Dan Goff never shies from saying a limo service is first about the money. His foremost question is, if you’re not making enough of it, or not on track to make more, why are you doing this?
Out of all the roles in a limousine company, none is more vital than handling finances. To embody this approach, and to motivate other operators to track every dollar, Goff has created a financial dashboard. More than just a clever arrangement of gauges and dials, it displays key metrics to monitor in real time every aspect of a limousine operation.
The co-owner of A. Goff Limousine and Bus Company, based in Charlottesville, Va., and serving Virginia, Washington, D.C., and Maryland, will be detailing his concept during a seminar on March 16 at the International LCT Show.
Goff’s financial acumen derives from many years of working as an accountant, a bookkeeper, and then a broker for various businesses from 1984 to 2000, when he founded A. Goff Transportation with his wife, Ana Regina. He received an AAS in accounting with highest honors at the University of Kentucky.
“I went into a lot of limousine and bus businesses and talked to owners, and saw many different philosophies,” Goff recalls. “The common factors are: What is the amount of money made, and what is the amount to invest? All business theories can be reduced to a number on the lower right corner of an 8 ½ x 11 sheet of paper: Net profit. I’m always focused on results that way.”
Gone are the days when operators could run a business by gut, or count on a generous revenue stream minus a few hidden negligible errors. In this competitive environment, every dollar counts, Goff says. Solid finances are crucial now because interest rates, fuel costs, and inflation are likely to rise in the next few years, pressuring operators to maintain their incomes and lifestyles, Goff says.
Wednesday, March 15, 2 p.m. to 3 p.m.: Are You Really Making Money?
If you are like most operators, your company sometimes runs on tight margins. It is crucial to have the data you need. The panelists will show you how to take a deep dive into your books and make a financial “Dashboard” that can drive your decisions. Learn how to calculate your true operating costs and analyze how profitable your company really is…or not. Presenters: Dan Goff, A Goff Limousine & Bus Co. LLC; Shane Stickel, Presidential Worldwide Transportation DETAILS: WWW.LCTSHOW.COM
Learning The Money Dashboard
If you do not correctly estimate and track spending amounts, they could over time distort outcomes, Goff says. Operators 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 reporting are not designed to capture the most releavant metrics for running a limo business.
“Our industry is in transition, 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 upside potential as we become a potent force in the motorcoach and minibus industries. With these changes, our owners cannot rely simply on decades of experience to plot the future. The ice is moving under our feet and we have to be nimble. We need to make more decisions faster and we need to know how they are affecting the health of our companies. We need to see the effects of staffing, fleet, and marketing decisions, etc. on our own take-home pay.”
What often ensnares newer, successful operators is the growth trap, Goff says. You can’t count on growth that never stops. “A limousine business often goes through a cycle 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 spending and commitments you made catch up with you and push you from behind.”
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)
1st 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.”
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Appreciate Potential
Goff advises operators to make sure they have assets that appreciate, such as buildings 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 operators 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 upside down.”
If you write off a sold vehicle 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 principal 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 diminishing every day. With simple tools you can get a handle on those things you can measure once a month and get usable, actionable data in a visual format.”
An acquisition strategy Goff advocates for operators 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 building, which rises in value.”
Rates
Before you can reap profits, 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 chauffeurs to be parked around the corner at least one hour before pick ups, no matter the location or time. It guarantees a 100% on-time performance. He also takes farm-ins, but doesn’t do farm-outs, opting to recommend companies where clients are traveling to.
“We look for clients who are service sensitive versus price sensitive,” Goff says. “We don’t take service as a mindset, or a goal, or take pride in it. It’s a function of mechanics. If you want to make sure you’re never late, that chauffeur makes sure he’s there one hour early polishing the car. The data tells us it’s very profitable, and it will be most resilient 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 owners’ obligations extend beyond 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, provide 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 positive 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, experience, 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 accessible in other venues.”
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Q&A: Takeaways Tips For Stronger Operations
LCT asked veteran operator and financial expert Dan Goff a mix of common financial related questions from newer operators over the years.
Q: What is the biggest financial mistake operators make?
A: The failure to focus on short-term return. Using some hope of future benefits such as business from a client, name recognition, relationship building, or reputation enhancement to justify losing money now is rarely a successful strategy. It can become the corporate culture if an owner isn’t careful. I believe investments should deliver nearly immediate cash returns AND future benefits. New vehicles, shop equipment, and software will be worthless in future years — they have to pay off now! They can still be great ideas but unless you can forecast the net bottom line benefit in the next 36 months, it’s a crapshoot. I have seen operators obsess over the cost of car washes then seem flippant about a six-figure purchase on the show floor. That’s why a dashboard is so important — it keeps things in perspective.
Q: What financial information should you bring to an RFP?
A: It’s about two things: risk and competitive advantage. The larger the RFP, the more risk the contracting agency is taking. They know the TNCs are hitting the industry bottom line. They do not want to have problems with a vendor who can’t hold the receivables, defers maintenance, or can’t invest in equipment upgrades. When they make a decision, they want to make sure they don’t have to make it again until the next contract. Strong companies can use financial strength to their advantage. We not only present our financials with most RFPs, we also present FICO printouts on the owners and screen shots of lawsuit searches. Then we encourage the decision makers to compare our information with competitors. The decision maker has more to lose than gain on a contract. To save a few dollars on the contract rate benefits them little. On the other hand, a contract failure, especially one that could have been caught using our recommendation, may cost them a promotion or job. We know this approach has resulted in our company being chosen even when we’re not the low bidder.
