BY FORREST FLINN
Cash in your dealership should be considered one of the most important assets that you have, and yet cash is one of the most elusive ones to wrestle with every month. The ups and downs of cash vary from dealership to dealership, and cash seems to be one of the things that we always need the most. From daily cash drawer balancing to the daily deposit, and finally to the bank reconciliation, cash should be treated seriously. This month’s blog will focus on what you should be doing to manage cash in your dealership with exact accuracy.
What is a bank reconciliation?
A bank reconciliation is where you match the records for cash from your dealer management system (DMS) with the statement coming from your bank. Put in straightforward terms a bank reconciliation matches what you think you have in the bank against what cash is actually in the bank.
Who should be reconciling the bank accounts?
In dealerships, we all wear many hats. The bottom line is that the person who is reconciling your cash account should not be the person who prepares the daily bank deposits or the person who signs checks. By splitting up these tasks, you are providing the dealership with an internal control to protect cash and deter fraud and theft. In many dealerships, the person doing the daily bank deposit and signing checks is the same person who is doing the bank reconciliation. This is a problem just waiting to happen. We have all heard stories about the bookkeeper or accountant that was able to embezzle for extended periods because they had too much control over the books and records of the dealership. By putting simple controls in place you can prevent these types of things from occurring.
Benefits of reconciling your bank/cash accounts:
- Helps eliminate accounting errors. Reconciling your bank accounts on a monthly basis is a great way to keep your books and records in balance with the books and records of your bank or financial institution. It helps you detect errors on either side. I had experienced times when the bank did not record deposits that were taken to the bank for various reasons. Reconciling your cash accounts with the bank will help detect and eliminate these types of errors.
- Helps keep the dealerships financial statements accurate. By reconciling your cash accounts monthly, you are providing confidence in the cash balances on the financial statements. There are so many automatic withdraws and deposits that happen today that need to be accounted for. For example, a vendor of yours automatically takes money out of your checking account on the fifth of each month. By reconciling your bank statement, you will be able to catch these types of transactions.
- Reconciling bank accounts saves you money. In many instances, the bank is charging you for various reasons. For example, your bank may charge you a service fee, returned item fee, or new checks, just to name a few. If you are not recording these amounts, you may not know that you are even paying for them. Often you can negotiate these types of fees and end up not paying them at all.
- Reconciling your bank accounts keeps your cash balances up to date. So many dealers go online to find out how much cash they have in the bank to make decisions. This is basically like wandering around in the dark and guessing at what the balances are. Your online inquiry does not include checks or deposits that are in transit. By reconciling your bank accounts monthly, you are getting a better view of your cash position being reported in your DMS. A reconciled bank account keeps your balances up to date for better decision making ability.
- One last thought: The reconciled balance between your books and records, and the bank statement should equal the balance of your bank accounts on your balance sheet. This step is often ignored for various and often nefarious reasons. Make sure that you inspect the reconciliation and the balances reported on your balance sheet. Again, these amounts should equal what is being reported in your books and records.
In economic good times and bad, cash is king. A mentor of mine once told me that if you cannot control cash, then you should lock the front doors of your dealership and go out of business. I understand that errors will happen; after all, we are a retail business. However, cash needs to be treated with the most utmost care from daily drawer balancing through the bank reconciliation. By doing so, you are protecting the dealership's assets and providing proper internal controls, which is vital in any dealership.
After all, it is only good business.
Forrest Flinn, MBA, PHR, SMS has been in the motorcycle industry for more than 20 years and has been a true student and leader serving in various capacities. He previously worked as an implementation consultant for Lightspeed and as a general manager with P&L responsibility for a large metro multi-line dealership. Currently Forrest is the managing partner and chief visionary for a consulting firm that specializes in outsourced accounting, human resources, social media strategy, dealership operations consulting and Lightspeed/EVO training.