5 Dealership Accounting Processes to Consider
When it comes to running a successful automotive or commercial truck dealership, accounting is a critical component that can make or break your business. From managing cash flow to tracking inventory, there are various accounting processes that must be executed efficiently to ensure your dealership’s financial stability. Periodically, it’s important to evaluate your accounting processes and see if there are any practices that can be revamped to work more efficiently. Here are five practices to adopt when revisiting your current procedures.
1. Convert From Manual to Digital with an Automated Payment System
Eliminating paper from your dealership may seem like an impossible task, however, many documents can be digitized. Multiple dealerships have transferred their paper processes to automation to help lower expenses, be more eco-friendly and increase efficiency. Electronic document management systems can help with the creation, storage and management of electronic files for dealerships, while saving the time it would take to edit the documents manually.
Another manual process that should be converted to digital is paper-based processes to manage accounts payable. An automated accounts payables (AP) system can help dealerships streamline the payables process by eliminating time and costs. An automated AP system provides more security, greater efficiency, lower cost and the ability to capture early payment discounts. Invoices are scanned in and posted automatically to the AP system based on the purchase or invoice number. The reviewer then just needs to make sure everything matches, approve the payment if it does, then the invoice is paid electronically based on the payment terms negotiated by the vendor.
2. Speed Up Bank Reconciliations by Completing them Daily
Dealerships should consider daily reconciliations instead of waiting until the end of the month to reconcile their bank accounts. Daily reconciliations can create positive benefits for your dealership, such as, catching contracts in transit that have been cashed but not recorded and speeding up monthly closings. Dealerships can determine if purchasing software that reads bank records every day, matches outstanding checks that have cleared automatically and updates the payables check files are worth it or not. One thing is for certain, without regular reconciliation reviews, errors and fraud can go undetected and poor management decisions can be made on faulty data.
3. Start Streamlining Monthly Closings Earlier
Most dealerships are required to send their monthly financial statement to the factory no later than the 10th day of the following month. However, they generally do not begin the month-end closing process until a few days before the end of the month since they need the month-end numbers. One way a dealership can handle the tight turn-around is to streamline their month-end closing process to alleviate the pressure on the dealership’s accounting staff and improve the accuracy of financial statements. Standard monthly entries such as depreciation, prepaid expenses and property tax or insurance accruals can be entered before month-end numbers since they remain the same. Integrated software can also help to shorten the monthly closing lag by feeding subsystems like AP into the general ledger.
4. Use Corporate Purchase Cards to Cover Small Items
To alleviate the volume of checks that the accounting department needs to process, dealerships should consider issuing purchase cards to at least one employee in each department to cover travel and entertainment expenses under a designated amount. Most purchase cards, or p-cards, offer points and cash-back rewards that can add up over the year, which is an added benefit for the dealership. By using corporate purchase cards, the accounting department gets the benefit of making a single payment for multiple small items and the dealership can put the rewards to expenses such as advertising or boosting the bottom line.
5. Use a Standard Chart of Accounts for All Areas of the Dealership
All departments of a dealership should be using the same list of accounts that make up the dealership’s general ledger. Standard guidelines should be used for coding all transactions. Ensuring all accounts and account numbers are standard across the dealership will help increase reporting accuracy and eliminate redundancy.
Accounting for Dealerships
Dealerships should consider these five accounting processes to implement with their accounting staff if they want to fine-tune outdated procedures. If your dealership is in need of accounting services such as attest, tax or advisory, contact our Brown Plus team today! Our Firm has over 30 years of experience providing high-quality accounting services to auto dealers, commercial truck dealers, motorsports dealers and recreational vehicle dealers in the Mid-Atlantic region.