By Juan Pena, CPA, CGMA, director in the Audit Department and Risk Advisory Practice, MBAF
No one would acquire a dealership before having performed a very thorough due diligence. But despite going through that process, it’s only after you take over operations that operational weaknesses come into sharper focus.
One of the key benchmarks is whether your office manager or controller is able to provide you with a dealer financial statement within 5- 7 business days after the end of the month. The following are a few pointers for a smoother month-end closing.
The first place to look for a broken process is the processing of deals. A common occurrence at many dealerships is that the deal jackets end up in accounting a day or two after the end of the month, which delays the process, and often many of the deal jackets are incomplete — missing the necessary paperwork to process the deal.
To make the situation worse, because during the month many of the deals come through with paperwork issues that must be resolved, the billing clerks fall further behind as the sales associates and F&I managers track down paperwork while still selling vehicles.
The first part of the solution to the paperwork problem begins at the front-end with training and enforcement, to ensure that sales and F&I managers send deals to the accounting department that are accurate and complete. There are various documents that could be missing, incorrect, or incomplete in deal folders that slow down deal processing.
Having a checklist that is manager-approved helps with completeness and accuracy. Having commission penalties for salesmen and F&I personnel that have many errors or incomplete paperwork is also a strong motivator.
Another important way to improve deal flow is to take advantage of technology. Most DMS systems now offer E-contracting solutions that will help improve accuracy and can eliminate the need to re-enter information.
Automate and Standardize Repetitive Tasks
Most DMS systems now have ways to automate repetitive tasks, from setting up recurring entries to recording depreciation on fixed assets, to automating commission calculations, and other month-end close tasks.
Calculating and posting commissions as deals are posted is the best practice, as opposed to waiting to the end of the month. Most DMS systems will calculate the commission as deals are entered, unless the commission structure is so complex that it can’t be automated. If that is the case, your office manager or controller can build templates to make the process more efficient.
Yet another example of how important a solid day to day routine can lead to a smoother month-end close process, is the vendor payment process. Invoices must be properly approved before being sent to accounting and accounting has to enter invoices as they are received each day. Waiting for month-end to enter invoices into the system is a recipe for errors.
Holding Everyone Accountable
There are two tools that are key to holding everyone accountable during the close process. The first is a monthly close schedule– Sales and F&I must know the date by which all deals must be sent to accounting to be included as part of the month, and accounting should have deadlines for posting deals, posting invoices and other month-end processes.
The second is a “Controller’s Close Checklist” that lists all key processes and who is responsible, with detailed listings, templates to be filled out, and instructions for all key tasks. Dealerships that enforce deadlines and have a solid checklist cut down close time significantly.
Have a Plan and Be Involved
Perhaps the most important key to successfully improving the timing for closing the month is having a plan, and the involvement and support from the general manager and from you as the owner since the necessary process changes will affect various processes. Commitment needs to come not only come from the office manager or controller, but also the sales and F&I managers and other managers throughout your dealership.
Another tip, talk to your external CPA and peers in your “20 group,” as both can provide you with insight on how to reduce the bottlenecks in your processes.
The typical dealership operation can reduce its close by several days by having solid processes that are followed day in and day out that include monitoring, firm deadlines, and leveraging the technology.
Juan C. Pena, CPA, CGMA, is a director in the Audit Department and Risk Advisory Practice at MBAF. His primary responsibilities include automobile dealership auditing and consulting, including operational efficiency and internal control consulting. He can be reached at firstname.lastname@example.org 1-305-377-9203