Running a car dealership without understanding your financial statement is like driving blindfolded—you might keep the engine running, but you won’t know when you’re about to crash. Whether you’re a dealer principal, GM, or department manager, understanding how to read your dealership’s financial statement is one of the most powerful tools you have for making better decisions.
This post will break down the dealership financial statement in plain English, helping you understand what to look for, what to question, and how to use it to steer your business in the right direction.
What Is a Dealership Financial Statement?
At its core, a dealership financial statement is a standardized monthly report that shows how your store is performing. It’s far more detailed than a typical business profit-and-loss statement—and that’s a good thing.
Thanks to formats provided by NADA and the OEMs, it captures the unique structure of an auto dealership’s business, breaking out results by department, measuring gross profit at multiple levels, and tracking balance sheet items that are critical to your cash flow—like flooring and receivables.
Think of it as both a report card and a roadmap. It tells you how you’ve done, but more importantly, it shows you where to pay attention. Every month, it gives you the chance to ask, “Are we on track?”—and if not, “Where are we slipping?”
True (and slightly tragic) story
Years ago, I worked with a dealership run by a brother and sister who had stepped in after their father fell seriously ill. They were doing their best, but the store was steadily losing money. Every month, I’d bring over the printed financial statement. Without fail, the brother would open his desk drawer, pull out a bottle of White-Out, and carefully erase the minus sign in front of the net profit. Just a little cosmetic touch-up—like maybe if he didn’t see the red, it wouldn’t be real.
We all have our coping mechanisms, I suppose. But denial doesn’t fix the numbers.
The Big Picture: Four Key Sections
Dealership financial statements are dense, but don’t let that intimidate you. You only need to focus on a few key areas to get the full picture:
1. Operating Summary
This is your 30,000-foot view. It includes total sales, gross profit, expenses, and net profit. If you’re scanning your statement quickly, start here. But don’t stop here—this summary alone won’t explain where you’re making or losing money.
2. Departmental Operating Data
Each department—New, Used, F&I, Parts, Service, and Body Shop—has its own section. These break down departmental sales, cost of goods sold, gross profit, expenses, and net profit. Pay close attention to gross profit margins and fixed coverage here.
3. Balance Sheet
The Balance Sheet gives you a snapshot of your dealership’s financial position at a single point in time. While the income statement tells you how much profit you made, the balance sheet tells you how strong your foundation is—and whether you’re building your business on solid ground or quicksand.
This section tracks your assets, liabilities, and equity, and it’s where the real health (or weakness) of the business becomes clear.
A dealership can appear profitable on paper but still struggle to make payroll or pay bills—and the balance sheet usually holds the answers.
Here’s what to focus on:
Assets
1. Cash and Cash Equivalents
This is the most immediate measure of financial stability. Are you cash-rich, or barely covering checks? A healthy dealership should maintain enough liquidity to operate smoothly, cover payables, and weather dips in sales.
2. Accounts Receivable
This includes:
- Customer payments due (vehicles, service, parts, etc.)
- Manufacturer reimbursements (warranty, incentives, holdback)
- Finance reserve receivables from lenders
If receivables are growing faster than sales, it’s a sign that money is stuck in the system. Aging reports (specific accounting schedules) help identify overdue or uncollectible balances, which can distort profit and drain cash.
3. Inventory
New and used vehicle inventory is the dealership’s largest asset. It also holds potential risks. Too much aged inventory ties up cash, increases floorplan interest, and reduces gross profit. The balance sheet tells you not just how much inventory you have, but whether it’s turning fast enough to stay healthy.
4. Fixed Assets and Prepaids
Fixed assets and prepaid expenses are two important parts of the balance sheet that often get overlooked in the monthly review, but they absolutely deserve attention.
Fixed Assets
These include long-term investments in things like:
- Land and buildings
- Leasehold improvements
- Shop equipment
- Furniture, fixtures, and computers
- Vehicles used by the business
While these aren’t directly tied to day-to-day operations like inventory or receivables, fixed assets play a key role in your long-term value and overhead.
Why it matters:
Fixed assets should be reviewed periodically—not necessarily every month, but at least quarterly—to ensure:
- Depreciation is being calculated correctly
- New capital expenditures are properly classified
- No obsolete or sold assets are still on the books
Too many dealers don’t look at this section until tax time, but excess or misclassified fixed assets can skew your equity and inflate expenses if depreciation isn’t right.
Prepaid Expenses
These are costs paid in advance that will be expensed over time, such as:
- Insurance premiums
- Licensing fees
- Local taxes
- Advertising campaigns paid upfront
- Maintenance agreements or software subscriptions
- Yearly training
- And so much more.
Why it matters:
Prepaids can quietly build up over time. If they’re not expensed properly (or reversed when due), it can distort your profitability. For example, if you paid for a six-month ad campaign but booked it all in one month, your income statement will show an artificially low profit that month—and an inflated one later.
Also, make sure old prepaids aren’t just sitting on the books. If they’ve already been used, they should be moved to expense. Otherwise, they give the illusion of higher current assets than you actually have.
Over the years, I’ve seen some GMs intentionally shift legitimate expenses into Prepaid Expenses to make net profit appear higher. The motivations vary—sometimes it’s to hit a bonus target, other times it’s just to make the monthly financials look stronger. Whatever the reason, this practice creates a misleading picture of the store’s performance and delays the inevitable hit to the income statement. It’s never wise to hide real operating costs in prepaids. All you’re doing is kicking the can down the road—and compromising transparency in the process.
