Like most business sectors, car dealerships have various teams collaborating to guarantee the company’s smooth running. From sales and financing to customer interaction, internal activities must be streamlined and never stop. But one group contributes a lot to the prosperity of an automotive showroom – car dealership accounting.
Opening a dealership is an activity in which the primary goal is to generate a profit; e.g., the largest dealers in the United States, Penske Automotive Group and AutoNation, had revenue of $27.815 billion and $26.985 billion in 2022, respectively. A car dealership’s accounting group is responsible for the financial aspects of the company and controls the inflow and outflow of capital. Many moving parts can be a complex job for a bookkeeping team with only a few people. This article will look at how to work with finances in the auto area effectively.
The Importance of Car Dealership Bookkeeping
As of 2022, approximately 18,230 passenger car dealerships supported more than 2 million jobs throughout the United States. In such a competitive environment, you must monitor your resources carefully; otherwise, you risk losing liquidity or going bankrupt. Let’s consider other advantages of car dealership accounting:
- Financial clarity: with organized books, car showrooms can easily monitor earnings, expenditures, and profit margins. It will allow you to find places where you can cut costs and increase profits.
- Tax compliance: the automotive industry has specific mandatory payment guidelines that must be followed to prevent penalties and tax audits. You can accurately calculate your taxable amount and claim deductions with proper record-keeping.
- Effective decision-making: financial statements provide important insights for business decisions, e.g., purchasing inventory or implementing additional services. Such documents allow the entrepreneur to analyze performance parameters, e.g., total revenue or inventory turnover.
To experience all the benefits of car dealership bookkeeping, we recommend delegating financial work to a specialized bookkeeping company like BooksTime so that dealership staff can concentrate on critical activities, including sales and client service.
How to Make Car Dealership Accounting?
Advances in bookkeeping software and instruments have radically changed car dealership accounting; this results in fewer human errors and faster results. Many modern functions, such as business analytics, real-time accounting, and automation, can be included in standard financial procedures:
Creating a trial balance
The trial balance is the basis of the balance sheet and the profit and loss statement. It is the main financial document of your automotive dealership. Many business owners check only the financial statements at the end of the month without checking the entire trial balance, which shows the balance of each general ledger account. As you prepare to close the month, print out a trial balance and go through each account from top to bottom.
Truck dealership management reviews expenses at the end of each month by reviewing the company’s financial statements. But before submitting the documents to senior management, specialists should organize expense tracking to eliminate errors associated with incorrect classification of expenses and posting errors.
Take the time to compare all expenditure balances for the month with the average monthly spending. Let’s say your costs in October were $7,000, but your average monthly expenditures for the year are $4,000. It is necessary to determine the reasons for this growth and understand how to maintain positive cash flow.
Efficient inventory handling
Inventory is the main current asset in the automotive area, so comparing inventory with expenditures and revenue is essential. Such a business has considerable freedom in choosing inventory accounting methods, and no ideal solution exists. Each inventory category, including new cars, used cars, parts, and accessories, may require a different inventory method to accurately reflect the earnings of car showrooms.
Using special software
In car dealerships, you often have to deal with large operations. Therefore, keeping your books is extremely important, but you don’t want to spend much time creating invoices and monitoring income in spreadsheets. Instead, use software specific to car dealerships. With dealership software, you can send professional invoices, monitor capital inflows and outflows, and generate detailed reports in seconds to gain insight into your success.
The Importance of Reconciliation in the Formation of Car Dealership Revenue
Reconciliations are critical for ensuring exact financial records and the uninterrupted performance of an auto showroom. This procedure involves comparing and reviewing different financial reports to guarantee coherence and precision. This important internal control system reconciles other databases, including the general ledger (GL) and the bank statements, to make sure financial transactions are correctly recorded and accounted for.
Reconciliation lets you detect the following inaccuracies:
- Randomly inverted numbers at the time of recording, e.g., it was $45, but became $54.
- An employee accidentally pressing the wrong key on the calculator makes mistakes in estimations.
- The entries are out of place: suppose an account was credited, but an employee accidentally wrote as if it had been debited.
Furthermore, reconciliation allows for the detection of fraudulent activities within the company. Some auto centers prefer to have an outsourcing company or at least a third-party specialist do the reconciliation so that one person does not have to deal with the entire bookkeeping processes.
What Bookkeeping Challenges Do Automotive Dealerships Face?
Car showrooms must have impeccable financial records. You won’t be able to manage your business if your economic papers are inaccurate. Let’s look at the most common difficulties an automotive dealership accountant has:
- Automotive dealerships often provide warranties and service contracts for vehicles sold. Bookkeepers or CPAs must manage the accounting for warranty reserves, track service contract revenue, and handle any claims or repairs covered under these agreements.
- Parts inventory is not reconciled: financial experts recommend organizing a parts inventory annually, but only 50% of car showrooms conduct an annual physical inventory. Make sure you check the physical count against the general ledger. It is rational to compare the balance on the parts pad to the general ledger monthly and examine the significant distinctions.
Working with a bookkeeping firm can be crucial for keeping your bookkeeping in order. The company must have experience in the automotive industry and implement dealer-specific checklists when calculating tax payments.
Accounting is vital to American car dealerships’ smooth performance and financial health. An exact record-keeping and comprehension of the economic position of the dealership enables you to make informed decisions and adhere to legal norms.
BooksTime has experience serving the automotive area and recognizes the non-standard troubles that car showrooms face. By applying our practice, automotive business owners can improve their economic results and gain helpful data on their economic activity.