Pros and Cons of Centralized Accounting for Dealerships

Article

When you operate more than one dealership, the decision must be made whether to centralize the accounting function in one location. As with most decisions, it all depends on the situation. Dealers have the option to keep their accounting centralized, non-centralized or use a hybrid method. Some of the pros and cons of operating a dealership in a centralized accounting environment are outlined below.

Pros of Centralized Accounting

Corporate Governance
One of the major benefits of a centralized accounting function is the corporate governance aspect. The structure will allow more efficient management of policies and procedures. Standards can be developed and implemented more simply and effectively. The internal controls will be inherently stronger and monitoring of the controls easier.

If the decision is made to proceed with a centralized accounting function, this component is arguably the most important. The structure and enforcement of the policies and procedures are critical to success. Controls over cash, car deals, accounts payable, etc. have to be clearly defined. There has to be strong oversight from the leadership team as well as accountability.

Administrative Costs
Another benefit to the dealership group is an overall reduction in administrative expenses relating to wages, benefits, etc. Positions will naturally be eliminated as the offices and roles are consolidated. This may be an opportunity to recognize the strong performers.

“We can provide dealerships with recommendations on best practices for internal control design and implementation, staffing needs and salary guidelines, as well as assist with evaluating employees to aide with the transition.”

– Tom Goekeler, CPA

Cons of Centralized Accounting

Staffing
A potential negative impact of centralizing the accounting function is the lack of support at the dealership. This is probably the number one concern of a general manager at a non-central location. How the dealership is staffed on location is going to depend on the volume of the store along with its proximity to the central office. 

For example, a high-volume store located within a mile of headquarters is not going to require the same staffing as a similar volume store located two hours away. The key to overcoming this obstacle is to ensure the staffing on location is competent and adequate. They also must closely-follow corporate policies and procedures.

Accelerate Your Dealership – How Do I know if I’ve Hired the Right Accounting Staff?

Paperwork
Another concern is related to getting paperwork, etc. from location to location. Developing strong policies and procedures and enforcing them is critical to success. Consider utilizing the parts driver(s), especially if you have a large wholesale business.

The use of this method is common, along with lockboxes containing deals, cash, etc. If information needs to be overnighted to a central location, negotiate with the carriers, as there are usually significant savings to be earned.

Technology
Moving to a centralized accounting environment may be the time to invest in technology. Digital deal jackets, scanning, etc. can be utilized to remove some of the logistical barriers noted. There should also be a reduction in lost paperwork. The upgrade in technology should improve overall efficiency across the organization.

Centralized accounting can be a cost-effective and efficient method for dealerships. Ultimately, the structure of the function is pivotal to its overall success. There are many questions that need to be answered, such as:

  • How do we get the deals posted?
  • How do we handle cash receipts?
  • What do we do about on-demand checks?
  • How do we deal with accounts payable?
  • What do we do about payroll?

Consult with industry advisors to help answer these questions and those issues unique to your dealership to establish the best accounting method for your situation. 

Setting up a centralized accounting function might be beneficial for your dealership. Our team of advisors have the knowledge and experience to help you through the process.

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