Follow The Money!
The Problem
Recently, I was at a dealership that discovered a huge disparity between what the management thought was the sales department gross profit and the actual gross profit for the year.
The finance department was not completing any sale summary or deal recap, as some of us refer to it. The sale summary or deal recap identifies the financial skeleton of the deal, beginning with the sales price and ending with the net gross profit of the transaction.
This particular problem was compounded because the general manager would give the customer additional work or items that were not originally figured into the deal. The result was a loss of revenue, no checks and balances for the accounting office, and a dealership hindered by a computer system that processed information incorrectly.
The Process
First, we must agree that the customer, the manufacturer, or the sales department will pay the service department. Accurate documentation is the key to determining who pays for what. It is my humble opinion that NO work should be done on any vehicle and charged to the deal without the written authorization of the sales manager. Period.
Many dealerships will use a “Due Bill”, “We Owe, an “Add and Removal “ form, or a transaction verification document for these situations. Regardless of the form used, all work promised to the customer must be itemized and authorized by both the customer and the sales manager. Following the itemization, it would also be prudent to write “No additional work or items promised or implied” and draw lines down the form to the signature lines. This action should prevent anyone from adding items to the list of work to be done.
When the sales manager desks the deal, he does so with all costs accounted for. Each sales manager should have a menu of cost from the service department that identifies the cost for the most common repairs or work to be completed to the vehicle prior to delivery and charged to the deal.
This information is critical for the sales summary the F&I manager completes and turns into the accounting office. The sales summary should be a 3-part NCR computer form that identifies:
• Customer
• Vehicle sold
• Dealership personnel responsible for the sale
• Sales price
• Trade info
• Over allowance or under allowance
• Inventory cost
• Cost of all the added work or items promised
• All categories of the F&I products
• Profits from each policy or item purchased by the customer.
The white copy stays in the deal. The pink deal itemization goes to the general manager. The yellow copy goes in the trade packets. The form will print up to 3 different pay vouchers. Upon verification, the white voucher stays with the original deal, pink goes to the producer, and the yellow voucher to the payroll desk.
Figures from the sales summary should reflect the charges from the service department as well as the profit from both the sales department and the F&I department. The sales summary is also the source document for the sales department profitability reports (DOC) and the individual sales personnel production reports. These reports will run slightly ahead of the accounting office doc, and at month end they should all balance.
The general manager’s copy of the sales summary acts as the source document to alert the general manager of anything odd in a deal. It is better to make inquiries while the deal is hot rather than trying to reconstruct it months later.
The sales summary will also give the accounting office a source document with which to balance the outstanding repair orders for the deal. Any repair order that is not itemized and authorized by the sales manager, or not charged according to the price list, should be referred to the sales manager or F&I manager to redo the sales summary and adjust the sales personnel vouchers.
The Prognosis
The moral of the story here is that an adequate computer system is essential to generate consistent reports. An accurate audit trail is critical in every avenue of business, from payroll to forecasting. If you have not looked at the condition of your checks and balances lately, your chance for healthy profitability may be in jeopardy.
World of Special Finance, May 2005, p.34