Category Archives: Dealership Accounting

Improve Dealership Cash Flow With Best Practices

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Every business faces unexpected events which can strain its bank balance; the trick is to be prepared for them.  Stop-sell orders could destroy your annual forecast for New and Used Sales.  A tornado or a hailstorm could put a dent in your vehicle sales and tie up cash while you wait for the insurance check.  You finally got (and paid for) all of those recall parts, now you have to find the time to install them.  A significant increase in the factory Customer rebates, along with an aggressive sales campaign, could boost your sales to the point where you are stretched for cash because your profits came from factory money and IT’S NOT HERE YET – but everyone wants to be paid—NOW!!  These are just a few of the potential times when all of a sudden “Where did all our cash go”?  The financial statement’s balance sheet shows the two main areas to look for that money: Receivables and Inventories.

When it comes to the financial statement, most managers see their role to make the profit and control the expenses.  Cash flow is low on the list of priorities; after all, isn’t that accounting’s responsibility?

Actually, cash flow should be everyone’s responsibility!  On the last page of your Profit Blueprints© report, there is an analysis of key assets.  Not only do we track the monthly balance, but we put it into perspective by comparing the balances to the appropriate sales accounts.  The values highlighted in green show you how much cash, if any, is tied up in frozen assets.

Be familiar with the schedules and the accounts that concern your department to understand where cash could potentially be hiding.  The checklists on the following pages are for each department manager to make sure his or her accounts are always within target — and that processes are in place to keep the cash flowing.

SALES DEPARTMENT

VEHICLE INVENTORIES

  • Review the aging of your inventory; always be looking for “a sale” for the older vehicles. What are we doing to sell the five (or 10) oldest vehicles?
  • For new vehicle inventory, review the combination schedule that includes the inventory detail and the floor plan amount to confirm all vehicles are floor planned. For most dealerships, vehicles are floor planned.  If that is your policy, make sure dealer trades are either sold or floor planned promptly.
  • Look at your day’s supply of vehicles, either on the last page of your Profit Blueprints Report or on your own internal spreadsheet. Keep in mind handling costs and missing out on potential bargains are just two of the costs you pay if your inventory is too heavy.
  • Walk the lot; inspect the vehicles for faded stickers and cleanliness. Ask the question “if I were a potential customer, would this vehicle appeal to me?”  Don’t let “ugly” vehicles take up space and tie up your money.

Bottom-line: Don’t fall in love with a used vehicle and hope to sell it if it hasn’t sold after 45 days.
Sell it!  Free up the cash and move on to a better return on your investment.

 

RECEIVABLES

Confirm that you will be paid before you extend credit.  Review Receivables Schedules weekly and follow-up with past due amounts:

  • Customer deposits, full payments, and drafts.
  • Finance Contract Receivables.
  • Factory Rebates and Incentives. These could easily get out of hand or charged back if we have sloppy paperwork.  Clearly defined processes and continuous updates to staff will help collect and keep the factory money.
  • Finance Reserve Receivables. This should be reconciled when paid or the amount due is acknowledged by the finance source.  If there is a shortage, ask the finance manager to determine why and then adjust accordingly.
  • Service Contract/Programs Refunds. Any money you are expecting should be on a schedule.   When you refund a Customer, make sure you follow through and get your portion refunded also.

 

SALES PROCESSES

  • Move the deals from Finance to Accounting quickly. Eliminate bottlenecks and monitor pending deals daily.  The faster the deal gets to Accounting, the faster contracts are cashed; the faster the trade-ins are sold, the faster the cash gets to the bank.
  • Make the decision on trade-ins when the vehicle is brought into inventory. Retail or Wholesale – those are your choices.


SERVICE DEPARTMENT, BODY SHOP, and PARTS DEPARTMENT

SERVICE DEPARTMENT

OPEN REPAIR ORDER REPORT

This report could easily hide thousands of dollars of potential cash or potential write-offs.  Keep this report clean by closing Repair Orders promptly.  If not paid in full, CLOSE the Repair Order to a receivables account when the vehicle leaves the lot.  This will make it a “thorn in your side” when it starts to age but is better than the labor and parts sitting on a report that few people review.  Open Repair Orders should have a vehicle on your lot; verify this at the end of every month.

SCHEDULES

Receivables

  • Confirm that you will be paid before you extend credit. This includes Extended Service Contract companies.
  • Warranty Claims Schedule. Clearly defined processes and continuous training of staff will help collect and keep the warranty money.  The last page of your Profit Blueprints report tracks your Warranty Receivables in relation to your warranty sales.  If you are above the days supply target, the excess will show in green.

