Finance and Insurance - The Profit Center I would like to make myself clear on a few items of interest before I get too deep into the sales processes at any dealership, including: automobile, recreational vehicles, boats, motorcycle, and even furniture or other big ticket items. A business has to turn a fair profit in order to stay in business. I believe that they should make this profit and use it to pay better quality employees a premium wage in order to serve you better. The financial strengths or weaknesses of any business can definitely have a dramatic effect on your customer service and satisfaction. I do not, in any shape or form, wish to hurt a dealerships profitability, as it is essential for his survival. I merely want to advise people how to negotiate a little better in order to make the profit center more balanced. Let's get right down to this! Every dealership has a finance and insurance department. This department is a huge profit center in any dealership. In some cases, it earns more money than the sale of the automobile itself. Profits are made from many things that most buyers do not understand. You as a consumer should understand the "flow" of the sales process to understand the profit centers that are ahead of you. Most negotiating from the consumer seems to stop after the original price is negotiated and agreed upon. Let's examine just a small portion of what leads up to that point. The first thing that every consumer should understand is that when you go to a dealership several things come into play. One of the most important things that I could point out to you is that you are dealing with a business that has been trained to get the most amount of money from you as they can. They are trained and they practice these tactics everyday, day after day, week after week, month after month, and year after year. Let me point out a couple of important facts that I have said in this paragraph. First, you'll notice that I said a dealership and not a salesman and secondly, I emphasized times of day after day, week after week, etc. etc. This was done to let you know that the salesman is working very closely with the sales managers in order to make as much money as he can. Your interests are really not their objective in most cases. One tactic that is used heavily in the business is that the salesman says he is new to the business. This may be true or not, however; keep in mind that he does not work alone. He is working with store management, who gives him advice on what to say and when to say it. These guys or gals are very well trained on how to overcome every objection that you may have to buying from them. They have been trained in the psychology of the buyer and how to tell what your "hot buttons" are. They listen to things in your conversation that you may say to one another as well as to the salesman. They are trained to tell their desk managers everything that you say and then the desk manager is trained to tell the salesman exactly what and how to answer you. A seasoned salesman does not need as much advice from his desk and may negotiate a little more with you directly without going back and forth. The process of negotiation begins the moment that you walk into the front door or step foot out of your car and begin to look at vehicles. Different stores display inventory in different ways. This is done for crowd control or more commonly known as "up control". Control is the first step in negotiating with a customer. Ever who asks the questions controls the situation. Let me give you an example: A salesman walks up to you and says "Welcome to ABC motors, my name is Joe, and what is yours?" The salesman has just asked the first question- you answer "My name is George." He then asks you what you are looking for today, or; the famous "Can I help You?" As you can see, step after step, question after question, he leads you down a path that he is trained to do. Many times a well trained salesperson will not answer your questions directly. In some cases, they only respond to questions with other questions in order to avert the loss of control. An example of this could be something like you asking the salesman if he has this same car with an automatic rather than a stick shift. Two responses could come back to you. One would be yes or no, the other could very well be something along the lines of: 'don't you know how to drive a stick shift?" In the second response the salesman gained more information from you in order to close you. Closing means to overcome every objection and give your customer no way out other than where do I sign. The art of selling truly is a science of well scripted roll playing and rehearsal. We have established that the negotiating process begins with a series of questions. These questions serve as two main elements of the sales process. First and foremost is to establish rapport and control. The more information that you are willing to share with you salesman in the first few minutes gives him a greater control of the sales process. He has gathered mental notes on our ability to purchase such as whether you have a trade in or not, if you have a down payment, how much can you afford, are you the only decision maker (is there a spouse?), how is your credit, or do you have a payoff on your trade in? These are one of many pieces of information that they collect immediately. Secondly, this information is used to begin a conversation with store management about who the salesman is with, what are they looking for, and what is their ability to purchase. Generally, a sales manager then directs the sales process from his seat in the "tower". A seat that generally overlooks the sales floor or the sales lot. He is kind of like a conductor of an orchestra, seeing all, and hearing all. I cannot describe the entire sales process with you as this varies from dealer to dealer, however; the basic principals of the sale do not vary too much. Most dealerships get started after a demo or test drive. Usually a salesman gets a sheet of paper out that is called a four square. The four square is normally used to find the customer's "hot points". The four corners of the sheet have the following items