Dealership Diagnostic Check Results in Increased Financial Statement Accuracy, Higher Labor Rate and $21,000 in Tax Savings

Case Study

Dealerships, like most businesses, juggle multiple moving pieces to ensure daily success. From fixed ops to variable ops and everywhere in between, dealership owners have much to plan, track and navigate daily. Successful dealers understand that big-picture review is critical for growth and profitability. They know that when all its parts are operating at peak performance, the competitive edge is theirs.

But where do you start?

You begin by reviewing your factory financial statement. This amazing tool is loaded with information that, when properly utilized, can help a dealer closely monitor each of its departments. The challenge is that many operators become so entrenched in day-to-day happenings that they don’t take time to step back and consider crucial business benchmarks and KPIs. Besides lack of time or focus, some dealers have simply never been taught to read the factory financial statement effectively, so they stay in the rut of the status quo.

That was a symptom recognized by a successful rocky mountain dealership that called upon Eide Bailly to bring a fresh set of eyes to their accounting department with a Dealership Diagnostic Check. Just like a dealer offers a vehicle diagnostic check to ensure their customers’ vehicles are working at peak performance, Eide Bailly’s multipoint financial inspection does the same for dealerships.


“Eide Bailly has played a huge role in our success. Their knowledge and expertise have helped solidify our financial strength and positioned us for future growth and stability.”

What We Found: Employee Classifications & Overtime

In performing a diagnostic review for the dealership, we recognized “Other Salaries & Wages” expenses per the factory financial statement were out of line with industry standards. As we worked with the dealer to gain more insight on this concern, we discovered that the cause of the higher expense was primarily the result of employee classifications and overtime.

In effort to resolve these two issues, we started by working with the client to determine the correct department and account to categorize employees. For example, a clerical expense that was charged to “Other Salaries and Wages” was re-mapped to a separate clerical expense account.

With regard to the overtime reporting, the dealership appeared to be properly staffed, so there shouldn’t have been a need for so much overtime. After further investigation we were able to determine that with proper management the overtime could be (and was) eliminated. While this only saved the dealership a few thousand dollars, the final result of the diagnostic was proper categorization of employee salary expense, which gave the dealership the ability to quickly identify excessive salary costs. Additional internal control measures were put in place to assist the managers in helping to identify and control overtime.

What We Found: Parts Inventory

As is often the case during the process of the diagnostic check, we discovered more: an unusual adjustment in the parts inventory account. The days’ supply of parts inventory was above industry benchmarks standards.

When we discussed the issue with the owner, he confirmed the parts inventory appeared to be outside the dealership norm. We then recommended a physical inventory count be performed on the entire parts inventory.

As a result, it was discovered that inventory was overstated by $60,000. Eide Bailly then worked with the dealer to institute new procedures that would more accurately monitor the parts department inventory. The dealership also implemented a regular cycle count of parts bins. Furthermore, we recommended they use a third party for the parts physical at least every 2-3 years and provided vendor options to the dealership.

What We Found: Warranty Labor Rate vs. Customer-Pay Rate

Lastly, in reviewing the factory financial statement, we noted that the reported warranty labor rate was low compared to customer pay rate. The owner was aware of the difference but didn’t have the resources to make the applications necessary to get approval for a higher rate. Eide Bailly assisted with performing an Effective Labor Rate analysis and submitting the application to the factory. The dealership was successful in obtaining a labor rate increase of nearly ten dollars per hour, resulting in an immediate increase in warranty labor gross profit.

The Take-Away

At the completion of the dealership diagnostic check, not only were critical adjustments made to more accurately provide a true financial picture of the dealership health, but more than $21,000 in tax savings were taken advantage of thanks to the recommended advice provided.

While some dealers think they already undergo various financial reviews, leveraging the experienced team of Eide Bailly to bring a multipoint review approach to your dealership operations can have profitable results and provide a clear and accurate financial picture of your dealership health.


“Bob can identify issues in specific departments that other accounting professionals may not be aware of. When we had issues in the service or sales department, Bob was able to give suggestions about the source of the issue and understood exactly who would be impacted. He also identified shortcomings in our processes that may have contributed to other issues, and he provided thorough suggestions for improvement.”


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Dealerships

LOCATION:

  • Colorado

SOLUTIONS:

  • Dealership Diagnostic Check

RESULTS:

  • More accurate financial statements
  • Increased labor rate
  • $21,000 in tax savings