EDITOR'S NOTE: This is the first in a series of reports on how you can improve the financial health of your dealership by taking a closer look at your numbers.

Do you ever use ratios to evaluate the financial performance of your dealership? If you're like most powersports dealers, you probably don't, unless you belong to a 20 Group in which dealers compare their numbers. And that's too bad, because using a few simple ratios can give you a pretty clear picture of how your operation is performing. Ratios can point out trends that you just can't spot simply by looking at your

Many small business owners I've worked with make gut instinct decisions to operate their businesses. Often they shun conventional wisdom and charge ahead. In most cases this is the type of tenacious entrepreneurial spirit that helped get their business off the ground. I worked with an owner like that recently. I'll call him Jim.

Jim started building his $5 million dealership from the ground up more than 20 years ago. He began with a small service business, picked up a franchise and then added several more. He was in the store every day, and he didn't need anyone telling him how to measure the success of his business. He knew what was going on because he had his hands in all aspects of the operation.

At some point, though, the business grew to where he could no longer do everything, and sometimes the business grew so fast that it was hard to keep up with all the activity. The sales and parts departments seemed real busy and bills were being paid. But at the same time the business checking account wasn't growing: Jim's bottom line wasn't keeping pace with his top line. So, he placed all his focus on sales, believing that maximizing revenue would have to improve cash flow, but it didn't work that way.

I suggested looking at some financial ratios, to see if we could find the problem.

USING FINANCIAL RATIOS

Financial ratios are nothing more than comparing numbers with one another in various ways over a period of time and seeing what trends emerge. By going back several years, you can see the trends or patterns, and use these to help make decisions for the future.

Here are 10 important, but easy to use, ratios: Current ratio; Debt to Equity ratio; Days Sales Outstanding: Rate of Return on Investment; Turnover of Cash: Rate of Return on Assets; Net Profit; Investment Turnover; Fixed Assets to Net Worth; and Inventory Turnover.

The first ratio we computed was Inventory Turnover, or the ratio of the Cost of the Item Sold divided by the Average Inventory. This was ALL of the inventory: machines, parts and accessories.