addressed, not necessarily in this order. Number one is sales price, number two is trade value, number three is down payment, and number four is monthly payments. The idea here is to reduce three out of the four items and focus on YOUR hot button. Every person settles in on something different. The idea for the salesman is to get you to focus and commit to one or two of the hot buttons without even addressing the other two or three items. When you do settle in on one of the items on the four square, the process of closing you becomes much easier. One thing to keep in mind is that all four items are usually negotiable and are usually submitted to you the first time in a manner as to maximize the profit that the dealer earns on the deal. Usually the MSRP is listed unless there is a sales price that is advertised (in may cases the vehicle is advertised, but; you are not aware). The trade value is usually first submitted to you as wholesale value. Most dealers request 25-33% down payment. Most monthly payments are inflated using maximum rate. What this all boils down to is that the price is usually always negotiable, the trade in is definitely negotiable, the down payment may be what you choose, and the monthly payment and interest rates are most certainly negotiable. If you do your homework prior to a dealership visit you can go into the negotiation process better armed. You still need to keep two things in mind through this process. The first item is that you are dealing with a sales TEAM that is usually highly skilled and money motivated. The more you pay the more they earn. The second item to remember is that you may have done your homework and think that you are getting a great deal and the dealer is still making a lot of money. The latter part of this statement goes back to the fact that it is essential for a dealer to make a "fair" profit in order to serve you better. Once your negotiations are somewhat settled, you are then taken to the business or finance department to finalize your paperwork. Keep in mind that this too is another negotiating process. In fact, the finance manager is usually one of the top trained sales associates that definitely knows all the ins and outs of maximizing the dealerships profit. It is in the finance department that many dealers actually earn more than they earned by selling the car, boat, RV, or other large ticket item to you. We will break these profit centers down for you and enlighten you as to how the process usually works. Remember that finance people are more often than not a superior skilled negotiator that is still representing the dealership. It may seem that he or she has your best interests at heart, but; they are still profit centered. The real problem with finance departments are that the average consumer has just put his or her guard down. They have just negotiated hard for what is assumed to be a good deal. They have taken this deal at full faced value and assume that all negotiations are done. The average consumer doesn't even have an understanding of finances or how the finance department functions. The average consumer nearly "lays down" for anything that the finance manager says. The interest rate is one of the largest profit centers in the finance department. For example, the dealership buys the interest rate from the bank the same way that he buys the car from the manufacturer. He may only have to pay 6% to the bank for a $25,000 loan. He can then charge you 8% for that same $25,000. The dealer is paid on the difference. If this is a five year loan that amount could very well be $2,000. So the dealer makes an additional $2,000 profit on the sale when the bank funds the loan. This is called a rate spread or "reserves". In mortgages, this is disclosed at time of closing on the HUD-1 statement as Yield Spread Premium. This may also be disclosed on the Good Faith Estimate or GFE. You can see why it becomes important to understand bank rates and financing. Many finance managers use a menu to sell aftermarket products to you. This process is very similar to the four square process that I discussed in the beginning. There are usually items like gap insurance, extended service contracts, paint and fabric guard, as well as many other after market products available from this dealer. The menu again is usually stacked up to be presented to the consumer in a way that the dealer maximizes his profitability if you take the best plan available. The presentation is usually given in a manner in which the dealer wins no matter what options are chosen. With the additional items being pitched to you at closing, your mind becomes less entrenched on the rates and terms and your focus then turns to the after market products. Each aftermarket item can very well make the dealer up to 300-400% over what he pays for these items. Gap coverage for example may cost the dealer $195.00 and is sold to the consumer for $895.00. The $700.00 is pure profit to the dealer and is very rarely negotiated down during this process. The service contract may only cost a dealer $650.00 and is being sold for $2000.00. The difference in these items are pure profit to the dealer. You see, if you only paid $995.00 for the same contract, the dealer still earns $345.00 profit from you and you still have the same coverage that you would have had if you had paid the $2000.00. The same is true for the gap coverage. You are covered the same if you paid $395.00 or $895.00 if the dealers costs are only $195.00. The only difference is the amount of profit that you paid to the dealer. Another huge profit center is paint and fabric protector. In most cases the costs to apply the product are minimal (around $125.00 on average). In many cases the dealer charges you $1200-$1800 for this paint and fabric guard. As you can see, these products sold in the finance department are huge profit centers and are negotiable. I also have to recommend the value of most all products sold in a finance department. It is in your best interest to get the best coverage possible at the best price possible. Always remember this: The dealer has to make a fair profit to stay in business. It just doesn't have to be all out of your pocket.
