Often overlooked, a dealership’s accounting office is essential to profitability. Empowered accounting teams are proactive about reconciling and reviewing schedules to stay ahead of possible problems.
Growth often means more dealership locations, which can complicate accounting practices based on the choice of centralized, noncentralized, or hybrid accounting systems. Centralizing accounting has specific benefits for dealers, such as improved corporate governance and more efficient methods of implementing standards and internal controls.
Reconcile Daily
Car dealership accounting may not be the most exciting part of a business, but rock-solid bookkeeping keeps a dealership running and gives it a solid foundation for growth and change. If you aren’t reconciling daily, your dealership may miss out on valuable insights that can improve operations, such as identifying past-due invoices and vendor relationships.
Many dealerships don’t perform a physical parts inventory regularly, instead relying on the balance of their open account with the manufacturer to determine their on-hand parts inventory. This is a mistake. The actual value of your parts inventory should be compared to the balance in your general ledger every month.
Reconciling daily will also help you avoid overstating expenses, as prepaid and accrued expenses should only be recorded when the expense is incurred, not when it’s paid. A detailed reconciliation will also make tax season much easier, as you’ll have a comprehensive record of revenue and expenses to file your taxes.
Review Schedules Regularly
Most auto dealerships employ scheduling software to keep track of their inventory of vehicles and parts and an easy accounting equation for accounts receivable and payable. It is critical to review schedules and clean them regularly. This includes catching debits and credits that don’t belong, ensuring appropriate aging that aligns with payment expectations, and identifying uncollectible items. It also helps improve accounting office procedures and enables the dealership to make more informed decisions about management incentives.
Many car dealerships have employees that need a background in accounting. When the schedules are properly reviewed, deals can be posted correctly, and cash receipts and receivables are overstated. The gross profit numbers reported to factory headquarters may need to reflect actual results accurately.
A streamlined reconciliation process can greatly affect a dealership’s bottom line. A rock-solid accounting department is crucial to a profitable business. While sales and service are usually the first departments to be praised, the accounting office deserves attention too. Use the five essential accounting practices to optimize your auto dealership’s financial outcome. You will find that your dealership will run more efficiently and effectively.
Review Sales and Cost of Sales General Ledger Account Detail
Car dealerships use double-entry accounting, meaning transactions posted to accounts on the equation’s left must equal those on the right. This means the general ledger account for sales should always match the account for the cost of goods sold. Likewise, the general ledger account for expenses should always match the account for inventory.
A common mistake is not reconciling the open parts accounts with the manufacturer each month. A dealer also needs to pay attention to the aging of rebate schedule balances. For example, an aged rebate might be reported on the financial statements but never collected.
The general ledger is home to the dealer’s P&L and balance sheet. Each month-end must include a review of the full trial balance showing each general ledger account balance and where it flows to the factory financial statements.
A car dealership’s accounting needs are specialized and unique. If a dealer is considering centralizing its accounting processes, it’s important to have an accounting professional with experience in the industry. This can help ensure the consolidation will effectively meet all the unique requirements.
Master Expense Analysis
The responsibilities of an automotive dealership accounting department are many and varied. Unfortunately, some dealers hire people who need more accounting knowledge. This lack of oversight can lead to problems, such as deals being posted incorrectly or receivables needing to be collected.
Performing a master expense analysis can help identify these types of issues. Reviewing the sales and cost of general ledger accounts for each month and year, dealerships can compare actual expenses to expected costs. This can lead to a better understanding of each dealership’s strengths and weaknesses and assist in achieving the dealer’s expectations of gross profit margins.
Dealerships that consolidate their accounting functions often report improved relationships with vendors. This can result from consolidated billing/payment techniques or simply that the vendor has one point of contact at the dealer. However, staffing concerns and expanded job requirements at each dealership location must be considered if the consolidation of accounting is to be successful. For example, a process should be established to ensure paperwork and cash are transported securely between locations. This could be done through a parts driver or overnight courier service.
Review Financial Statements
Car dealerships operate as complex business entities with a myriad of moving parts. As such, ensuring that the entire operation is functioning at peak profitability requires a strong team of leaders and the assistance of a firm with extensive industry experience.
Maintaining rock-solid accounting is a critical part of running a car dealership. In addition to allowing management to monitor the performance of the sales and service departments, it is essential for managing inventory and maintaining cash flow.
For example, a review of the dealer’s financial statement can reveal that a department is losing money due to a poor purchase-to-sales ratio or overpaying for inventory or services. It also helps to avoid surprises at tax time. A well-established dealership accounting system can ensure that all taxes are paid properly and on time, including the local, state, and federal sales and use tax and any business tax obligations. It can also help to manage parts inventory and avoid the need for surprise bin counts. In addition, a system can keep the open parts account with the manufacturer in balance by reconciling it to the general ledger each month.
