{"id":91,"date":"2018-07-11T14:48:22","date_gmt":"2018-07-11T18:48:22","guid":{"rendered":"https:\/\/www.profits4dealers.com\/blog\/?p=91"},"modified":"2018-07-11T14:18:29","modified_gmt":"2018-07-11T18:18:29","slug":"improve-dealership-cash-flow-with-best-practices","status":"publish","type":"post","link":"https:\/\/www.profits4dealers.com\/blog\/?p=91","title":{"rendered":"Improve Dealership Cash Flow With Best Practices"},"content":{"rendered":"<p>Every business faces unexpected events which can strain its bank balance; the trick is to be prepared for them.\u00a0 Stop-sell orders could destroy your annual forecast for New and Used Sales.\u00a0 A tornado or a hailstorm could put a dent in your vehicle sales and tie up cash while you wait for the insurance check.\u00a0 You finally got (and paid for) all of those recall parts, now you have to find the time to install them.\u00a0 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 <strong>IT\u2019S NOT HERE YET \u2013 but everyone wants to be paid\u2014NOW!! <\/strong>\u00a0These are just a few of the potential times when all of a sudden <strong>\u201cWhere did all our cash go\u201d?<\/strong>\u00a0 The financial statement\u2019s balance sheet shows the two main areas to look for that money: <strong><em>Receivables and Inventories<\/em><\/strong>.<\/p>\n<p>When it comes to the financial statement, most managers see their role to make the profit and control the expenses. \u00a0<strong><em>Cash flow<\/em><\/strong> is low on the list of priorities; after all, isn\u2019t that accounting\u2019s responsibility?<\/p>\n<p>Actually, <strong><em>cash flow should be everyone\u2019s responsibility!<\/em><\/strong>\u00a0 On the last page of your Profit Blueprints<sup>\u00a9<\/sup> report, there is an analysis of key assets.\u00a0 Not only do we track the monthly balance, but we put it into perspective by comparing the balances to the appropriate sales accounts.\u00a0 The values highlighted in green show you how much cash, if any, is tied up in frozen assets.<\/p>\n<p>Be familiar with the schedules and the accounts that concern your department to understand where cash could potentially be hiding.\u00a0 The checklists on the following pages are for each department manager to make sure his or her accounts are always within target &#8212; and that processes are in place to keep the cash flowing.<\/p>\n<p><strong>SALES DEPARTMENT<\/strong><\/p>\n<p><strong><u>VEHICLE INVENTORIES<\/u><\/strong><\/p>\n<ul>\n<li>Review the aging of your inventory; always be looking for \u201ca sale\u201d for the older vehicles. What are we doing to sell the five (or 10) oldest vehicles?<\/li>\n<li>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.\u00a0 If that is your policy, make sure dealer trades are either sold or floor planned promptly.<\/li>\n<li>Look at your day\u2019s 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.<\/li>\n<li>Walk the lot; inspect the vehicles for faded stickers and cleanliness. Ask the question <em>\u201cif I were a potential customer, would this vehicle appeal to me?\u201d<\/em>\u00a0 Don\u2019t let \u201cugly\u201d vehicles take up space and tie up your money.<\/li>\n<\/ul>\n<p><strong>Bottom-line:<\/strong> Don\u2019t fall in love with a used vehicle and hope to sell it if it hasn\u2019t sold after 45 days.<br \/>\n<strong><em>Sell it!<\/em><\/strong> \u00a0Free up the cash and move on to a better return on your investment.<\/p>\n<p>&nbsp;<\/p>\n<p><strong><u>RECEIVABLES <\/u><\/strong><\/p>\n<p>Confirm that you will be paid before you extend credit.\u00a0 <strong><em>Review Receivables Schedules weekly and follow-up with past due amounts:<\/em><\/strong><\/p>\n<ul>\n<li><em>Customer deposits, full payments, and drafts. <\/em><\/li>\n<li><em>Finance Contract Receivables. <\/em><\/li>\n<li><em>Factory Rebates and Incentives.<\/em> These could easily get out of hand or charged back if we have sloppy paperwork.\u00a0 Clearly defined processes and continuous updates to staff will help collect and keep the factory money.<\/li>\n<li><em>Finance Reserve Receivables. <\/em>This should be reconciled when paid or the amount due is acknowledged by the finance source.\u00a0 If there is a shortage, ask the finance manager to determine why and then adjust accordingly.<\/li>\n<li><em>Service Contract\/Programs Refunds.<\/em> Any money you are expecting should be on a schedule.\u00a0\u00a0 When you refund a Customer, make sure you follow through and get your portion refunded also.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p><strong><u>SALES PROCESSES<\/u><\/strong><\/p>\n<ul>\n<li>Move the deals from Finance to Accounting quickly. Eliminate bottlenecks and monitor pending deals daily.