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Healthcare Staffing Financing - How to Improve Your Cash Flow (Part Three of Three) In my previous articles, I've explained how medical staffing companies can benefit greatly by selling their receivables to a factor in order to increase their cash availability. Instead of waiting weeks or even months to receive payment for their services, healthcare staffing agencies can factor their invoices and get paid within days. I have also discussed reasons why it's important to shop around and choose an accounts receivable factor who will best meet your agency's healthcare staffing funding needs. I went over many different things to consider when choosing a payroll funding company, including its size, location and area of specialty (such as healthcare staffing invoice factoring). In addition, I explained some of the general economics to consider (discount fees and advance rates), as well as a range of common additional fees. In the final part of this series, I will discuss differing terms of contractual agreements and what to compare, variations of the invoicing process and which scenarios would work the best for your healthcare staffing company. I will also review the various reporting capabilities that factors offer their clients. As is the case whenever you enter into a legal business relationship with another entity, factoring companies will require that you sign a contract. It's important that you read through it and be sure to ask questions if you don't understand something because the contract outlines specific concepts and fees associated with different situations. One big thing to look for in a contract is whether or not the company has monthly minimums/maximums. For example, some factors will require that you factor at least $50,000/month, which shouldn't be a problem if you are invoicing over $100,000 every month. Keep in mind that most factors will implement a penalty fee if you do not meet the minimum monthly factoring amount. On the other hand, a smaller factor may not have a minimum amount, but they might have a maximum amount instead. So if a factor says that they can only fund up to $500 thousand in a month, and you know that your company does well over $1 million in sales every month, you will have to keep searching. Again, it all depends on your company's healthcare staffing financing needs and finding the appropriate factor that can meet those needs. Another very important issue to look for in the contract is the length of time that you are required to remain in the factoring relationship. Some factors are more accommodating in this area than others, providing you the flexibility to choose how long you want to factor. Still, other companies will require you to sign a term-contract for 12-24 months. If this is the case, the factor will also charge an early termination fee if the contract is broken before the term expires. Every company enters the funding equation at a different point. For example, where one business may only need to factor for a few months to get them through a small cash flow jam, another company may use factoring for years. So it's important that you take the time to think through how long you plan to factor your receivables, and be sure to consider the type of commitment you are comfortable making. Having an estimated length of time in mind will make it easier for you to find a funding company whose terms are conducive to your business' needs. Also included in the contract will be details on the type of guaranty that the factor will require before funding your invoices. Although there are a few factors that will not require a guaranty, the majority of them will want either a personal guaranty, whereby the seller is personally responsible for any unpaid invoices, or a validity guaranty, in which the seller guarantees that all of the invoices that are sold to the factor are valid, were prepared after services were rendered, and that the customer has agreed to pay them. Finally, it's necessary for you to understand what the invoicing process will be like after you have chosen a company to assist you with healthcare staffing funding. A question that I hear frequently is "How soon can I be funded?" The answer to this question can vary from days to weeks or perhaps months. In order to set up a company for its initial funding, a factor requires you to fill out and return legal paperwork, including an application, contract, and a tax information form. In addition, you may be required to send in a current accounts aging report, federal tax returns, copy of your trade name certificate or fictitious name filing, articles of incorporation and bylaws, customer lists, copies of invoices, copies of driver's license, a copy of a voided check, etc. In most cases, 5-7 business days is the average