Cheap office help will cost you money

If you had to choose between hiring a new parts counterperson or a qualified bookkeeper, which would you choose? If you answered the parts counterperson because they are going to generate sales you would be in the majority. However, looking at the bookkeeper as solely a cost or a necessary evil is short-sighted and will prove costly.
Here’s an example. I recently visited a dealership in which the owner’s mother handled the books. The books were completely handwritten and they were a disaster. In fact, this dealership lost its most profitable franchise because it couldn’t provide the OEM with an accurate and timely financial statement. Unfortunately, it took losing the franchise to make the owners realize that they needed to invest more in their accounting office.
Another visit to a different dealership produced a reconciled balance sheet which contained $600,000 less in assets then what the dealership claimed. In discussing this problem with the owner, he calmly explained that he and his partners take thousands of dollars in merchandise off the shelf yearly.
Not only was the accounting office not reporting this income but they were not writing these assets down and expensing them. This dealership is now bankrupt.
A visit to a third dealership revealed that the accounting person was deducting for payroll taxes, but didn’t realize that she needed to pay them. This produced five quarters of unpaid taxes, plus penalties. The accounting person was so scared when the IRS agents came to collect the past due amount that she told them to “just take what they needed from the bank account.” This dealership is now bankrupt.
Here’s just one more example. I instruct accounting software classes for bookkeepers, office personnel and accountants from dealerships across the country. I have started asking the class members if they understand form 8300 and if they are reporting properly. Half of the accounting personnel I survey have either never heard of it or do not properly understand it. (IRS Form 8300) Violators may be subject to criminal prosecution and imprisonment up to five years or fines of up to $250,000 for individuals and $500,000 for corporations or both.
Another question I ask my accounting classes is aimed at learning their level of accounting knowledge. I find a staggering 90% of these individuals have absolutely no formal training in accounting.
In many cases, the people whom we hire to keep our books and produce our financial statements are spouses, relatives, and friends. Other times, it becomes the last person available after attrition. This person may have started as the receptionist and moved to the cashier and now finds herself as the bookkeeper.
Perhaps this person’s life experiences haven’t prepared her for this role.
Hiring the right person
Every dealership is different and the size and amount of paper being pushed through dictates the personnel that you will need. However, one thing is certain: Every dealership should have someone in the office with experience and training in formal accounting. If accounting is the language of business, then debits and credits are the words we use. You need someone who understands debits and credits.
Before I sit down to any lengthy job interview with an accounting applicant, I ask two simple questions. (1) To increase an Asset account, do I Debit or Credit it? (2) To increase a Liability account, do I Debit or Credit it? If the answers are not (1) Debit (2) Credit, I stop the interview and move on to the next candidate. The on-the-job training that you will provide this person is too costly for your business.
Paying the right wage
They will probably never turn a wrench, ring out an invoice or sell a major unit. In fact, their value will not be measured as a profit center on the income statement, but their value is real nonetheless. They are the internal controls of the dealership; without them we lose control.
Instead of dumping more work on them because of their strong attention to detail, try providing them with incentives for doing a job well-done and audit their work on a regular basis. You pay commissions and bonuses to technicians who are efficient; you pay sales personnel on gross profits etc. Why not with the office personnel? A job well done might include producing an accurate financial statement by the 10th of the month, or providing detailed sub-ledgers which have been reconciled to the general ledger.
You may get by in the short run with cheap and inexperienced help in the office. But it will cost you. And in the long run, that cost may even be the entire enterprise. Pay the price and get good people. Your success depends on it. psb

Blake Lawson is a senior trainer and analyst with ProQuest Business Solutions in Salt Lake City Utah. He has an MBA from Thunderbird and years of experience advising and auditing automotive dealerships in the Southern California area.

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