{"id":23,"date":"2016-09-08T08:36:41","date_gmt":"2016-09-08T12:36:41","guid":{"rendered":"https:\/\/www.profits4dealers.com\/blog\/?p=23"},"modified":"2016-09-07T15:53:51","modified_gmt":"2016-09-07T19:53:51","slug":"service-body-shop-and-parts-departments-cash-flow","status":"publish","type":"post","link":"https:\/\/www.profits4dealers.com\/blog\/?p=23","title":{"rendered":"Service, Body Shop and Parts Departments Cash Flow"},"content":{"rendered":"<p>Every business faces unexpected events which can strain its bank balance; the trick is to be prepared for them.\u00a0 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. \u00a0A tornado or a hailstorm overwhelmed your Body Shop; you worked overtime to get the vehicles repaired, while you wait on insurance checks. \u00a0You were offered a fantastic buy on tires, but you can\u2019t sell them all in one week. \u00a0These are just a few of the potential times when all of a sudden, \u201cWhere did all our cash go?\u201d\u00a0 The financial statement\u2019s balance sheet shows the two main areas to look for that money &#8211; Receivables and Inventories.<\/p>\n<p>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\u2019t that accounting\u2019s responsibility? Actually, cash flow should be everyone\u2019s responsibility. For subscribers to the Profit Blueprints\u00a9 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.<\/p>\n<p>To keep frozen assets in check, be familiar with the schedules and the accounts to understand where cash could potentially be hiding.<\/p>\n<p><strong>SERVICE DEPARTMENT<\/strong><\/p>\n<p><em><strong>OPEN REPAIR ORDER REPORT<\/strong><\/em>.\u00a0 This report could easily hide thousands of dollars of potential cash or potential write-offs.\u00a0 Keep this report clean by closing Repair Orders promptly.\u00a0 If not paid in full, <strong>close the Repair Order to a receivables account when the vehicle leaves the lot. <\/strong>\u00a0This will make it a \u201cthorn in your side\u201d when it starts to age and is\u00a0\u00a0 better than the labor and parts sitting on a report that few people review.\u00a0 Open Repair Orders should have a vehicle on your lot; verify this at the end of every month.<\/p>\n<p><strong>SCHEDULES<\/strong><\/p>\n<p><em><strong>Receivables <\/strong><\/em><\/p>\n<ul>\n<li>Confirm that you will be paid, before you extend credit. This includes Extended Service Contract companies.<\/li>\n<li>Warranty Claims Schedule. Clearly defined processes and continuous training of staff will help collect and keep the warranty money.\u00a0 The last page of your Profit Blueprints report tracks your Warranty Receivables in relation to your warranty sales.\u00a0 If you are above the day\u2019s supply target, the excess will show in green.<\/li>\n<\/ul>\n<p><em><strong>Sublet Schedule \u2013 Service and Body Shop<\/strong><\/em><\/p>\n<p>There is nothing worse then when you have to write off a balance on the sublet schedule because when the work was done \u2013 <em>you thought you were going to be paid for it\u2026then something slipped through the cracks and now you have to write off a balance<\/em>.\u00a0 Compare the Sublet Schedule to the Open Repair Order report every few weeks to make sure the two are in sync.\u00a0 Shore up your sublet processes when you see a problem.<\/p>\n<p><strong>BODY SHOP<\/strong><\/p>\n<p><em><strong>OPEN REPAIR ORDER REPORT \u00a0\u00a0<\/strong><\/em>To free up cash and avoid potential write-offs, close Repair Orders when the vehicle is delivered to the Customer, don\u2019t wait until the end of the month.\u00a0 Open Repair Orders should have a vehicle on your lot; verify this at the end of the month by touching every one.<\/p>\n<p><em><strong>RECEIVABLES<\/strong>\u00a0<\/em> The Body Shop should have a receivables schedule separate from the other departments.\u00a0 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.\u00a0 Deposit Customers\u2019 checks in accordance with your dealership\u2019s policy.\u00a0 Do all of this and you will have a picture perfect schedule.<\/p>\n<p><em><strong>PAINT AND MATERIALS<\/strong>\u00a0<\/em> Because most paint suppliers deliver requested materials within hours of a request, there is little reason to stock more than a month\u2019s supply.\u00a0 If your financial statement\u2019s balance sheet doesn\u2019t breakout Paint and Material (P &amp; M), we don\u2019t analyze it on your report unless the inventory balance is supplied by your Controller.\u00a0 Calculate your P &amp; M supply of inventory by comparing your General Ledger Balance to your P &amp; M Cost of Sales for the Month.