Good Financial Information

by: Stephan King, CPA

There are a number of ways to improve your confidence in the information you are receiving.

As I mentioned in my last article, “10 Secrets to Dealership Financial Success,” one common characteristic of successful dealers is keen business acumen. Successful dealers are able to make timely decisions about their businesses with confidence. I would suggest financial success is not accidental.

Often dealers can remain profitable without reliable and timely financial information. When times are good, as they have been over the last few years, dealers will just get by with what they can get from the business office. However, when faced with leaner times, dealers can make critically flawed decisions that can take years to overcome.

How do you know if you are getting good financial information?

One way to determine the reliability of your internally generated financial information is to determine the number of adjustments your accountant is recommending at the end of a year.

The real measurement would be in the amount of and frequency of adjustments, not in a specific number of adjustments. In addition, do the adjustments significantly affect your bottom line? Are you surprised with your profitability after the accountant has made adjustments? If you are, you probably have a significant problem.

There are a number of ways to improve your confidence in the information you are receiving monthly ornpreferably daily. The components are divided into several areas:
• Data Integrity
• Technology Integration
• People

Let’s explore these critical areas of your dealership. Can you answer these questions with confidence? If you cannot, are you getting what you expect from your business office? Why not?

DATA INTEGRITY
In any business, financial data integrity is necessary. The old adage applies “garbage in – garbage out.” In a dealership, lack of data integrity can have disastrous results. Cash flow management is at a premium in dealerships. If you are surprised by unexpected cash drains, it can take months to recover. Successful dealers are “on top” of their dealerships and their cash.

They are not surprised by activity in their dealerships. They plan for results and monitor their success against their plan. Here are some tips to improve the reliability of your financial data:

• Cash: Reconcile cash accounts within five days from month end. In the electronic age, it is not necessary to wait until you receive the bank statement before reconciling. Most banks will allow access to this information daily. If there are adjustments, investigate them thoroughly.

• Contracts in Transit: Check the aging of contracts daily. Run a report and investigate deals outstanding more than seven days. At the end of the month, reconcile the contracts outstanding to the general ledger.

• Inventory: Reconcile RV inventory on your lot to the general ledger, daily. Also, reconcile your parts to the general ledger monthly. Thoroughly investigate discrepancies and resolve them to your satisfaction.

• Flooring: Reconcile your inventory to your flooring. Make sure vehicles are properly charged against your flooring line. Likewise, make sure to pay for vehicles in a timely manner.

• Budgets: Use budgets as a way to locate discrepancies in your financial data. Compare budgets to actual results and investigate significant variances.

TECHNOLOGY INTEGRATION
Data integrity is directly linked to the sophistication level of your electronic accounting system. There are a number of “off the shelf ” accounting packages designed for small and medium sized businesses. These packages are generic in their adaptability to businesses and are not RV dealership specific. As a result, they generally are inexpensive. There are a number of integrated accounting software programs designed for automobile dealerships which can have some application in the RV world. They trend toward the more expensive level.

Lastly, there are also ones specifically designed for RV dealerships. Often these programs are somewhere in the middle from a price perspective. The business office’s ability to utilize the capabilities of your software can have a tremendous impact on the reliability of your financial data. Accounting software packages run the gamut of complexity and cost. As a result, dealers must seek balance between the cost of an accounting software package and the benefits gained by the dealership.

Most dealership specific software have standardized management reports or schedules. These reports are tools to monitor the integrity of your financial data. Use reports to review performance and monitor budgets to actual results. These are the type of reports you can use to improve the integrity of your financial data:

• Contracts in Transit: Scan the contract in transit schedule for contracts over seven days old. Investigate aged contracts immediately.

• New and Used Inventory: Review inventory schedules for old or aged inventory and inventory without flooring. Also, scan the schedule for very large or very small inventory items.

• Parts Inventory: Use parts management reports to reconcile to the general ledger. Review all reconciling items for reasonableness. Also, pull the pending parts ticket report to determine whether customers (both internal and external) have been properly charged for parts. The dealer should investigate discrepancies and review adjustments for appropriateness.

• Custom: Most dealership specific software offers report writer capabilities as a feature in their systems. Design custom reports to analyze almost any aspect of your dealership. The custom report function is an effective tool for improved data integrity. However, your ability to maximize the benefits of the system will be limited to the quality of your business office staff.

PEOPLE
Data integrity and technology integration, which leads to having good financial information, is always a function of the competencies of your business office personnel. They have the primary responsibility for recording, monitoring, reconciling and verifying the financial information of your dealership. Your success at obtaining sound financial information will be directly impacted by the skills of your office staff.

Like software, people and skill sets also run the gamut, from those who have on the job training, to those with formal training plus on the job experience. The relative profitability of your dealership can be impacted by overhead related to the office function. However, most successful dealers hire people who have been successful in other jobs.

They are cognizant of the cost of hiring experience. However, they usually hire based on skills, experience, or intangible characteristics and not cost. Measure competency of your office personnel against the benchmarks outlined above. Does your accountant prepare a large number or amount of adjustments at the end of the year? Is the reconciliation of your accounts timely? How accurate and clean are your schedules and reports? Are you able to meet forecasts and if not, do you know why?

Good financial information is something all dealerships should expect. Can you make improvements or changes in one or more areas to obtain the integrity, timeliness, and usability you want for your dealership?

Stephan King is a certified public accountant and partner of Moss Adams LLP. Moss Adams serves over 400 dealerships nationwide, ranging in size from single-point stores to large mega dealerships and publicly held groups, providing creative solutions to clients’ complex issues. For more information, please contact them at (800) 905-4010 or visit their website at www.mossadams.com.