Article

Getting Your Act Together - All The Pieces

October 2006, Auto Dealer Today - WebXclusive

by David Keller, CPA, CFE - Also by this author

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Last month we reviewed “The Almost Perfect Dealership” and how to achieve it. This month we will explore how your infrastructure and accounting come together to arrive at proper capitalization and financing that is needed to be the almost perfect dealership.

Without the proper policies and procedures, trained personnel and strong accounting internal controls you will not become the almost perfect dealership. The difference between dealerships that have their “act together” and those who do not is apparent to all who experience it. You can tell when you walk into the dealership, meet the personnel and conduct business.

Policies. A well-run dealership must have good, consistent and fair policies for all employees, whether it is the dealer or the lot person. More than likely, the policies will have to be updated from time-to-time due to legislative and employment issues and common sense. Take the time to put these policies in writing. An example would be establishing an employee manual, describing aspects like expected behavior from everyone, what store hours are, vacation and drug policies, workman’s compensation and overtime issues. Samples of employee manuals can easily be found on the Internet.

Procedures. You and your personnel need to know what to do when confronted with various events. For example, what is the process of a car deal from the beginning to the end? Do you have a car deal checklist that lists all possible documents the car deal jacket should include? Having all necessary documents the first time and placing them neatly in their designated order in the jacket should definitely improve efficiency and collection of contracts-in-transit. The car deal should have a defined path through the dealership that is efficient and timely. The only way the accounting department normally knows a vehicle has been sold is upon delivery of the car deal jacket or a deposit from a customer. Trying to record one without the other can lead to posting errors and delay receiving the contract proceeds or recording the car deal in the correct monthly period.

Internal Controls. There are many types of internal controls that should be instituted in dealerships. Their main purposes are ensuring all transactions are generated correctly and recorded timely and accurately by authorized individuals in the most efficient manner possible.

Without the proper controls in place, your accounting records would be a disaster. First, cash needs to be locked up at all times. The owner/dealer needs to receive the bank statement at home to ensure he or she is the first to open it. Cancelled checks should be reviewed to make sure the endorser is the same as whom the check was written to. You should also review the signatures to make sure all checks are signed by authorized personnel and made out for the correct amount and to the correct entity or person. Petty cash vouchers should be reviewed for authorized purchases or uses. You should review all EFT/ACH transfers to and from the dealership to ensure the routing numbers are from authorized sources, disbursements are for the correct amount and payments are made to authorized vendors.

Personnel. Your employees are your most important resource and asset. Without adequately trained and staffed dealerships, sales (and all that follows) will suffer. Training should be ongoing and frequent, whether it is daily or weekly sales meetings to scheduled sessions on various topics. Well-trained personnel don’t need to ask as many questions because they have already been trained how to react to various situations. Also, the hiring process is very important. You must hunt for and hire people who will adhere to the policies and procedures of the dealership, be trainable and ambitious, and have the correct attitude.

Capitalization. The infrastructure of your store is not complete unless the dealer invests the proper amount of capital in the business at start-up and on an ongoing basis as growth occurs. Therein lies the biggest problem; most businesses are started with inadequate capital investments. Proper cash flow models and projections need to be prepared, along with budgets that need to be regularly evaluated. Know the amount of capital necessary now, so you can prepare for the future. Do you have enough yourself? Do you need to attract investors to supplement your investment? If so, you need to have your “act together” to achieve this.

Financing. The key to acquiring additional financing is to have your accounting records and financial statements in order so they will make sense to a loan committee. It also helps with the loan committee’s decision if your dealership is profitable and you have invested adequate capital yourself that is at risk in the business. Why should they invest if you won’t? Additionally, you should be clear on why you need financing. Try starting with a local bank that you have previously done business with, has the ability to loan the amount you need and understands your business. Then, present a well-defined business plan.

Well, do you have your act together yet? If not, start now. Install the policies, procedures and internal controls necessary to make capitalization or financing a possibility. Hire and train the right personnel so invested funds are not wasted. As I have seen many times, poor infrastructure will waste the investments and financing obtained. Having an under capitalized dealership will not allow you to grow at the right speed, and you will “crash.” Or worse yet, you will find yourself out of business because you outgrew your infrastructure. Cash flow emergencies will always occur at the most inopportune time. Plan now, so you won’t have to experience it in the future.
 
Vol 3, Issue 9

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