The final quarter of the year signals a few things for auto dealership owners, management, and their accounting departments. Unfortunately, for many reasons, the summer months are now in our rearview mirror. But the beginning of fall ushers in the time for significant tax planning, preparation efforts, and bookkeeping practices in support of an efficient year-end close. As the leader of your accounting office, the accuracy, completeness, and reliability of the dealership’s financial information should be your top priority and that includes training, coaching, and supervising your staff to have the same goals as well. It should also include working closely with other department managers to ensure your team has all the information they need to meet those goals.
Accurate, complete, and reliable financial statements and financial information are not only needed and expected by the dealership owners, management team, and manufacturers, but also the dealership’s bankers, investors, and CPAs to ensure timely and wise decisions and advice can be made. If you haven’t been using the following bookkeeping practices on a regular basis, it’s not too late!
The trial balance is key.
As the home to both the balance sheet and the income statement, the trial balance is the core of your dealership’s financial statements. Too often, month-end can consist of only a review of the dealer factory financial statements and not a review of the full trial balance, which shows each general ledger account balance. Are you aware of and do you understand the use of every general ledger account on the trial balance and where it flows to on the dealer factory financial statements? Are you confident each balance sheet account is supported by a reconciliation, schedule, or supporting statement? Do you request them from your team? Are there accounts that are falling through the cracks in your month-end closing procedures? When preparing to close this month, print out the trial balance and go from top to bottom asking yourself these questions to enhance your month-end closing processes and checklists. Find and correct any neglected accounts before someone outside your accounting office does!
Require reconciliations and effective schedules.
I think reconciliations are fun… like solving a puzzle! (says the CPA). But, even if puzzles are not your favorite pastime, reconciliations are important. They help you effectively ensure account accuracy and completeness by comparing general ledger account balances to another source document like bank statements, floorplan statements, or finance reserve statements, etc. Don’t just compare the monthly activity to the source document; reconcile the source document to the final general ledger balance. Differences between the general ledger balances and these source documents are known as reconciling items. If your reconciling items are unknown or simply plugs, you have some digging to do and possibly some corrections to make. If journal entries are made subsequent to the reconciliation, remember to update your final reconciliation so it agrees to your final trial balance.
Yep, you guessed it… schedules can be fun and effective too! Set aside time to take inventory of the schedules you have at your fingertips and identify any accounts that aren’t scheduled and should be. When accounts are not scheduled, it is too easy to lose sight of the details. But, by scheduling the account you get a clearer vision of what’s behind your general ledger balances. Ask yourself if the schedule is giving you all the information you need to properly analyze the account balance. For instance, does this receivable schedule provide me effective aging detail? Or would it be more useful to my team to have the inventory schedules with side-by-side pack liability amounts? And most importantly, is there someone who is assigned to be responsible for reviewing and cleaning each schedule? Use this review to determine whether these duties are built into your month-end and year-end closing checklists and whether your team members know their respective responsibilities.
Scrub those schedules. It makes a difference.
You knew I would bring up this topic…..the review and cleaning of schedules. Whether it’s debits and credits that don’t belong, ensuring appropriate aging that aligns with payment expectations, identifying uncollectible items, or writing off small variances hanging on the schedule, it’s all part of properly reviewing and cleaning the dealership’s schedules. And it should be done often. When you are in tune with every account at the micro level, which the schedule provides, you can quickly resolve issues and create opportunities to improve accounting office procedures. Cleaning schedules is more than just staying organized, it’s an opportunity for you to help keep cash flowing into the dealership as quickly as possible. We all love cash, and dealers are no exception!
Let’s say you are reviewing schedules and you see a $30,000 CIT that has been outstanding for 23 days or a $5,750 rebate that is 63 days aged. These aged receivables would be considered frozen capital because the cash has not been received by the dealer and is no use to them at the present time. The accounting team can be the difference between frozen cash and liquid cash. By monitoring schedules daily or multiple times a week, you can find issues faster and can take the appropriate actions.
There are a lot of moving parts in a dealership’s operations, and one of the challenges accounting offices face is the need to distribute information to management and other responsible parties and holding them accountable for their respective duties. An excellent remedy is distributing daily or weekly “Hot Sheets.” These sheets could display aged and outstanding items like rebates, CITs, CODs, and any other relevant requests for information needed or actions to be taken. Cloud-based distribution is ideal, as management has a transparent view of what’s out there and the ability to make notes and changes in real-time and from any location.
The review of schedules also provides you with checks and balances for compliance. For example, dealerships are bound to their respective state’s abandoned property laws, so you have to keep tabs on your aged outstanding checks, vehicle deposits, etc. These state laws often require the dealership to make an effort to contact the payee and remit funds according to a strict schedule. Check out your state’s abandoned property law page to make sure you are compliant before writing off uncashed checks and customer deposits.
Expense review and more!
Expenses are commonly reviewed heavily by the management team at the end of each month through a review of the dealer factory financial statements. Prior to remitting the factory financial statements to management is an excellent time to perform a deeper expense analysis to remedy issues like misclassification of expenses and posting errors. Take the time to compare all expense balances for the month to the average monthly expense. Let’s say your supplies expense for August is $8,000, but your average monthly expense for the year is $3,000. Through your analysis you’ve noted a sizable and unexpected increase. Now you can dig deeper for the “why” that will either explain the discrepancy or alert you to an issue that needs to be addressed. Find issues or prepare yourself and your team to respond to questions from those reviewing the statements in an efficient and effective way. Better yet, proactively call a meeting to discuss with the management team. Show them you’ve done your homework!
Finding and researching anomalies can help you stay ahead of possible issues. For example, in performing a proactive review, you may find a purchase above your capitalization policy that was expensed to repairs and maintenance and should have been capitalized to the balance sheet and depreciated over time. And while we are on this subject, it is not uncommon for a dealership’s CPA to maintain the fixed asset records for the dealership. Now is a great time to communicate to the CPA any current year fixed asset additions and disposals. This will begin the reconciliation process between your general ledger fixed asset cost and accumulated depreciation accounts with their records. Doing this now will save time when tax planning and year-end closing procedures are heating up.
This time of year is also good to analyze expenses and their respective vendors. Is it time to shop around for better service with a cost savings? Doing this analysis now may start the dealership’s New Year off with new and improved service agreements and vendor relationships.
While you are mastering expense analysis, remember to review your sales and cost of sales general ledger account detail for the month and year. Review these accounts for any unusual postings or items outside your expectations. Combining this review with a review of gross profit margins compared to prior month’s margins and other expectations will help you achieve your goals of keeping the dealership’s books as accurate, complete, and reliable.
As a Team Leader for ARB’s Auto Dealership Advisory Services Team, I am actively involved in the industry and committed to helping auto dealerships maintain effective, efficient, and compliant financial operations. I want to help you create and implement strategic bookkeeping practices that optimize your daily, monthly, and annual recordkeeping and reporting procedures. If you’re ready to talk about your strategy, contact me today!
Laura Everett is a principal at ARB. She provides accounting, attest, tax, and business advisory services primarily to auto dealerships, credit unions, and buy here/pay here finance companies. 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 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 and legislative updates.