Sublet Schedule – Service and Body Shop

There is nothing worse than when you have to write off a balance on the sublet schedule because when the work was done, you thought you were going to be paid for it…then something slipped through the cracks and now you have to write off a balance.  Compare the Sublet Schedule to the Open Repair Order report every few weeks to make sure the two are in sync.  Shore up your sublet processes when you see a problem.

BODY SHOP

OPEN REPAIR ORDER REPORT

To free up cash and avoid potential write-offs, close Repair Orders when the vehicle is delivered to the Customer, don’t wait until the end of the month.  Open Repair Orders should have a vehicle on your lot; verify this at the end of the month by touching every vehicle.

RECEIVABLES

The Body Shop should have a receivables schedule separate from the other departments.  The only balances on this schedule should be for Insurance companies you have a Direct Repair Agreement with; all other repairs need to be paid-in-full before the vehicle leaves the Body Shop.  Deposit Customers’ checks in accordance with your dealership’s policy.  Do all of this and you will have a picture perfect schedule.

PAINT AND MATERIALS

Because most paint suppliers deliver requested materials within hours of a request, there is little reason to stock more than a month’s supply.  If your financial statement’s balance sheet doesn’t breakout Paint and Material (P & M), we don’t analyze it on your report unless the inventory balance is supplied by your Controller.  Calculate your P & M supply of inventory by comparing your General Ledger Balance to your P & M Cost of Sales for the Month.  (Sales – Gross Profit = Cost of Sale)  Ideally, the inventory value will be around the average Cost of Sale.  Reconcile the General Ledger balance to the physical Paint and Material balance every month.  Do not let your paint vendor count this inventory!

PARTS DEPARTMENT

INVENTORY

The Parts Department is special because, even though the parts inventory can range from hundreds of thousands of dollars to several millions of dollars, there is no Accounting schedule to confirm that the General Ledger balance is accurate.

  • We recommend a monthly reconciliation of the General Ledger to the Parts Management Report to watch for growing gaps, but this does not assure that all the parts are on the shelves. Perpetual inventories (done 3 – 4 times a year) plus a physical inventory performed by an outside company should confirm all parts are present and accounted for 99% of the time.
  • Watch the days of supply as calculated on your Profit Blueprints© 30 days is too skinny while over 60 days may raise a red flag.  Parts managers will confirm when they got off the 30-day supply and stocked more parts, their sales went up!  Work towards the optimal range of around 45 — 55 days supply.
  • Keep your eye on your stocking status and aging analysis from your Parts DMS Management Report. You could show the ideal days supply — only to find out 30% of the inventory is over 12 months old.  Stocking Status (Normal or Active) is another indicator of the quality of your inventory with a target of 70%+ for most franchises.
  • Do everything you can to minimize Special Order Parts. If the part(s) could be here tomorrow, hold the vehicle.  If it is a Customer Pay Part, the part(s) needs to be pre-paid.  If it is a warranty part(s), the Customer has to confirm an appointment before the part is ordered.  If we saw those Special Order Parts sitting on shelves as hundred dollar bills, we’d do what we could to get them to the bank.

 

RECEIVABLES

The Parts Department should have a receivables schedule separate from the other departments.  The only balances on this schedule should be for approved Wholesale Customers.  Approved means you also have on file a complete credit application and, if appropriate, a sales tax exemption number.  Only extend credit to companies who have good references, continuously pay on time, and have a low percentage of returns.  Being wary of a Customer suddenly buying more than usual – this may indicate they have been cut off from other vendors—or it could mean you are doing a great job!  The Parts Department should be vigilant for Customers who drag their feet on paying.  By the third week of the month, most wholesale accounts should reflect only current purchases.

Each department manager has the responsibility to keep the cash flowing.  Review your responsibilities for your department’s cash flow.  With the proper processes and continuous monitoring, the bank account will be flush and, you can focus on selling more and controlling expenses.

If you’d like a cash flow analysis, call us at 877.316.7418.

 

Service, Body Shop and Parts Departments Cash Flow

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Every business faces unexpected events which can strain its bank balance; the trick is to be prepared for them.  You finally got (and paid for) all of those recall parts, now you have to find the time to install them and wait for the factory to pay you.  A tornado or a hailstorm overwhelmed your Body Shop; you worked overtime to get the vehicles repaired, while you wait on insurance checks.  You were offered a fantastic buy on tires, but you can’t sell them all in one week.  These are just a few of the potential times when all of a sudden, “Where did all our cash go?”  The financial statement’s balance sheet shows the two main areas to look for that money – Receivables and Inventories.

