Most dealerships have team members who are responsible for accounting and finance. These individuals might be trained into the position or hired for their expertise. Because managing a dealership is complex, it’s easy for dealership owners and managers to entrust these individuals with their tasks without strict internal controls, regular check-ins or process and technology assessments.
Today’s auto dealers are also managing disruption driven by the COVID-19 pandemic and resulting digital acceleration. They’re forced to consider how they might change their business models, which adds a significant load to their long list of responsibilities.
As you can imagine, this leaves a lot of room for error, inefficiency and even fraud. One of the best defenses against these risks is good cash management, which includes monthly bank reconciliation to confirm your cash is accurate. Conducting a dealership diagnostic check, along with consistent reconciliation, can help maximize efficiencies and profitability.
Why Good Cash Management is Critical for Dealerships
Careful cash management and monthly reconciliation are essential for dealerships to stay viable and pursue business-building initiatives. Understanding your actual cash flow and current cash status helps you identify and avoid risks, find opportunities to nurture and improve your cash flow, and make well-informed financial decisions.
Consider, for instance, that a team member might be entering numbers incorrectly without realizing it, giving the appearance that you have more cash than you do. Or that there is regular, barely detectable theft occurring internally, adding up over time.
Timely monthly reconciliations can expose discrepancies like these so you can address them.
What reconciliation means for dealerships
For dealerships, reconciliation primarily refers to bank reconciliation. This is a regular business activity where staff cross-check the general ledger activity with the actual bank account activity to make sure all transactions are posted properly. This is how you will reconcile your cash to your account activity. Other reconciliation activities include vehicle inventory and floor plan reconciliation.
Bank reconciliation is central to cash flow management because this regular view of your actual financial activity and cash status empowers you to identify:
If your bank accounts and cash don’t reconcile, it could be something as simple as a miscalculation or something as substantial as fraud. Even a simple miscalculation is worth identifying and fixing to ensure you have the truest understanding of your cash status at all times.
Accelerate Your Dealership with helpful videos on trending topics, current issues and dealership financial tips and tricks.
Common Issues with Reconciliation and Cash Control
If you have employees responsible for monthly reconciliations, you must check in with their processes to ensure they’re actually completing the task and doing so with attention to detail. You must also assess whether you can better support them with process and technology improvements. There are a few ways your reconciliations might be stunted:
To solve for these issues, dealership owners and managers must emphasize the importance of reconciliations, ensure segregation of duties and involve themselves in the process to ensure procedures are followed. Outsourcing reconciliation to a third party can also help solve for these issues. Using an outside party ensures an unbiased perspective, reduced risk of fraud and assurance that the reconciliation is performed timely and properly.
Benefits of Regular Reconciliation
When you conduct or outsource reconciliation regularly, it gives you greater control over your cash. You can catch problems in a timely manner and take care of them before they become costly and detrimental. An inconsistency could be as easy to fix as moving a comma, or it could be a sign of something significant happening in your dealership.
Find Internal and External Errors
All manner of errors could show up when you’re reconciling your cash. The fault may be with the banks themselves, or errors made by your staff. It may even be that employees are consistently making mistakes that you can fix with better training, processes or technology.
Identify and Prevent Fraud
Unfortunately, your reconciliations might turn up fraud or theft at your organization. These activities could be incremental and difficult to see, but they add up over time and cost your dealership money. Additionally, you don’t want untrustworthy employees to remain on your staff.
Consider that employees who are responsible for your reconciliations could be participating in fraud. It's important to ensure segregation of duties to prevent this. If you outsource your reconciliation, employees may be further deterred from such activities.
Fix Costly Process Issues
Your documenting, accounting and reconciliation processes could be inefficient and full of bottlenecks that cost you money. Performing monthly reconciliations and having control over your cash will help you get a better view of your processes and where you might improve efficiency overall.
Account for Cash More Accurately
Reconciling your cash each month means you’ll have a truer idea of what you actually have available, which empowers you to make business decisions from a point of financial security and assurance.
Monthly reconciliations in your dealership are vital and require your ongoing commitment to the process. Our team of dealership advisors can help you develop your reconciliation processes and address any other accounting issues.
Cash Management Tips for Dealerships
To support effective cash control and reconciliation efforts, you must broaden the scope from just comparing documents each month. Good cash management requires:
You’ll want to align yourself with a team of advisors who have extensive backgrounds in accounting and consulting with dealerships industries. It’s imperative for dealer owners to consistently manage monthly reconciliations and stay alert in detecting discrepancies.
See what more we can bring to organizations just like yours.Dealerships