Are the numbers you’re looking at real?
Most dealerships operate on a calendar year, so right now dealer principals are taking a deep breath that 2017 is over, and at the same time wondering how to make 2018 better.
Accounting managers and book keepers are trying to get the bank accounts balanced, parts accounts reconciled and year-end inventory valuations into the books. Parts managers are running around making sure inventory is correct, sales managers are trying to figure out where that used trailer in the back came from, and the service manager is making sure there is a Repair Order for every unit in the shop; and a unit for every Repair Order.
Point is – everyone is trying to close out the year and get an accurate starting point for the new year.
There are dozens of year-end checklists for dealers to follow. I’m betting every Dealer Management System (DMS) has one, every 20 Group, and some OEMs provide them – So I’m going to completely skip the checklist and tell you the one thing you really need to do: Audit your balance sheet.
I know. you need to finish all the stuff on the checklist before you have a balance sheet; but let’s face it, if you start with the balance sheet audit and work backwards, then you’ll complete most of the checklist in the process.
Let’s start by looking at what a balance sheet is. Think of a balance sheet as a snapshot of where you are at a given point in time. It shows what you have (Assets), what you owe (Liabilities) and how much of what you have is yours (Equity). This is when you put on your reality hat and decide: Are these numbers real?
Have your accounting manager (or spouse) print out the balance sheet for you and start at the top.
Cash: If the balance sheet says you have $120 petty cash in the safe and $200 change in the register; go touch it and count it; make sure it is really there, no extra, no less. Get the ‘real number’.
Bank Accounts: Pull out the December bank statements and look at the numbers. Is there a reconciliation report showing outstanding checks? Are there any outstanding checks from 6 months ago? 9 months ago? Should they be voided? The numbers might match, but are they real? It is easy to pass over all of those old transactions that haven’t cleared and just leave them there month after month after month. Now is the time to clean it up and get a ‘real number’.
Accounts Receivable: Get a detailed report of all the outstanding invoices and credits and figure out if they are still valid. Are those co-op claims from 2015 going to get paid? Do you expect your uncle that owes $12 for a T-shirt from last year to pay for it? What about those buy-here-pay-here customers? Look over every invoice/credit and fix it. Send large past due invoices to collection or write them off, whatever you need to do; but get a ‘real number’.
Inventory: This is one that everyone knows about and very few do. Parts inventory, unit inventory, works in process; make sure you have a detailed list of every item that makes up the number on that balance sheet. Once you have that, take a look and see if each item is really worth what it shows on the report. I won’t give tax advise on how to write down/write off inventory; but that Cab Assembly for the 2006 Kawasaki Mule is not worth the $4,000 it is on the books for; and the NEW 2009 Suzuki is not worth dealer invoice any more. Look it all over and get a ‘real number’.
Fixed Assets: Check your depreciation schedule, do you really still have all of those old printers? They are probably fully depreciated and getting them off the list most likely won’t change your owner equity or annual income – but it will get you to a ‘real number’.
Liabilities: Accounts Payable, Credit Cards, Parts accounts, floorplans and other loans and payables on your books. Check the accounts payable to verify you really owe all those bills. Check the parts accounts to verify no old credit memos, or unpaid warranty claims are setting on the books. Get current principal balances from any banks and floorplan loans and make sure they match what is on your report. While you are at it you might check and see if you can get lower rates on any financing, better pricing on shop supplies and other recurring costs. Look it all over and get a ‘real number’.
Equity: Here is where it all comes together. If you have all the assets reconciled and liabilities accounted for; the difference is owner equity — that’s it. This is what is yours if you’re the owner!
Remember, no matter where the numbers go on the Income statement, if you expense it as goodwill or advertising, record the part as sold on the repair order or over the counter. The numbers on the Balance Sheet are what they are; and they are the ‘Real Numbers’.
So now that you have the ‘Real Numbers’ you can analyze how you did last year, and make a plan on what you need to do this year. Look over the numbers, compare all the balances year-over-year, how did they change; why did they change? Are they where you expected them to be? Are they where you want them to be? Make plans now before you get to deep into 2018 and ‘Keep it Real’.
Mike Jackson has been in the powersports industry for over 25 years: working in e-commerce sales, b2b development, supply-chain management, dealership CFO & CTO, as well as CEO of a third-party logistics operation. He recently launched MotorcycleDealer.com as the most comprehensive destination for locating dealers, vehicles and parts. In his blog Mike hopes to share some of the lessons and practices he has learned over the past 25 years, so other dealers, distributors and manufacturers can grow their business by developing WIN-WIN relationships with their customers and suppliers.
Contact Jackson by email: mikej@motorcycledealer.com