4 Dealership Accounting Practices That Eat Away At Profit

An auto dealership sales team discussing accounting practices in a bright office space.

4 Dealership Accounting Practices That Eat Away At Profit

An auto dealership sales team discussing accounting practices in a bright office space.

If your vehicle has poor fuel economy, you’ll still make it to your destination, but it will be costly. The same is true for auto dealerships with inefficient accounting practices. The dealership will still make sales and maybe even meet compliance requirements, but if your dealership employs any of these four accounting practices, the resulting inefficiencies could eat away at profit. 

#1 Processes | Choosing Manual Over Automatic 

While a manual transmission can increase the driver’s control over the vehicle, a manual accounting process can stifle a dealership’s ability to increase profit. So dealerships should strive to automate as many manual accounting processes as possible. Automation can save time and money while boosting productivity, improving efficiency, and reducing vulnerability to financial risks. 

For example, tasks like entering journal entries, accounts payable, or processing payroll involve a significant amount of data entry. If your accounting department performs this type of data entry manually, the process is not only time-consuming but also opens your dealership up to a higher level of risk for financial losses due to fraud or human error. When manual processes are used, management often falls victim to a heavier administrative burden as well, which means they are not able to focus on growth strategies. 

Investing in software solutions, particularly options that integrate with other programs you use, can help you streamline your dealership’s operations and limit the time, expense, and vulnerability to risks associated with performing manual tasks, and you may find that some of the software you already use contains features or add-ons that can support your needs. For example, dealer management programs like CDK allow users to manage accounting, inventory, billing, prospects and more within one program. 

#2 Communication | Working With A Faulty Engine Control Module

Without strong communication, an auto dealership’s financial success can suffer greatly, not unlike a vehicle’s engine when communication is lost with the Engine Control Module. Communication is vital from the very beginning, starting with the clarity of the dealership’s expectations set during onboarding and the depth of the resources used in initial training. Because operational and procedural updates and improvements don’t stop with initial training, this communication should be ongoing as well. It is critical among your accounting department staff; however, accounting practices don’t occur in a vacuum, so it’s also an interdepartmental necessity. 

The need for strong communication also ties back to automation. For example, without an electronic document management system, physical copies of repair and parts orders, sales deal jackets, warranties, and invoices are easily lost in the shuffle, which causes communication breakdowns and time delays. In some cases, paper overload can lead to the creation of duplicates of the same document, and depending on the type of document, if one copy differs from the other, it can lead to some significant issues.

#3 Internal Controls | Foregoing Available Safety Features 

Safety features like automatic emergency braking systems, high-beam assist, or pedestrian detection help us protect ourselves and others on the road. Similarly, internal controls help dealerships protect themselves, their customers, and their employees from harm. 

One of the most important internal controls for a dealership to establish and monitor is proper segregation of duties, specifically around high-value assets or “low-hanging fruit” like cash and parts. For example, setting up an internal control to regularly reconcile parts inventory and sales could help you prevent or detect fraud should an employee pocket cash from selling parts. 

When cloud-based software, network, and remote system access are involved, dealerships need to be extra vigilant. While most data breaches occur through hacking or malware attacks, fraud, human error, or loss or theft of a device can also have devastating consequences. A study by Verizon revealed that 43% of data breaches in 2020 involved a web application breach, where data was accessed using stolen credentials or web exploits. Establishing internal controls to set password and access parameters can help. 

#4 Data Analytics | Making Repairs Before Running Diagnostics

Senior management may be leaving actionable insights on the table. If they are not leveraging the right data, they are not making data-driven financial and business decisions.

Check out the bells and whistles available through your existing software and technology to ensure you’re leveraging data, analytics, and actionable insights from all available sources. For example, take a look at your DMS reporting features. Many programs allow you to customize your reports to include the necessary information without overloading the report with extraneous details.

Contact Albin, Randall & Bennett

ARB’s Auto Dealership Advisory Services Team is ready to provide savvy, sensible solutions to help you meet your dealership’s unique accounting needs. My team is dedicated to keeping dealerships on the leading edge of industry trends, legislative and compliance matters, and accounting practices. Contact me today to discuss your strategy. 

by Matthew Marcoullier, CPA

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Matthew Marcoullier is a senior manager at ARB. He focuses primarily on financial accounting and consulting services for auto dealerships, commercial businesses, and closely-held businesses. Matt previously served as a Senior Auditor for the State of Maine Department of Audit. 

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