\u00a0 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.<\/li>\n<li>Make the decision on trade-ins when the vehicle is brought into inventory. <strong><em>Retail or Wholesale<\/em><\/strong> \u2013 those are your choices.<\/li>\n<\/ul>\n<p><strong><br \/>\nSERVICE DEPARTMENT, BODY SHOP, and PARTS DEPARTMENT<\/strong><\/p>\n<p><strong><u>SERVICE DEPARTMENT<\/u><\/strong><\/p>\n<p><strong>OPEN REPAIR ORDER REPORT<\/strong><\/p>\n<p>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><em> CLOSE the Repair Order to a receivables account when the vehicle leaves the lot.<\/em> <\/strong>\u00a0This will make it a \u201cthorn in your side\u201d when it starts to age but is 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><strong><u>Receivables <\/u><\/strong><\/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 days supply target, the excess will show in green.<\/li>\n<\/ul>\n<p><strong><u>Sublet Schedule<\/u><\/strong> \u2013 Service and Body Shop<\/p>\n<p>There is nothing worse than when you have to write off a balance on the sublet schedule because when the work was done<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.\u00a0 <\/em>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><u>BODY SHOP<\/u><\/strong><\/p>\n<p><strong>OPEN REPAIR ORDER REPORT<\/strong><\/p>\n<p>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 vehicle.<\/p>\n<p><strong>RECEIVABLES<\/strong><\/p>\n<p>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><strong>PAINT AND MATERIALS<\/strong><\/p>\n<p>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<em> Paint and Material (P &amp; M)<\/em>, 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 <em>General Ledger Balance<\/em> to your <em>P &amp; M Cost of Sales for the Month<\/em>.\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><em>Do not let your paint vendor count this inventory!<\/em><\/strong><\/p>\n<p><strong><u>PARTS DEPARTMENT<\/u><\/strong><\/p>\n<p><strong>INVENTORY <\/strong><\/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 <em>General Ledger to the Parts Management Report<\/em> 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 performed 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> 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, their sales went up!\u00a0 Work towards the optimal range of around 45 &#8212; 55 days supply.<\/li>\n<li>Keep your eye on your stocking status and aging analysis from your Parts DMS Management Report. You could show the ideal days supply &#8212; only to find out 30% of the inventory is over 12 months old.\u00a0 <strong><em>Stocking Status<\/em><\/strong> (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, 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>&nbsp;<\/p>\n<p><strong>RECEIVABLES <\/strong><\/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><em> approved<\/em><\/strong> Wholesale Customers.\u00a0 Approved means 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 wary of a Customer suddenly buying more than usual &#8211; 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><strong><em>Each department manager has the responsibility to keep the cash flowing<\/em><\/strong>.\u00a0 Review your responsibilities for your department\u2019s cash flow.\u00a0 With the proper processes and continuous monitoring, the bank account will be flush and, you can focus on selling more\u00a0and controlling expenses.<\/p>\n<p>If you&#8217;d like a cash flow analysis, call us at 877.316.7418.<\/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 Stop-sell orders could destroy your annual forecast for New and Used Sales.\u00a0 A tornado or a hailstorm could put a dent in your vehicle sales and tie up cash while you wait for the insurance check.\u00a0 [&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],"tags":[],"class_list":["post-91","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"],"_links":{"self":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/91"}],"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=91"}],"version-history":[{"count":3,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/91\/revisions"}],"predecessor-version":[{"id":111,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=\/wp\/v2\/posts\/91\/revisions\/111"}],"wp:attachment":[{"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=91"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=91"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.profits4dealers.com\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=91"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}