When it comes to the financial statement, most managers see their role to make the profit and control the expenses. Cash flow is low on the list of priorities, after all, isn’t that accounting’s responsibility? Actually, cash flow should be everyone’s responsibility. For subscribers to the Profit Blueprints© system we analyze key accounts to save you time in monitoring your asset accounts. Not only do we track the monthly balance; we put it into perspective by comparing the balances to the appropriate sales accounts and show you how much cash, if any, is tied up in frozen assets.

To keep frozen assets in check, be familiar with the schedules and the accounts to understand where cash could potentially be hiding.

SERVICE DEPARTMENT

OPEN REPAIR ORDER REPORT.  This report could easily hide thousands of dollars of potential cash or potential write-offs.  Keep this report clean by closing Repair Orders promptly.  If not paid in full, close the Repair Order to a receivables account when the vehicle leaves the lot.  This will make it a “thorn in your side” when it starts to age and is   better than the labor and parts sitting on a report that few people review.  Open Repair Orders should have a vehicle on your lot; verify this at the end of every month.

SCHEDULES

Receivables

  • Confirm that you will be paid, before you extend credit. This includes Extended Service Contract companies.
  • Warranty Claims Schedule. Clearly defined processes and continuous training of staff will help collect and keep the warranty money.  The last page of your Profit Blueprints report tracks your Warranty Receivables in relation to your warranty sales.  If you are above the day’s supply target, the excess will show in green.

Sublet Schedule – Service and Body Shop

There is nothing worse then when you have to write off a balance on the sublet schedule because when the work was done – you thought you were going to be paid for it…then something slipped through the cracks and now you have to write off a balance.  Compare the Sublet Schedule to the Open Repair Order report every few weeks to make sure the two are in sync.  Shore up your sublet processes when you see a problem.

BODY SHOP

OPEN REPAIR ORDER REPORT   To free up cash and avoid potential write-offs, close Repair Orders when the vehicle is delivered to the Customer, don’t wait until the end of the month.  Open Repair Orders should have a vehicle on your lot; verify this at the end of the month by touching every one.

RECEIVABLES  The Body Shop should have a receivables schedule separate from the other departments.  The only balances on this schedule should be for Insurance companies you have a Direct Repair Agreement with; all other repairs need to be paid-in-full before the vehicle leaves the Body Shop.  Deposit Customers’ checks in accordance with your dealership’s policy.  Do all of this and you will have a picture perfect schedule.

PAINT AND MATERIALS  Because most paint suppliers deliver requested materials within hours of a request, there is little reason to stock more than a month’s supply.  If your financial statement’s balance sheet doesn’t breakout Paint and Material (P & M), we don’t analyze it on your report unless the inventory balance is supplied by your Controller.  Calculate your P & M supply of inventory by comparing your General Ledger Balance to your P & M Cost of Sales for the Month.  (Sales – Gross Profit = Cost of Sale)  Ideally, the inventory value will be around the average Cost of Sale.  Reconcile the General Ledger balance to the physical Paint and Material balance every month.  Do not let your paint vendor count this inventory!  And don’t let them place an order for you.

PARTS DEPARTMENT

INVENTORY

The Parts Department is special because even though the parts inventory can range from hundreds of thousands of dollars to several millions of dollars, there is no Accounting schedule to confirm that the General Ledger balance is accurate.

  • We recommend a monthly reconciliation of the General Ledger to the Parts Management Report to watch for growing gaps, but this does not assure that all the parts are on the shelves. Perpetual inventories, done 3 – 4 times a year, plus a physical inventory done by an outside company should confirm all parts are present and accounted for, 99% of the time.
  • Watch the days of supply as calculated on your Profit Blueprints© Report. 30 days is too skinny, while over 60 days may raise a red flag.  Parts managers will confirm when they got off the 30-day supply and stocked more parts – their sales went up!  Work towards the optimal range of around 45 – 55 days of supply.
  • Keep your eye on your stocking status and aging analysis from your Parts’ DMS Management Report. You could show the ideal days of supply, only to find out 30% of the inventory is over 12 months old.  Stocking Status (Normal or Active) is another indicator of the quality of your inventory with a target of 70%+ for most franchises.
  • Do everything you can to minimize Special Order Parts. If the part(s) could be here tomorrow – hold the vehicle.  If it is a Customer Pay Part, the part(s) needs to be pre-paid.  If it is a warranty part(s), the Customer has to confirm an appointment before the part is ordered.  If we saw those Special Order Parts sitting on shelves as hundred dollar bills, we’d do what we could to get them to the bank.

