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The costly proposition of understaffing the accounting department

By Marilou C. Vroman, CPA, CPE

We often encounter dealers who ask:  how many people should we have in the accounting department? As retail automotive advisors, we love to reference NADA, which has a guide of 15 total employees for every one accounting staff.  Our answer is typically: NADA guide, plus one.

The accounting department is a cost center which is typically difficult to calculate an ROI. However, in an environment where cash is king and profitability is everything, justifying additional headcount is often frowned upon.  Why would we want to add more people?

Accounting staff are often playing catch up, feverishly billing the stack of deals that comes up the last day of every month, preparing commissions, meeting tax deadlines, processing timely payroll and so on.  We find the pressure on staff to just “clean” the schedules each month is often so great that thousands of otherwise collectible dollars are written off with little effort or concern for bottom line impact.  With this cycle of pressures, proper internal controls such as daily or monthly bank reconciliations and management review and approval of write-offs can weaken, creating an environment which is ripe for fraudulent behavior and what may have been avoidable losses due to write-offs.  We’ve seen dealers write off hundreds of thousands of dollars over the course of a year simply due to lack of sufficient headcount in the back office.

Take our word for it, proper investment in the right quantity and quality of personnel will yield a great return. How much revenue do you have to generate, at a 3% return on sales, to recover a $5,000 incentive write off? A mere $166,667 in sales.

That single additional person may pay for themselves and be just enough to ensure the controller and staff can more proactively protect your dealership’s assets, and your bottom line.

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