle County. The livery business has given me and my family an income not ac- cessible in other venues." — Martin@LCTmag.com DASHBOARD DIALS While the best way to measure a limousine business is a full-blown financial analysis prepared by professionals experienced in passenger transportation, the cost of it would be mid six-figures annually, Goff says. The best solution for operators is a simple "dashboard" showing current and historical numbers and trends for revenue, and the first tier of expense items plus cash flow: Revenues by Market (geographic, vehicle or service types) 1 s t Tier: • Fuel • Labor • Payments • Cash flow 2nd Tier could include: • Repairs • Insurance • Advertising • General overhead "In our own limousine and bus business, the first tier and cash flow equals about 70% and the second tier about 24%," Goff says. "Everything else amounts to only 6% of the total."