Car dealership accounting offices are often overlooked in the search for profit-boosting practices. However, these departments can make or break a dealership’s financial health with the right resources and support.
Prioritizing reconciliations and embracing technology are key to efficient dealership accounting services. These essential practices enhance financial accuracy, uncover potential issues and drive profitability.
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Reconciliation services are an integral part of any dealership accounting practice. The process involves meticulously comparing and verifying different data sets to ensure consistency, accuracy, and a clear picture of the dealership’s financial status. It also acts as a critical internal control mechanism, safeguarding against errors or fraud.
Inaccuracies often show up in the form of unmatched payments or missing funds. Reconciliation identifies these issues and helps the dealership correct them. Leaving these problems unchecked can lead to serious consequences, including losing floorplan funding or going bankrupt due to repeated violations. For these reasons, dealerships must reconcile all their accounts at least monthly.
While reconciliation is a crucial component of an efficient dealership accounting practice, it can be time-consuming and complex. It requires accessing reports from multiple sources, which may be in different formats, and then matching them up. It is also common for employees to make mistakes that are difficult to catch, such as moving a comma or forgetting to change an account number.
These errors can add up over time and cost the dealership money in both operational costs and lost inventory. Prioritizing reconciling your bank, inventory, and vendor accounts can help you avoid these issues, improving efficiencies and profitability.
Financial reporting is essential for external or internal purposes to ensure accurate documentation of financial transactions. This allows companies to comply with regulatory requirements and minimizes tax, valuation, and auditing time and costs.
Reconciliation is the heart of financial reporting, ensuring that all accounts are correctly recorded and balanced to provide a complete picture of a dealership’s finances. This includes reconciling cash receipts and sales records to prevent misappropriation of funds, comparing bank deposits and withdrawals against account balances, reviewing service department transactions for accuracy, and confirming that parts inventory is properly documented in the system.
In addition, reconciliation provides important insights into expense patterns that help management identify areas for improvement and drive profitability. For example, a review of schedules may reveal that purchases are being expensed rather than capitalized and depreciated and could result in significant future expenditures. Regularly reviewing and cleaning schedules helps reduce the risk of a major financial mishap and allows for the timely discovery of issues that can be resolved.
Having the right automation in place to enable this type of streamlined reporting also frees up resources that can be better spent on value-added activities, such as analyzing and acting upon financial data. An integrated solution like NetSuite allows for creating templated and customized financial reports based on real-time data. These reports can be securely distributed via the cloud, allowing for a transparent view of information from anywhere with internet connectivity.
As tax season approaches, dealerships should focus on significant planning, preparation efforts, and bookkeeping practices to support an efficient year-end close. Whether the dealership uses in-house personnel or a commercial tax preparer, it is important to have the information and forms needed organized and ready to go. This includes receipts that record taxable income and deductible expenses, which should be received by the end of January. It is also important to review and clean schedules. Whether finding debits and credits that don’t belong, ensuring appropriate aging that aligns with payment expectations, or writing off small variances hanging on the schedule, this work is vital for a good year-end close.
Many dealerships have capitalization policies requiring them to depreciate their fixed assets over a period. Some new regulations may change these policies, allowing dealerships to expense more items in 2014. Dealerships that use the last-in, first-out (LIFO) inventory accounting method should carefully review their new and used vehicle inventories before 2014 ends, together with the type of vehicles they anticipate having in stock in 2015.
A seasoned automotive CPA can provide valuable insight into these and other tax-related issues facing dealerships. These professionals can help shape effective planning strategies to minimize the potential for future IRS tax disputes. They can also assist in determining the best form of business for the dealership, including sole proprietorship, partnership, limited liability company, or S corporation.
Payroll services are critical for ensuring your auto shop complies with the law and pays your employees properly. A comprehensive payroll service will ensure that all statutory deductions, including EPF, TDS, ESI, and workers’ compensation insurance, are deducted, paid to the appropriate agencies, and filed return reports. It will also manage the issuance of payroll (electronic or paper) to employees, as well as the filing of employment taxes and UI contributions, and handle human resources functions.
In recent years, news reports and court records indicate that some PSPs misappropriated employee wages to fund their businesses or themselves. Some of these cases involved reversing or misusing funds intended for direct deposit, which can leave employees without paychecks. Other cases involved PSPs diverting funds from their clients’ payroll tax withholdings to their own business or personal accounts and covering up the misconduct through false filings and misleading reports.
While it may be reasonable to require bonding for some third-party payers, such as those authorized under Section 3504 of the Internal Revenue Code, DFS has yet to find establish a separate unit in the Department of Financial Services to regulate PSPs feasibly. The cost of such bonding would likely be passed on to PSP clients, many of which are small businesses themselves.