Liabilities
5. Floorplan Debt
This is your short-term financing line used to purchase inventory. It should generally track closely with inventory value—if it doesn’t, something is off. A high floorplan balance with low inventory may suggest vehicles sold but not paid off—a dangerous place to be.
Also important: Interest expense on floorplan can balloon during slow months. Monitoring this liability helps manage both cash flow and profit margins.
6. Other Payables and Accruals
Look closely at payables to vendors, taxes owed, payroll accruals, and deferred income (e.g., extended warranty reserves). If these climb too high, they can strain cash unexpectedly.
7. Long Term Debt
This includes loans and financing obligations that extend beyond the next 12 months, such as:
- Mortgage on the dealership building
- Term loans for capital improvements
- Equipment financing
- Other business loans
Retained Earnings / Owner’s Equity
This shows the cumulative profits (or losses) over time, plus any capital invested or withdrawn by the owners. If net income looks solid but retained earnings are weak, it may mean past losses haven’t been recovered—or too much money is being pulled out of the business.
4. Other Income Summary
This section captures all the financial activity between your dealership and the manufacturer (OEM), as well as certain internal fees and document processing income. While it may seem like a catch-all, this part of the statement can significantly impact your net profit—especially if items are mistimed, misclassified, or not tracked properly.
Here’s what you’ll typically find in this section, although your particular manufacturer’s financial statement may be slight different:
1. OEM Incentive Income
This includes:
- Stair-step or volume bonuses (based on monthly/quarterly targets)
- Retail delivery incentives (RDIs)
- Customer cash reimbursements
- Dealer cash programs
These payments often lag behind the actual vehicle sale, so accurate record-keeping and reconciliations are essential to prevent revenue distortion.
2. Warranty Reimbursements
When your service department performs warranty repairs, the manufacturer reimburses you—but not always right away. If warranty claims aren’t submitted promptly or are denied, this line can quickly become a red flag for lost revenue or poor process control.
3. Holdback and Floorplan Assistance
These are factory payments meant to help offset the cost of carrying new vehicle inventory. Although often overlooked, they’re a key part of your front-end gross. Misunderstanding or misplacing these amounts can make it seem like you’re underperforming on the front end when you’re not.
4. Unpaid or Aged Claims
This is where accounting issues often lurk. Unpaid warranty claims, delayed incentive payments, or chargebacks can sit on the books, inflating your receivables and giving a false sense of profitability. Aging these items and following up is crucial.
5. Doc Fees
This section also includes document fees collected at the time of sale. These are typically retained by the dealership but must be reported accurately, especially in states where they’re regulated.
Where Dealers Often Go Wrong
Even experienced operators fall into some common traps when reading their financial statements:
- Focusing only on gross profit – Gross profit is important, but it’s not the full story. If expenses are out of control or departmental overhead is bloated, strong gross can still lead to weak net. Gross shows potential—net reveals discipline.
- Focusing only on net profit – A good bottom line doesn’t always mean the business is healthy. One-time incentives or accounting quirks can inflate your numbers.
- Ignoring balance sheet red flags – If your receivables are growing or floorplan is maxed out, it doesn’t matter how good your income statement looks—you’re heading for a cash crunch.
- Relying too much on F&I – Many dealerships are over-reliant on F&I gross to cover thin front-end profit. If the front-end dries up, the model breaks.
How to Actually Read It: What to Look For
Reading your financial statement shouldn’t be an academic exercise. Here’s how to turn it into a tool.
Start with Comparisons
Look at three things every month:
- This month vs. last month
- This month vs. same month last year
- This month vs. 20 Group average or dealer composite
Trends tell a deeper story than a single data point. One bad month might be a fluke. Three in a row? That’s a pattern.
Spot Key Metrics
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Front-end vs. back-end gross – Is your sales team making money, or is F&I carrying the load?
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Aged inventory – A bloated used car inventory eats cash and kills gross.
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Service absorption – Ideally, your fixed ops gross profit covers all store expenses. If not, you’re overly dependent on variable (sales dept) revenue.
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Personnel expense as % of gross – Labor is your biggest controllable expense. Watch this like a hawk.
Use These Ratios
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Net-to-Gross – Measures how much of your gross turns into actual net profit. Low net-to-gross = inefficiency.
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DOC (Daily Operating Control) – Tracks your pace of sales and gross in real-time against your monthly forecast.
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Effective Labor Rate vs. Door Rate – If there’s a big gap here, it’s time to review discounting or technician efficiency.
Want more? Check out my post “Top KPIs for Car Dealerships to Align Expenses with Gross Profit.“
Ask These Questions Every Month
Make it a habit to sit down with your Controller, GM, or CFO and ask:
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Are we profitable in every department?
A loss in just one department can sink the whole store. -
Is our cash position improving or deteriorating?
Profit is great—but cash is king. -
Are our assets working for us?
Aging inventory and slow-paying receivables drag down ROI. -
Are we overstaffed for our volume?
Headcount should tie to revenue and productivity. -
Where are we underperforming against the 20 Group or Dealer Composite?
Your peers are the best benchmark. Don’t guess—compare.
Conclusion: Your Financial Statement Is a Power Tool—Use It That Way
You don’t need a CPA to understand your dealership’s financials. You just need to know what to look for, ask the right questions (ask me anything!), and pay attention to the patterns. Your financial statement is a powerful tool—but only if you read it, challenge it, and use it to guide your decisions.
The best dealers don’t just get their financials—they use them. If you’re ready to start reading yours like a pro, subscribe to our newsletter here to keep your team accountable and your numbers dialed in.