\u00a0 (Sales \u2013 Gross Profit = Cost of Sale)\u00a0 Ideally, the inventory value will be around the average Cost of Sale.\u00a0 Reconcile the General Ledger balance to the physical Paint and Material balance every month. \u00a0<strong>Do not let your paint vendor count this inventory! \u00a0And don&#8217;t let them place an order for you.<\/strong><\/p>\n<p><strong>PARTS DEPARTMENT<\/strong><\/p>\n<p><em><strong>INVENTORY<\/strong><\/em><\/p>\n<p>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.<\/p>\n<ul>\n<li>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 \u2013 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.<\/li>\n<li>Watch the days of supply as calculated on your Profit Blueprints<sup>\u00a9<\/sup> Report. 30 days is too skinny, while over 60 days may raise a red flag.\u00a0 Parts managers will confirm when they got off the 30-day supply and stocked more parts \u2013 their sales went up!\u00a0 Work towards the optimal range of around 45 &#8211; 55 days of supply.<\/li>\n<li>Keep your eye on your stocking status and aging analysis from your Parts\u2019 DMS Management Report. You could show the ideal days of supply, only to find out 30% of the inventory is over 12 months old. \u00a0<u>Stocking Status<\/u> (Normal or Active) is another indicator of the quality of your inventory with a target of 70%+ for most franchises.<\/li>\n<li>Do everything you can to minimize Special Order Parts. If the part(s) could be here tomorrow \u2013 hold the vehicle.\u00a0 If it is a Customer Pay Part, the part(s) needs to be pre-paid.\u00a0 If it is a warranty part(s), the Customer has to confirm an appointment before the part is ordered.\u00a0 If we saw those Special Order Parts sitting on shelves as hundred dollar bills, we\u2019d do what we could to get them to the bank.<\/li>\n<\/ul>\n<p><em><strong>RECEIVABLES<\/strong><\/em><\/p>\n<p>The Parts Department should have a receivables schedule separate from the other departments.\u00a0 The only balances on this schedule should be for <strong>approved<\/strong> Wholesale Customers.\u00a0 Approved mean you also have on file a complete credit application and, if appropriate, a sales tax exemption number.\u00a0 Only extend credit to companies who have good references, continuously pay on time and have a low percentage of returns.\u00a0 Being weary of a Customer suddenly buying more than usual, this may indicate they have been cut off from other vendors\u2014or it could mean you are doing a great job!\u00a0 The Parts Department should be vigilant for Customers who drag their feet on paying.\u00a0 By the third week of the month, most wholesale accounts should reflect only current purchases.<\/p>\n<p>Each department manager has the responsibility to keep the cash flowing.\u00a0 Review your responsibilities for your department\u2019s cash flow.\u00a0 With good processes and continuous monitoring, the bank account will be flush and you can focus on selling more and controlling expenses.<\/p>\n<p>&nbsp;<\/p>\n<p><strong>\u00a0<\/strong><\/p>\n<p><strong>\u00a0<\/strong><\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Every business faces unexpected events which can strain its bank balance; the trick is to be prepared for them.\u00a0 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. \u00a0A tornado or a hailstorm overwhelmed your [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[13,5,8,9,7,11,6,1],"tags":[15,14,21,16,22,17,4,20,19],"class_list":["post-23","post","type-post","status-publish","format-standard","hentry","category-dealership-accounting","category-dealership-balance-sheet","category-dealership-best-practices","category-dealership-body-shop","category-dealership-parts-department","category-dealership-sales-department","category-dealership-service-department","category-general","tag-balance-sheet","tag-best-practices","tag-cash-flow","tag-days-supply","tag-frozen-assets","tag-parts-inventory","tag-profit-blueprints","tag-receivables","tag-work-in-process"],"_links":{"self":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/23"}],"collection":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=23"}],"version-history":[{"count":2,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/23\/revisions"}],"predecessor-version":[{"id":25,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/23\/revisions\/25"}],"wp:attachment":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=23"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=23"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=23"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}