The first couple weeks of January can be a blur from the time you step back in the dealership after New Year’s Day to the time you submit the December factory financial statement. There is a lot going on and a lot to think about. You may even be feeling like you didn’t have the opportunity to do some needed year-end clean up. Don’t worry, it’s not too late! January can prove to be a very productive month when a focus is placed on year-end cleanup and starting the new year off right. The following are some areas to consider to get you moving in the right direction:
- Make sure you have performed accurate bank reconciliations for all bank accounts. Determine if you have reconciling items that need to be addressed and consider if any aged reconciling items are due to the state for abandoned property. State websites generally have good information to assist the dealership to be compliant with abandoned property requirements.
- Ask yourself, is your excess cash working for you? Are you fully utilizing your floor plan offset account? Should you pay off vehicles on the floor plan line? Should funds be moved into a higher interest bearing account? We recommend having 60-90 days of fixed expenses in cash. The rest of the dealership’s cash should be working for you!
- Deep cleaning of schedules will start your new year off with a clean slate. Keep your eye out for aged receivable balances and determine if amounts are deemed uncollectible and should be written off. Involve other department managers to research and help determine the collectability of aging trade, warranty, vehicle and factory receivables. This is also a great time to review your process, making certain receivables are converted to cash as soon as possible.
- Have finance receivable accounts been fully reconciled for December? This reconciliation is a must in making sure the finance receivable schedules are accurate and to highlight the necessary F&I chargebacks and other adjustments. It’s important for pay plans that F&I chargebacks and other adjustments are made in a timely manner.
- If physical inventory counts weren’t performed at the end of the year, we recommend getting one scheduled. Any variances resulting from the counts, should be analyzed and adjustments recorded if deemed necessary. If your accounting office is not comparing the parts pad to the GL on a monthly basis and monitoring variances, this should be added to the dealership’s month-end close checklist.
- Review inventory schedules and record any final adjustments for repair order or pack balances hanging out on the schedule. Remember, this includes your work in process (WIP) schedule. Work closely with your Service Manager to determine year-end open repair orders, which will enable you to adjust WIP to an appropriate balance, if needed. This will also prompt the Service Department to clean up any open repair orders that need to be closed!
- Determine if a used vehicle write-down is necessary to more accurately reflect inventory values at the lower of cost or net realizable value. Unfortunately, this could take on more importance this year. This is another area to review your process and make sure your sales team is not over-allowing on trades or otherwise buying inventory at higher prices.
- The scrubbing of prepaid expense accounts is always a good idea for year-end close. These account balances often grow as a catch-all as the year goes on and the pick-up of additional expenses for the year can reduce the dealership’s taxable income. Also, make sure you’re communicating and confirming to your accountant amounts the dealership paid for quarterly tax estimates as these balances often land in a prepaid account and will be needed in the preparation of the dealership’s tax return.
- Have you reported all your fixed asset additions and disposals to your accountant yet? If not, add this to your task list. Once fixed assets are fully reconciled for the year, any true-up depreciation expense adjustments can be made and any remaining tax planning can be performed. Have you reconciled construction costs to the general ledger and determined if a cost segregation study is appropriate?
- Prepare a floor plan reconciliation comparing the dealership floorplan liability balances to the floor plan finance company’s December statement. Determine if any reconciling adjustments need to be made or if there are any issues that need to be resolved. Also, be sure December floor plan interest charges have been properly accrued for. Review your process to ensure your team is getting inventory in your system so it can be sold. Also, now that interest is a bigger deal than it was previously, make certain floorplans are paid off as soon as possible.
- Accounts payable schedules and accrued liability schedules should also be deep cleaned to determine any necessary adjustments. Are there any debit balances or aged items that need to be researched? Brainstorm with your team if there are any expenses that were incurred during the year, but an invoice hasn’t been received yet and get those recorded for end of year.
- The beginning of a new year is a good time to review all standard monthly entries set up in the dealership’s DMS. Make sure your prepaid amortization and accrued liability standard monthly entries are appropriately set and contact your accountant to confirm depreciation and tax accrual standard monthly entries are also appropriate.
- January is an important month to make sure certain IRS requirements are met as well. Has the dealership filed and issued all required 1099 forms for interest, rent, payments to non-employees above $600, or payments to your attorneys? Remember, depending on the number of forms required to be filed, you may need to do so electronically this year!
- Make sure all 2023 Forms 15400 or IRS approved equivalent forms are filed by January 31, 2024.
- Plan on performing a review of cash transactions over $10,000 to ensure all required 8300 forms were filed for the year and respective customers were notified of the filing. Consider building the 8300 review and customer letter filing into the dealership’s month-end checklist.
- There should be signed demonstrator agreements with all employees using a demo vehicle. Review these agreements to make sure they are up-to-date and signed. Also, to be compliant with IRS requirements ensure employees who use a demo vehicle have had the appropriate amount of income added to their W-2.
We all want to start the new year off fresh with our eyes focused on the “road” in front of us. Consider taking some extra time to ensure the items noted above are in good working order. Contact ARB for an example of month-end and year-end checklists or to discuss your month-end and year-end closing procedures.
ARB’s Auto Dealership Advisory Services Team is actively involved in the industry and committed to helping auto dealerships maintain effective, efficient, and compliant financial operations. We want to help you create and implement strategic accounting practices that optimize daily, monthly, and annual recordkeeping and reporting procedures. If you’re ready to talk about your strategy, contact one of our dealership team members today!
Prior to joining ARB, Laura began her career in private accounting with a Maine-based auto dealership group where she developed a keen understanding of automotive accounting and issues facing the industry. She provides audit, attest, and business advisory services to auto dealerships throughout New England. Laura works closely with dealership accounting offices on a regular basis to advise on office operations and centralization, internal controls, month-end procedures, fraud investigations, and industry.
