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Mercedes-Benz Pacific Northwest Business Management Roundtable. Seattle Westin Hotel May 21, 2009. Introduction Gregg Goolsby / Harrison Jones/Michael Dougherty.

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Mercedes-Benz Pacific Northwest Business Management Roundtable

Seattle Westin Hotel

May 21, 2009

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Best Practices in Dealership Financial Management and Expense ControlIra Silver, CPAPartnerMORRISON BROWN ARGIZ & FARRA, LLPisilver@mbafcpa.comTel: (407) 237-3600

overview
Overview
  • Dealership Expenses: Personnel Semi Fixed Fixed
  • Other Issues: Lost Profits Theft Government Compliance Legal Fees
starting point
Starting Point:

Set Annual Budget for every expense item

Review monthly – payable parties

Total Expense per month= $ 600,000 Expense Savings @10%

Monthly Savings 60,000X12 months Annual savings $720,000

who is responsible for each expense at dealership
Who is responsible for each expense at dealership?

Personnel Expense:GMControllerService/Parts ManagerSemi Fixed Expense: GM – N/C – U/C ManagerService/Parts ManagerControllerFixed Expense:Owner

big 3 expenses
Big 3 Expenses

1. Payroll -

- How many employees

- Importance to team

- Staffing replacement form

2. Interest Expense

3. Advertising

-Different events (mailers) -

-Have different 1-800 numbers to track

personnel
Personnel
  • Pay Plans
  • Pay Plans need to be created to make employees work harder
  • Never pay a bonus if dealership lost money – only after breakeven
  • Pay Plans – Function of

-Gross

-NADA Guidelines – ie:10 units a month

-Community scale

-Stay away from guarantees

personnel1
Personnel
  • Employee Handbook

-Should have detailed job description

-Each job should have a planned minimum /maximum

  • Cost of Employee Turnover

-More training = more profits

-Lost sales

-Employee resentment

  • Staffing levels – less benefits, supplies, demo’s, etc.
  • Some dealers added customer service reps for service to gain customer loyalty

If you have everyone pack up belongings every night, how many would you hire again in the morning?

semi fixed expenses
Semi-Fixed Expenses
  • Employees are the pulse of the dealership – take accountability to generate cost saving ideas
  • Department vs. Department
  • Cost Bonus Pool
  • Outside Services
  • Notify Suppliers that they are bidding – give time period to respond
  • Garbage pickup
  • Record retention
  • Credit bureaus & background checks
  • Coffee service
  • Postage
  • Bank Charges
  • Service fees, check processing and cc fees
semi fixed expenses1
Semi-Fixed Expenses
  • Insurance

-Employee dishonesty

-Lost Profits (Florida hurricanes)

  • Legal

- Customer always right/make it right

  • Interest

- Inventory – days supply - frozen cash -

- Cost of inventory not on lot immediately

  • Mortgage
  • Marketing

- Email (free)

- Websites (must stay in front of customers)

- Direct mail (in house)

  • Telephone

-IT lines

-Cell phones

- Long distance

semi fixed expenses2
Semi-Fixed Expenses
  • Data Processing

- Repair agreements more than new equipment

- Review bills for non used items

  • Paperless offices
  • Security
  • Payroll

- ADP fingerprint

- Eliminate overtime

  • Control keys

- Lot damage

- Dealer trades vs. selling within inventory

  • Real estate/Tangible tax bills

- New Appraisals (protest values)

  • Break down as those controllable vs. non controllable
  • Payable party
  • Review expenses with all managers monthly- AUDIT – AUDIT – AUDIT ALL INVOICES
other
Other

Keep what you Earn:

  • Regulatory Requirements-

-FTC red flag rules

-Preventing ID theft

-Preventing fraudulent transactions

  • Having a compliance officer
  • Having procedures – must be written
  • Train all employees to detect/respond to fraudulent activity

Internal controls – Prevents theft

  • Bank Reconciliations
  • Owner should open bank statements
  • Cashier – add cash to drawer
  • Refunds mailed to customers – not hand delivered
  • Control cash – checks made out to cash
other1
Other
  • Control inventory
  • Control employees

- Service

- Hours flagged

- Vendor kickbacks

- Parts

  • Fraud – false vendors

- Compare vendor phone number, federal ID # address to employees

other2
Other
  • Journal entry reviews

- By user

- Corrections ( why)

- Per “__________________”

- No information on JV

  • Who has authority to write off any items
miscellaneous
Miscellaneous
  • Compliance with loan covenants

-Higher interest costs

Computer Passwords- change monthly

  • If you sign a check you must have back-up
  • Install cameras

-Pictures of dealership

-Cameras in demos

  • Net dealer trade checks- make mandatory
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Best Practices in Dealership Financial Management and Expense ControllingIra Silver with Morrison, Brown, Argiz & Farra