Steps to Starting and Managing a Successful Buy-Here, Pay-Here Operation

Step #1: Understanding the business (including challenges and pitfalls)

When run properly, the buy-here, pay-here (BHPH) business is very profitable. Even dealerships that are poorly managed can be very profitable for a while. If you are just entering or just contemplating entering the business, it is important to recognize right away that generating profits will not be your greatest challenge. Provided you are in a market with a sufficient customer base, you are likely to generate net profits (and be taxed accordingly). Let’s face it, as a BHPH dealer you are in the business of financing individuals who are at a disadvantage. Most of the buyers who visit a lot that displays signs such as We Finance and Easy Terms have limited credit options and they know it. Therefore, you can set a relatively high selling price and interest rate and meet with very little resistance on the lot. Great business, right? Absolutely, but not so fast!
For those coming from conventional retail, please read the following sentence very carefully, perhaps even more than once. The BHPH business is not the car business! It is a finance business. That is not to say that you won’t be able to use some of what works for you in the car business, but there are far more differences than similarities, so don’t be afraid to ask for help. New car dealers in particular who bring a new car mentality about sales and gross often suffer in BHPH. I will point you to several industry resources in some detail in a future issue.
When BHPH dealers seek my services because they are struggling, I find that problems arise from two main sources. The first is lack of appreciation for the need to develop collections systems and hold the staff accountable for executing them. The other is good old-fashioned greed. Familiar with that human downfall? Combine that with an oversized ego and you have a recipe for disaster in BHPH. Let’s examine each problem area more closely.
You already know that collections are a crucial component in the business of financing in-house. You probably also recognize that projecting cash flow is vital to your success. So, you may only need to determine what collection percentages are reasonable to expect and what systems can help to achieve them. I’ll cover that in more detail in future issues. For now, just know that the accountability factor is an important key to banking more of the profit you put on the books.
On the second point, greed and ego lead to problems in BHPH because those traits can influence selling prices, which influence gross charged and taxes assessed on profits that have yet to be collected. Selling prices also impact length of contracts which is directly related to charge-off losses and the most overlooked issue of customer satisfaction. Dealers who ignore the importance of customer satisfaction aren’t in this business very long. If you pile it on with BHPH buyers, you may be the one who suffers. Of course, you need profit and you deserve plenty of it. But there is such a thing as too much in this business.
Having an ego is nothing to be ashamed of. We all have some of it. I only bring it up because it is what drives many of your business choices, such as quality and cost of cars you carry and the expense you will incur in areas such as the size and appearance of your facility  numbers that have a dramatic impact on your cash flow and the time it takes for you to reach that all-important positive cash level. When making these choices, I urge clients to decide based on the wants and especially needs of their target customers. So it may help to check your ego at the door as they say.
In the series of articles to follow in future issues, I will speak to the other hazards and overlooked opportunities in this business. Until then, seek those who can provide an independent perspective and listen! Buy-here, pay-here is a great business when you learn to avoid the potential pitfalls!
By Jim Rhoads, Jim Rhoads is the president of Four R Consulting, LLC, a Texas consulting firm specializing in start-ups as well as ongoing training, consulting, and analytical services in the field of buy-here, pay-here. Contact this writer at


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