RECEIVABLES

The Parts Department should have a receivables schedule separate from the other departments.  The only balances on this schedule should be for approved Wholesale Customers.  Approved mean you also have on file a complete credit application and, if appropriate, a sales tax exemption number.  Only extend credit to companies who have good references, continuously pay on time and have a low percentage of returns.  Being weary of a Customer suddenly buying more than usual, this may indicate they have been cut off from other vendors—or it could mean you are doing a great job!  The Parts Department should be vigilant for Customers who drag their feet on paying.  By the third week of the month, most wholesale accounts should reflect only current purchases.

Each department manager has the responsibility to keep the cash flowing.  Review your responsibilities for your department’s cash flow.  With good processes and continuous monitoring, the bank account will be flush and you can focus on selling more and controlling expenses.

 

 

 

 

 

Vehicle Sales Department’s Cash Flow

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Every business faces unexpected events which can strain its bank balance; the trick is to be prepared for them. Stop-sell orders could destroy your annual forecast for new and used sales. A tornado or a hailstorm could put a dent in your vehicle sales, and tie up cash while you wait for the insurance check. A significant increase in the factory Customer rebates, along with an aggressive sales campaign, could boost your sales to the point where you are stretched for cash because your profits came from factory money and, IT’S NOT HERE YET – but everyone wants to be paid—NOW! These are just a few of the potential times when all of a sudden, “Where did all our cash go?” The financial statement’s balance sheet shows the two main areas to look for that money – Receivables and Inventories.

When it comes to the financial statement, most managers see their role to make the profit and control the expenses. Cash flow is low on the list of priorities, after all, isn’t that accounting’s responsibility? Actually, cash flow should be everyone’s responsibility. For subscribers to the Profit Blueprints© system we analyze key accounts to save you time in monitoring your asset accounts. Not only do we track the monthly balance; we put it into perspective by comparing the balances to the appropriate sales accounts and show you how much cash, if any, is tied up in frozen assets.

To keep frozen assets in check, be familiar with the schedules and the accounts to understand where cash could potentially be hiding.

VEHICLE INVENTORIES

• Review the aging of your inventory, always be looking for “a sale” for the older vehicles. What are we doing to sell the five (or 10) oldest vehicles?

• For new vehicle inventory, review the combination schedule that includes the inventory detail and the floor plan amount to confirm all vehicles are floor planned. For most dealerships, vehicles are floor planned. If that is your policy, make sure dealer trades are either sold or floor planned promptly.

• Look at your day’s supply of vehicles, either on the last page of your Profit Blueprints Report or on your own internal spreadsheet. Keep in mind handling costs and missing out on potential bargains are just two of the costs you pay if your inventory is too heavy.

• Walk the lot; inspect the vehicles for faded stickers and cleanliness. Ask the question, “If I were a potential customer, would this vehicle appeal to me?” Don’t let “ugly” vehicles take up space and tie up your money.

•When short of cash – floor all of the used vehicles that you can, then pay them off when you get caught up in the bank.

Bottom-line: Don’t fall in love with a used vehicle and hope to sell it, if it hasn’t sold after 45 days. Sell it, free up the cash and move on to a better return on your investment.

RECEIVABLES

Confirm that you will be paid, before you extend credit. Review the following Receivables Schedules weekly and follow-up with past due amounts.
 Customer deposits, full payments and drafts
 Finance Contract Receivables
 Factory Rebates and Incentives. These could easily get out of hand or charged back if we have sloppy paper work. Clearly defined processes and continuous updates to staff will help collect and keep the factory money.
 Finance Reserve Receivables. This should be reconciled when paid or the amount due is acknowledged by the finance source. If there is a shortage, ask the finance manager to determine why and then adjust accordingly.
 Service Contract/Programs Refunds. Any money you are expecting should be on a schedule. When you refund a Customer, make sure you follow through and get your portion refunded also.

SALES PROCESSES

• Move the deals from Finance to Accounting quickly. Eliminate bottlenecks and monitor pending deals daily. The faster the deal gets to Accounting, the faster contracts are cashed, the faster the trade-ins are sold, and the faster the cash gets to the bank.

• Make the decision on trade-ins when the vehicle is brought into inventory. Retail or Wholesale – those are your choices.

Each department manager has the responsibility to keep the cash flowing. Review your responsibilities for your department’s cash flow. With good processes and continuous monitoring, the bank account will be flush and you can focus on selling more vehicles and controlling expenses.