Tighten Up Your Business Belts

During tough times like these, it is easy to get caught up in the bad press and worry about how to increase sales and improve business. However, increasing sales may be extremely difficult, as people are simply not in the buying mood. While you may not be able to control that situation, it may make sense for you to look at some of the things you can control but have been “too busy” for.

As CPAs and business advisors, in the course of performing audits or reviews of internal controls and procedures of buy here pay here dealerships, we continually see various areas that get overlooked. Many of these areas are not critical to us in performing audits, but they frequently have lax controls that can contribute to unplanned funds walking out the door without approval.

Review customer notes receivable edit reports
People often do not spend the time required to thoroughly review edits made to customer notes each month. Many computer systems have reports on this, but they are rarely or never reviewed by management. Your notes receivable are the lifeblood of your business; therefore, when your people make adjustments to note receivable payments amounts, collection dates and other items, this is very important to the business.

Frequently we have found situations in which employees make adjustments that deter the dealer from having a strong knowledge of his delinquency statistics. We suggest management require documentation in each file to support the edits made, and the list of people allowed to make edits should be reviewed annually to ensure only authorized individuals can make such changes.

If your computer system does not contain such edit reports, you should be demanding that such reports be set up before your business learns a hard lesson.

Control parts ordering and parts inventory
This area is generally considered a necessary evil to dealers and should be tightly controlled to make sure only required parts are ordered. You should also review your policies to ensure that inventoried parts are controlled and restricted to keep them from walking out the door.

Issue 1099’s
We continually find that dealers are not filing 1099s for reportable transactions. Generally, dealers should file 1099s for non-employee compensation for any non-corporate entity that is paid over $600 for services during the year; this includes referral or “bird dog” fees. Persons who receive interest or rent during the year should also receive 1099s.

Properly monitor bankruptcy accounts
These accounts continue to be the “red-headed stepchild” of the dealership. Most dealers do not write these accounts off, nor do collectors manage them effectively. Frequently, people edit such accounts to keep them from showing up delinquent on aging reports. Often these accounts contain significant losses waiting to be recognized that are carried on the dealership for many years without adjustment.

Tracking repos. Many times, repos represent an item of frustration in this business. The tracking and inventory controls over these items are lax. Such vehicles should be separately scheduled in accounting, and inventories should be taken each month. After vehicles are sold, the sales price should be compared to the cash value assigned to make certain the vehicles are being sold for the correct price and to ensure that deals are not being cut between dealership employees and wholesale/auction sources.

Rreceipts for payments Ever wonder why you see a small red sign that says, “If you don’t receive a receipt please call the following number,” when you go to Taco Bell? Believe it or not, they are not just concerned about you getting a receipt. This represents a control the company has to assure that a transaction is entered into the accounting/cash system. We see many dealers and finance companies that should implement a similar policy. This will guarantee that when cash is tendered by one of your customers, the transaction is entered into the computer system.

Control gas expenses. This expense is generally much larger than most realize. It is also an area constantly abused by dealership employees since all employees have a personal need for gas in their vehicles. Often people set up gas card-type systems; however, they don’t closely review and monitor such card usage to ensure it’s being used properly. This is rarely done adequately.

We suggest employees sign written policies regarding the correct use of such gas cards and/or gas privileges to clearly convey the control expense. Also, the accounting staff should perform analysis each month to determine whether such costs are staying constant based on sales and/or inventory levels.

Evaluate personnel. For the past 10 years or so, it was commonplace to hear employers lamenting about the difficulties of finding good people who commit to the organization. One of the silver linings of this economy is that there are more people available, probably some talented and committed people, who haven’t been in the job market for 10 years or more. Don’t let the tough times keep you from making the decisions to let poor performers go and seek out those individuals available today who really can help you and your business going forward.

These are some areas we constantly find in need of attention. Use the time you have now to concentrate on your business. This will assure that you are ready when business picks up. Don’t let the negative thoughts circulating in this economy stop you from being productive and improving your organization
“Noticeably Different”

 Vol. 3, Issue 3