By Marilou C. Vroman, CPA, CFE
Albert Einstein is credited with the statement “The definition of insanity is doing the same thing over and over again but expecting different results.”
In dealerships, the tendency to keep things the same is common. While technology and our industry are changing rapidly, dealership operators and department managers tend be creatures of habit when it comes to underlying processes. Areas, such as DMS utilization, operational and financial reporting, and processing transactions all tend to evolve slowly and seem to follow similar patterns until a process is forced to change (such as vehicle sales and service during the COVID-19 pandemic) or a material breakdown or monetary loss is sustained by the dealership.
While we have enjoyed recent historic profitability and unmatched PVRs due to supply chain issues and basic economics, we may find it easy to ride the wave of performance “greatness” and simply pat each other on the back for a great month and move on. However, this too shall pass. As inventory days’ supply start to increase, COVID-19 concerns begin to ease, and chip shortages subside, we will likely shift to the performance pressures of the past, expectations of holding more gross, moving aged inventory, and finding expense savings.
With vehicles nearly selling themselves and customer demand peaking, now is a great time to look at your dealership’s processes to identify inefficiencies. Even though profits are high, finding the right personnel and available labor hours to get things done is becoming more of a challenge. The cost of inefficiency is undoubtedly high. Below are four key areas of inefficiency which may be overlooked when times are good:
Efficiency in Reporting – Do you read every article or report that is sent to you? For a trip down memory lane, those of us who have been this industry for a while may remember the stacks of reports printed nightly from the DMS only to be ignored and thrown away. Chances are someone has put time into a report you receive on a recurring basis, but the time is lost because you don’t receive the intended benefit.
Dealers often distribute countless status or exception reports only to be disregarded by the recipients. Reports should be accurate, current, and contain relevant information important enough to warrant responsiveness and accountability of their recipients. If reports are simply sent out without follow up, the return on the time invested to create them is wasted.
Now is a suitable time to evaluate how your internal reports are created, how often they are distributed, whether they create value, and are they worth the time invested. Extra attention should be given to how the report or data is generated in the first place — can the report be automated through macros, upgraded software, or training? Also, it’s important to evaluate how reports are shared. Many reports, such as a daily doc, sales log or receivables schedules can be shared, and collaborated upon and updated by multiple users in a single file location rather than emailing multiple versions of reports between managers and departments. Imagine the benefit of live updates rather than waiting for a weekly or monthly update. Shared files create efficiency and improve individual accountability.
Reducing Accounting Errors – Even in the best accounting departments errors can happen. Accounting corrections processed through general journal entries can be a time-consuming process. While a transaction theoretically should only be touched once, we often find transactions revisited because of the need to record corrections. Examples, such as finance reserve differences, or parts pricing differences on factory warranty claims necessitated because of underlying errors in the DMS or a break down in the process. The error persists because its source is not addressed. Identifying and correcting the source problem within the DMS can save considerable time down the road by reducing the need for research and corrections. All too often, schedules are simply “cleaned” or “washed” by clearing balances without thoroughly researching, identifying, and communicating the problem to the ones who can prevent it from happening in the first place.
A review of activity in accounting schedules and the nature of general journal entries can reveal the errors that are recurring. Errors can often be prevented not only by correcting settings, but also through a straightforward process change. For example, the change can be as simple as running current accounting schedules before processing transactions, such as lien payoffs or customer refunds. Referencing the schedule first to verify the dollar amount and control number to be cleared will help eliminate errors and duplicate payments. Rather than a reactionary process of fixing the posting errors month after month, fix the problem at the source.
Forms Requirements – We regularly review supporting documents of transactions in their entirety during our internal audits. Often the forms retained in transaction files, such as deal jackets or repair orders, are left blank, incomplete, unsigned, or are incorrect. Forms should support the transaction, and additional forms are often incorporated into transactions because they are required for regulatory compliance purposes, internal control, manufacturer requirements, or to mitigate risk. However, the processing of extra and unnecessary forms creates inefficiencies and valuable time spent with no return on its investment. Conversely, blank, or disregarded forms can also expose the dealership. Evaluate the forms being used in each transaction to ensure they are necessary and if so, they are complete. For handwritten forms, identify whether data fields and signatures can be completed electronically to increase accuracy and reduce the time necessary to complete them.
Saving Trees and Relationships – If you are still buying countless banker’s boxes and have walls lined with file cabinets it may be time revisit electronic document processing and retention. Scanning and electronic document archiving is certainly nothing new, and with the recent push towards remote work, electronic signature capture and touchless deliveries, electronic contracting, and processing has become commonplace. Completing transactions electronically and digitally archiving your records is more cost effective than pushing paper from one place to the next.
Many of our clients are operating seamlessly in nearly paperless environments. Of particular note is the migration of dealers to accepting invoices and processing payables electronically. Rather than waiting on a manually signed purchase order or invoice to process, the receipt, authorization, and payment can be performed electronically, creating efficiency and greater internal control. Countless hours can be wasted looking for hard copies of documents whereas electronic copies can be located and reviewed rapidly. Further, processing documents electronically creates a more efficient experience, whether it’s signing deal documents with a single signature capture, or the acceptance of customer payments through a smartphone or website. Ease and efficiency of transacting typically equates to higher satisfaction and better relationships overall.
As they say, there is no better time to repair a roof than when the sun is shining. Dedicate time to evaluate your internal processes while the weather is good so your house is better protected when the rain comes.
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