Do you know what CID (cash in deal) is? Its king to any buy here pay here operation. This figure it integral to every aspect of BHPH. BHPH is one of the few businesses you can actually sell yourself out of business if you don’t properly account for cash flow.

CID = ACV + reconditioning + warranty cost (optional) + tax and fees – down payment

Why is this number so important? First, it is your exposure! It is the amount you stand to lose if this customer is a first pay default. What is your comfort level?

Next, you must plan your cash needed accordingly when you start your operation. For example, if you decide you will have a maximum CID of $4000 and want to sell 20 cars a month, you know you need $80,000. It takes about 18 months before your operation will start to fund itself so it is recommended you have at least this many months in cash on hand to start.

CID $4000 x sales 20 x months 18 = 1,440,000 cash needed in this scenario

The same things if you want to back into a budget. Let’s say you have $1 million in cash to start and you decide you are comfortable with a CID of $3000. Accepting the fact that you will need 18 months of cash on hand to start, this means you can sell 18.5 cars per month to stay on budget.

Cash for start up $1,000,000 / CID $3000 / months 18 = 18.5 cars sold per month to stay on budget

CID is fundament to your underwriting procedures. Many dealers in BHPH don’t require down payment and do very well but the need for cash down is often dictated by your CID. If you’re total AVC plus taxes and fees totals more than your maximum CID, then require your customer to put the difference down out of their pocket.

ACV + tax and fees – ($) cash down required = max CID

Don’t get emotional about a sale in BHPH. Once you determine your CID, stick to it. Work with customers if they don’t have the cash but don’t waiver from your CID. This is the quickest way to get your business in trouble in BHPH. Create a lay away plan if people say they can have the rest of the cash in a week or so but don’t contract them. Park the car out back and give them seven days to come up with the remainder.

Stick to your guns and BHPH will add greatly to your bottom line! Can you think of any other uses for CID?