Throughout my retail career, I’ve witnessed a common misconception: labeling the dealership accounting office as a ‘cost center.’ This oversimplified view of categorizing departments as either revenue-generating or cost centers fails to capture the true complexity of a dealership’s operations.
There are two primary strategies at work when a dealership makes money:
- Generate revenue through sales.
- Keep expenses aligned with revenue by conducting regular analyses, remaining in compliance with the myriad of regulations, and implementing cost-saving measures.
A successful business relies on the synergy of both these strategies.
If you’re generating great revenue but expenses are out of control, that’s not a recipe for success. The same is true if dealership expenses are in line but revenue is deficient. Balancing the two ways a store makes money is at the core of dealership operations.
Financial leakage in dealerships extends beyond mere expenses.
Other significant factors are:
- Poor management of inventory (vehicles and parts)
- Ineffective departmental personnel allocations
- Customer satisfaction
- Insufficient compliance protocols
- HR issues
Who is responsible for monitoring all these aspects in a dealership? The accounting office.
Recent events have highlighted the crucial role that a dealership accounting department plays in keeping things running smoothly. The CDK cyberattack caused dealership management systems (DMS for short) to be down for three weeks and this event serves as a perfect example of why accounting teams should be viewed as invaluable assets rather than mere expenses.
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The misconception of accounting as a cost center
Dealership owners and managers can fall into the trap of perceiving their accounting department as a necessary evil – a cost center that doesn’t directly generate profit. This narrow view fails to recognize the myriad ways in which skilled accounting professionals contribute to a dealership’s overall success and profitability.
The true value of the dealership accounting office
1. They ensure financial accuracy and compliance
Accounting departments are responsible for maintaining accurate financial records, ensuring compliance with tax laws/other regulatory agencies, and providing management with crucial financial insights. Without these functions, dealerships would quickly find themselves in regulatory hot water and making uninformed business decisions.
2. Their work supports important decision-making
By producing timely and accurate financial reports, accounting teams provide management with the data needed to make informed strategic decisions. This information is vital for optimizing inventory, pay plans, pricing strategies, and overall business performance.
3. They identify cost-saving opportunities
Skilled accounting managers can analyze financial data to identify areas where costs can be reduced or processes streamlined, directly impacting the dealership’s bottom line.
4. They are the source for maintaining a positive cash flow
Proper management of accounts receivable and payable is crucial for maintaining healthy cash flow – the lifeblood of any business. Accounting teams play a pivotal role in ensuring that funds are available when needed.
5. They play a huge role in fraud prevention
Internal controls implemented and maintained by accounting departments are essential for preventing fraud and protecting the dealership’s assets.
All of these actions (and more), when not managed well, threaten a dealership’s profitability.
The cost of poor accounting
As one industry expert points out,
A poorly run accounting department can cost a dealership a lot of money, and the revenue you make in the front can be quickly lost in the back.
This underscores the critical nature of a well-managed accounting team. While sales may bring in the revenue, it’s the accounting department that ensures that profit is properly recorded, managed and ultimately retained.
The CDK debacle provided a perfect illustration of the accounting department’s value. Despite the challenge of catching up on three weeks’ worth of work while staying current with next month’s tasks, dealership accounting teams demonstrated exceptional dedication and time management skills. I know, I witnessed it.
This CDK experience served as an eye-opener for departmental managers, showcasing the accounting team’s resilience and importance to the dealership’s operations. It highlighted how quickly things can fall apart without proper financial management and the effort required to keep everything running smoothly.
Viewing accounting solely as a cost center overlooks its potential as a strategic asset. A well-run accounting department can significantly impact profitability by ensuring accurate financial reporting, identifying cost-saving opportunities, and providing crucial data for informed decision-making.
Don’t believe me? Just ask a dealer who’s had a substandard accounting department. Uncollected aged receivables, unpleasant letters from tax authorities, customer complaints, employee lawsuits, and the ensuing sleepless nights are not anyone’s idea of a good time.
The Strategic Value of Every Department
While sales and service often take the spotlight, forward-thinking leaders recognize that each department plays a crucial role in the dealership’s overall success.
Different departments bring unique skill sets to the table. While sales requires charisma and negotiation skills, accounting demands precision and analytical thinking. Recognizing and valuing these diverse skills can lead to a more well-rounded and successful operation.
I’ve always wondered why so many dealers and owners overlook service, parts and accounting when choosing general manager candidates. These departments often contain untapped leadership potential. Employees who excel in detail-oriented roles may possess valuable skills in organization, compliance, and process improvement – all critical for management positions.
When all departments are valued equally, interdepartmental cooperation improves. This leads to smoother operations, better communication, and increased overall efficiency and profitability.
Moving forward: changing perceptions
To truly leverage the value of accounting departments, dealership management can excel by considering these options:
- Re-examine your mindset. Question the reasons why if you perceive your accounting office as cost center.
- Involve accounting teams in strategic discussions
- Invest in ongoing training and technology to enhance their capabilities
- Regularly communicate the department’s achievements and contributions to the entire organization
- Consider performance metrics that reflect the accounting team’s impact on overall business success
Real-life case study/example
I’ve often said that in truly successful organizations, the store’s GM and Controller work as one. But in our case at a dealership group I worked for, it was our entire management team.
- Manager’s meetings were held every Friday.
- We reviewed each department’s numbers on the financial statement and compared them to the forecast.
- We reviewed the Balance Sheet periodically where I explained what the Balance Sheet was, how it worked and where ‘dirty little secrets’ can hide.
- We invited anyone in the store to attend certain meetings where we discussed financials so that each team member could see exactly how their contributions impacted the stores’ success.
Inclusive transparency with departmental gross profit, expenses and net profit fostered an even more cohesive team that allowed each employee to support one another’s contributions.
The dealership accounting department is a crucial asset
As I’ve illustrated, “generating revenue” is not the only way to improve the bottom line. Revenue is only part of how any business becomes and stays profitable. Every department plays a vital role in an organization’s success, and viewing the accounting department as merely a necessary evil is a narrow perspective.
By shifting the perception from “expense” to “essential asset,” dealerships can fully harness the power of their accounting teams and drive greater overall success.
As controllers and office managers continue to tackle the challenges of catching up and meeting deadlines, it’s crucial for the entire organization to recognize and appreciate their efforts. After all, a well-supported accounting team is a key ingredient in the recipe for a thriving operation (Anyone who’s worked in a store knows this).
The revenue generated in the front end can be quickly eroded by poor accounting practices, making the accounting department’s role not just important, but essential to the dealership’s financial health.
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