How to Keep your Dealership’s Balance Sheet Balanced
Written by Blackpurl
Dealers, is accounting one of your most dreaded tasks? If you don’t have any active disciplines around proving your trailer dealership’s balance sheet or have only a few, this article is for you.
As with all new habits in life, start small and build overtime into a more sophisticated approach. Get comfortable, grab a coffee, and let’s dive into 6 priceless accounting disciplines that industry veteran, Marc Storey, used in his dealerships for over four decades to keep his balance sheets balanced:
- Count Parts Inventory at least twice a year, and adjust for shrinkage. This is easier if you perform a rolling stocktake: count one sixth of your inventory every month in an organised sequence.
- Overaged Parts Inventory should be written down or written off once hitting certain age parameters. The exact parameters are up to you, the dealer, but there is so much evidence and data to suggest that trailer parts older than 12 months since last purchase diminish exponentially in their potential for a retail sale. It is better to take small “hits” every month, rather than a massive one in five years time when someone performs a full audit.
- Over Valued Used Units: we all make errors in judgement on the value to place on a trade in, and the “pain” from having to write down a used unit cost does not diminish over time. There is a saying “your first loss is your smallest” which means the earlier you recognize it has to be written down, then the smaller the loss is. Every day that trailer sits on your floor it is costing money and falling in value. Get the cost right and someone will buy it.
- Overage debts: Preferably you don’t run customer credit accounts, but if you do, eventually you will get “caught”- it is just a fact of life with credit. Establish your parameter whereby the time cost of chasing a debt is not worth what you recover. Write it off, book the loss, and move on. If someone has not paid for their trailer in 90 days, it is unlikely they are going to without some sort of “coercion.” Just be careful and don’t let pride get in the way. What is the cost of the coercion and is it worth the monetary return?
- Creditors are not always right. If you have outstanding credit returns or incentive payments, deduct from what they say you “owe them.” Remember to recognize the debt to creditors as an accurate reflection of reality.
- Work in Progress, after parts inventory, is the second biggest “sleeper” on your trailer dealership’s balance sheet. It is easy to recognize a used trailer that has been on your floor too long - you see it every day. WIP and parts inventory; however, are “hidden.” Be ruthless with service WIP, ask questions, and have parameters to report against. How long is reasonable for a service order to stay open? There are so many local and industry specific variables that it is not realistic for me to suggest what your parameters are, but each trailer dealer should know what they are and enforce them.
Implementing these 6 key accounting disciplines at your trailer dealership will help keep your balance sheet balanced, but these are just the start. There is so much more we can talk about another time; however, if you can nail down the above principles and get comfortable with your Balance Sheet, then we are off to a great start to a more sophisticated dive into managing your trailer dealership’s financial health in future.
Remember it is critical to understand the balance sheet, what it is telling us and what activities need to be part of your regular routine to keep it healthy.
For more information, please visit blackpurl.com.
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