amount of time it will take to receive your initial funding. From there on, the funding process will most likely speed up to 2-3 business days after you present invoices to the factor. There are some factors that can deliver same-day funds via a wire transaction, but just be aware of the fact that there will be fees associated with the amount of time it takes for you to receive funds into your account. For example, a same-day wire transaction will often cost you more than an overnight ACH transaction. Another topic involved with the entire funding process is what's known as the "reserve account." Reserve is the percentage of an invoice amount that the factor will hold onto until it receives payment from your customers. This reserve amount will eventually be released back to you once your invoices have been paid and the factor has collected its fees. For example, let's say that you have an 80 percent advance rate and 20 percent is held for reserve. Let's also say that your invoices were paid within 30 days, translating into a three percent discount fee. The initial 20 percent minus the three percent discount fee equals 17 percent, which is due back to you. Some factors will have automatic reserve releases weekly, some every other week or some monthly. Then there are some factors who will not release the reserve unless it is specifically requested by their client. Finding out when your reserve will be released back to you is an excellent question to ask a factor because it determines how soon you can have access to additional money to invest back into your business. You also want to consider whether or not you want a factor to handle just your healthcare staffing invoice factoring or all of your back office services including billing, collections, issuing payroll, etc. Some factors will do a portion of the back office services and some will only act as a funder. Just remember that if you choose a factor that is willing to do all of your back office services in addition to funding, there will most likely be extra fees associated with the extra work. You may prefer to hand the entire billing and collecting process over to a factor so that you can focus your efforts on other areas of growing your business. Or you might want to work with a factor that will process and mail your invoices in addition to collecting while you continue to run the company's payroll in-house. Perhaps, you would feel the most in control if you continue to invoice and collect and do your own payroll in-house. Whichever you choose, there will be a factor out there that is with the best fit for you. Finally, the last thing that you should look for when choosing a factor is if you have access to financial reports concerning your clients' payments. Most factors keep a detailed account of your customers' payments. Just because the factor runs these reports for his/her own knowledge does not necessarily mean that they will share them with you. Some factors will provide you with weekly/monthly reports via e-mail or snail mail, and some factors can provide you with real-time reporting. This means that as soon as a payment is posted to your account, you can view it online and see the same screen that the factor sees. Having access to these reports is a good way for you to learn more about your customers. For example, if you notice that one of your client's invoices is approaching 60 days, and you don't want to have to pay the fees for those extra days, you could call that client and try to get the invoice paid sooner. Or if your factoring company handles your collections, you could also call them up and request that they work their collections on that particular account harder. Whichever way you choose to address the situation is completely up to you, but also keep in mind that having the option to view the reports in the first place is an important one. In its entirety, these articles have addressed multiple ways to help you find the right factor for your healthcare staffing factoring needs. Like I stated at the beginning of this series, there are thousands of factors out there, each with their own advantages and disadvantages. So it's extremely important to look at the all-encompassing package of what each factor has to offer before you make your final decision. The best thing to do is ask what you need in terms of healthcare staffing invoice financing and listen for the answers that will benefit your business the most. Philip Cohen is the founder and president of PRN Funding, LLC, which is an extraordinarily focused niche player in the healthcare staffing invoice financing market place. Through a process known as factoring, PRN Funding provides business owners with the financial resources needed to grow and effectively compete in the industry




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