The approach is to divide the financial statement into seven major areas for controlling financial and operational data on a daily basis.
Cash
Management Functions (Go
to)
Factory
Accounts Receivable/Payable Functions (Go
to)
Vehicle
Management Functions (Go
to)
Human
Resource Management Functions (Go
to)
Fixed
Asset Management Functions
(Go
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All
Other Balance Sheet Functions (Go
to)
Operational
Management Functions (Go
to)
Once
we have steps one through five defined, implemented and the monitoring phase is
in place, then we move on to steps six and seven. Those functions above
the line will remain constant in terms of how the data flow is controlled on a
daily basis. With proper monitoring of these five areas, then we have more
time to address the daily activities and the variable data flow as it relates to
steps six and seven. In short, what we will now be accomplishing is
management by exception rather than management by the rule.
When data does not meet predefined guidelines, this is the data that will be addressed and corrected. The challenge is to control large volumes of data on a daily basis and to deal with only the exceptions to predefined systems and procedures. The primary reason for having a structured method of systems and procedures is to provide longevity for processing financial data in a consistent and trustworthy way.
Properly
defined and implemented cash management functions will control over 50% of the
entries from the cash receipts, cash disbursements, repair order sales, and
parts sales journals on a daily basis. If the following accounts are
properly defined, scheduled, and monitored, on a daily basis, over 50% of the
data will be controlled daily.
Cash In Bank
Cash On Hand
Cash Sales Clearing
Accounts Receivable
Bank Card Transactions
By
utilizing a systematic approach for processing financial data, dealership
personnel will be able to control more data and on a daily basis. Thus,
avoiding that unsuspected surprise upon completing the monthly financial
statement.
(Go
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Second
only to the cash management functions, the factory accounts receivable and
payable functions have the greatest impact upon the balance sheet and
operations. It is critical that properly defined, implemented and
monitored policies and procedures be in place to insure the integrity of balance
sheet accounts such as:
Cash In Bank
Factory Accounts
Receivable/Payable
Parts Inventory
Warranty Receivable
Factory
Incentives/Rebates Receivable
Factory Holdback
Receivable
Vehicle Inventories
Floor Plan Payable
(Go
back)
The
gross profit from the sale of a new or used vehicle that is not properly stated
can have a tremendous impact on the variable operations and the bottom line
profits. Therefore, it is essential to have inventory procedures in place
that will provide the sales departments with accurate vehicle costs that tie
into the general ledger. Areas that are related to this management
function are:
Vehicle inventory
management systems
Vehicle inventory
accounts
Factory holdback
accounts
Factory incentive/rebate
accounts
Vehicle ordering and
stocking in procedures
Floor plan payable
(Go
back)
This
step will require a review of the payroll systems set up and how it relates to
the general ledger as personnel represents the single largest expense for the
dealership. In particular, we are interested in labor distribution
accounts and payments through the bank account for all payroll functions.
Funding the payroll account, accrued payroll data, payroll tax reconciliation
and payroll bank account reconciliation are the primary areas of interest.
(Go
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Fixed
asset management requires only a monthly review, when it is properly defined,
implemented and monitored. Because fixed assets represent a major portion
of the dealership's investment portfolio, properly defined acquisition and
depreciation controls need to be in place. Fixed assets will require a
minimum amount of time to monitor with proper administrative policies and
procedures. (Go
back)
With the cash, the factory accounts
receivable/payable, the vehicle inventory, the human resource and the fixed
asset management functions properly defined, implemented and monitored, this
will leave more time for the remaining balance sheet accounts, more time to
properly define accounts on schedules that will work for us and more time to
properly monitor the data that pass through these schedules.
You
can monitor the scheduled accounts today or work the accounts tomorrow. By
definition, monitor means to "observe or
oversee" and work means to "labor or
toil". By monitoring balance sheet accounts today, there
will be less "work" tomorrow to "fix"
unscheduled or scheduled accounts that have problems. (Go
back)
Once
the six financial management functions are firmly in place, the operational
management functions can be made with a high degree of reliability. The
reliability of the operational data will have a direct influence on
decision-making situations. Decisions that will influence such areas as:
Net profit as a
percentage to gross and to sales
Total variable gross
profit and gross per unit sold
Fixed gross profit as a
percentage to sales
Expense as a percentage
to gross
Remember that the integrity of the balance sheet propels the reliability of the operational data. (Go back)
Be
Consistent: Process accounting data in a
uniform and consistent manner.
Be
Conservative:
Process accounting data that is reliable.
And
Coordinate: Unit accounting data within the same operational period.