Q: What specific fleet vehicles best contribute to profit margins?
A: Bottom line profit for us comes from minibuses #1, coaches #2, and sedans #3. Other vehicle types are bunched in the middle with limousines trailing the pack. SUV’s have been ascending since the demise of the Town Car but they may recede again, particularly competing against the four-wheel drive Lincoln Continental.
Q: What are ideal loan and lease terms and percentage rate for an operator?
A: Ha, that’s easy — ones they can afford! As you know, I have entered the financing space with our new venture, American Business. I partnered with experienced financiers and wickedly smart web programmers to make a product easy for operators to use. Along the way, I was able to understand the issues facing the person on the credit desk, who decides if an owner gets a loan and on what terms. The operator on the credit desk is hit directly in the pocketbook if the loan is not paid as agreed. They can be your best friend in the business. If asked, the credit desk can be your consigliere, your rabbi, your confessor, and your partner. A good credit partner will help you decide at what level you can invest with moderate risk, how long you need to own the asset to be above water, and what you can reasonably expect to recover at the end. Credit partners experienced in the livery business are essential and several can be found at LCT shows and in the magazine. A good credit desk is interested in making you several loans for years to come, not killing an operator on one deal.
Q: How should an operator calculate rates for a local area/home market? What are best ways to preserve and promote price integrity?
A: Years ago I was given the task of moderating an affiliate pricing round-table at LCT in Las Vegas. While each market is different, the most common markup at that time was 30%. I think that has come under a bit of pressure with the increase in players like Blacklane, Mozio, Limos.com, Rental Limo, Shuttlefare, etc. Even still, most operators fear to price based on profit but rather price based on local competition instead of inbound affiliate rates. We have always priced from the bottom up. We want our “take-home” pay to be 12 to 18% after everything. We start with that, then add the costs of doing business, and the result is our price. We do not compete on price, but on service, and we look for those clients who value quality over price. Luckily for us, that is about 30% of the $6 billion market, which is plenty.
Q: Houston operator Erich Reindl is an advocate of buying “newer” used vehicles with cash. What are your views of this vehicle purchasing approach?
A: Erich is one of the smartest people in the business and won the Best of Boston Coach recognition this year. His approach has been successful for many years. There is no one best philosophy for everyone, and simply paying $150,000 for a new minibus does not change the transaction. Accountants have a concept called “opportunity cost.” If an operator could use leverage to buy four minibuses at 25% down AND had the market to take advantage of it at 15% annual profit, the lost opportunity cost would be $40,000-$60,000 a year in net profit. Buying a two-year-old SUV from top notch operators can be a good investment. Flipping them every two years can make it even better. Buying newer vs. new vehicles is even more common in the bus space where just one bus can be over $500,000.
Q: What is your view itemizing each vehicle as a separate P&L unit?
A: I devised a vehicle cost calculator tool years ago that I called “Sara’s Challenge” based on a 1991 article by LCT Publisher Sara Eastwood-Richardson. She called for an industry standard method for tracking fleet profitability. What she wrote then is just as relevant today. The tool I made is available on the LCT website for free. Operators should take, modify, and use it. I don’t know if month-by-month accounting by vehicle is required, but it is essential to forecast net profit return anytime you consider a new purchase.
Q: In what situations would you agree with keeping a vehicle as a “loss leader?”
A: My advice is simple; never knowingly choose a losing vehicle or client. If it turns out you have one, evacuate promptly. I have had many unprofitable or barely profitable vehicles over the years. Limo buses in the late 90s, CEO SUVs with fax machines inside, etc. At one time I had seven Rolls-Royces. I ended up calling them “personality-enhancers.” Everyone agreed I looked slimmer, younger, and had better hair when I was driving one. Ultimately, I chose to be older, balding and, ahem, un-slim to go along with the big house, private school for the kids, and commercial building ownership. Take the money you would forgo on losers and put it towards a down payment on the building you rent. You’ll be much happier in the long run.
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What’s Your Type?
Over the years, Goff has identified three different types of money mindsets among limousine owner-operators:
- The first gee-whiz type looks at a vehicle and says that if it rents out for $100 an hour, and I’ve been making $18 an hour, then I can earn five to six times what I was every hour. “They think they have big margins.” Watch out.
- The second type thrives on natural instincts. They can just look at a room and size it up, look at a city and size it up, understand the entertainment and corporate mindsets, have a feel for a market, and make correct decisions most of time, Goff says. “Because of that magic elixir that lets them go into business, they don’t pay as much attention to recordkeeping because they have confidence in their ability to see bigger movements.
- The third type drives by often looking in the rear view mirror. This operator is all about, “ready, aim, fire.” He or she does everything right and legal, and keeps good records, and then looks in the rear view mirror to make adjustments. “They rely on records and then go into new territories and blaze trails based on records. If it doesn’t work, they turn left or right or move slower based on data in the rear view mirror. That’s what has led me to wider profit margins,” says Goff, who admits he wishes he were type 2 but is type 3. “I think we make more money.”
Keywords
Dan Goff finance financial planning How To maintaining profitability operator finance profits revenue growth revenues
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