Article

The Story Your Financial Statements Tell

September 2006, Auto Dealer Today - WebXclusive

by Jeff Smelley - Also by this author

Apply for a loan or complete lender dealer agreement and you will need to furnish financial statements. What image does the person reviewing your application get of your dealership? The only information available to them is provided by you. Does it create the picture of a well managed, professional organization that is on top of its game or something far less? The importance you place on record keeping, financial reporting and internal controls impacts the financial image you project and the decisions made as a result of them. You invest heavily in advertising, signage and facilities to present a product, your dealership, which is professional and instills confidence. It is equally important to invest in the infrastructure to provide solid financial recording and reporting for your dealership.

Your financial statements are comprised of two primary reports: your balance sheet and your income statement. These reports tell a story of your dealership. Your story is a composite view of what they see and don’t see, where you have been in the past, where you are now and how you arrived there.

When automating dealerships, I am astounded at the financial statements presented from some dealers. These financials are often CPA prepared tax returns and/or dealer prepared statements from some generic accounting program like Quickbooks and are relied upon by the dealer to accurately represent their business. One such dealer’s operating balance sheet showed extremely low inventory compared to his detailed inventory report by stock number. Upon closer inspection, his CPA had subtracted the outstanding floor plan balance from his actual inventory balance on his balance sheet. The fact that two reports from the same dealer had dramatically different values for the same asset boggles the mind. The appearance to a third party was that he did not stock enough inventory to sustain his sales activity.

In another example, an internally created Income Statement showed loan payments as expenses, inventory as cost of sales and BHPH payments received as income while stating that it was accrual basis accounting. These issues required considerable effort to extract an inaccurate and murky picture of his dealership’s financial condition. More importantly, it would appear to a financial institution that both dealerships were ill managed and lacking in professionalism and foundering. A lender reviewing such a financial statement would likely dismiss the dealership without further investigation.

Investing in internal accounting controls and financial reporting pays big dividends.

Dealers that successfully invest in their financial reporting infrastructure receive better interest rates and experience greater lender confidence resulting in reduced compliance cost and quicker turn around on dealer agreement approval or loan requests. Also, the resulting financial reporting provides quality information to restructure debt, reduce overhead, improve revenue and measure performance. Managing your dealership requires much more than merely managing sales.

The infrastructure for good financial reporting is a combination of your DMS, personnel, training and management. Each component is equally important in the delivery of a quality product. The failure of any one component can compromise the end product, your financial statements. Take an objective look at each component of your current financial reporting system to determine their effectiveness. Do your employees know what you expect and therefore how to provide it? Does your DMS have the integration between accounting, sales, and service to achieve your goal? What training may be necessary to enhance your employee’s compliance with your objectives?

Armed with answers to these questions, commit the resources necessary to strengthen your financial reporting infrastructure. Finally, continue to monitor and inspect your financial report products to assure they meet your expectations.

Vol 3, Issue 7

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