It is imperative that a dealership have impeccable accounting records. You cannot manage your business properly if your monthly statements are not accurate. It is the office’s responsibility to provide management with a timely, accurate financial statement each month.
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Common Deficiencies:
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- The open parts account with the manufacturer is not reconciled each month. All of the activity with your manufacturer flows through this account and needs to be reconciled.
- The parts inventory is not reconciled. We recommend that a parts physical inventory be performed annually. Only half of dealers perform an annual physical inventory. Ensure that the physical count is reconciled to the general ledger. In addition, compare the balance on the parts pad to the general ledger on a monthly basis and research any significant differences. Surprise bin counts should be performed periodically.
- Prepaid and accrued expenses are not reconciled on a monthly basis. Items are recorded in these accounts and never relieved.
- Payroll is recorded on a cash basis. This is unacceptable. I asked a new dealer client why their expenses were high one month and profits were low. The dealer explained that they had five weekly payrolls that month. Adjusting the payroll to the exact number of days is critical and takes minimal time. It would certainly make sense for someone to spend fifteen minutes to get the payroll expenses reported in the correct month.
- The rebate schedule has over aged balances. This is a huge problem when the accounting staff is weak. The staff wastes time researching deals that are over sixty days old, and in the meantime, the current rebates become aged. Many of these aged balances are never collected. The “doc” needs to report the ageing of the rebates and the dealer/GM needs to monitor this. One point here, it is accounting’s responsibility to identify the aged rebates, but it is the sales manager’s responsibility to do the research and get the amounts collected.
- All bank accounts must be reconciled timely. This is priority one and many owners are shocked when we point out this step is being neglected.
It takes minimal time for a dealer/GM to inquire and spot check these steps. One caution here, check to see that the steps are actually being completed. Do not take someone’s word. We recently found a client with their open parts accounts out of balance by $100,000. When we inquired, the CFO explained that he told Bill to do it each month. My response was that it took me ten seconds to ask for the reconciliation and then determine that there had not been one performed in months.
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I can’t emphasize enough the importance of clean, accurate, timely financial reporting. As a dealer you deserve this and there should be no excuses.
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Your CPA firm can be a critical step in ensuring that your accounting is in order. The firm should have automotive experience and should be using dealer specific checklists when performing their year-end tax work to confirm that the above steps are completed.
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The following checklists will help you improve your financial reporting:
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If you have questions in regard to this article, please contact Paul McGovern at pmcgovern@downeycocpa.com or 800-849-6022.
