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Years ago an auto dealer with about 10 stores told me that he started in business owning a number of gas stations. When he owned the gas stations, he said that he always had a big roll of cash. Now he sees his name up on dealerships all over the place and his statement shows a health profit… but he felt like he had more cash money back in the day. “If I’m making all this money… where is it?”
A basic truth of any business accounting, and especially auto dealership accounting is that Net Profits are the ultimate goal, but if that does not convert to cash in the bank, it can all look a lot better than the actual situation.
Diligent automotive Controllers know the importance of their “Cash Position” and daily take steps to ensure the enterprise has enough Net Cash to cover an Average Month’s Total Expenses… and hopefully more than enough.
First let’s define terms according to the Profit Blueprints/DealersEdge Accounting Guide:
"Net Cash"
Cash available for doing business now. Sum of selected Current Assets less selected Current Liabilities from the balance sheet of the financial statement.
"Net Cash Position"
The difference between Net Cash and an Average Month Total Expenses (Total Expense YTD divided by Months YTD).
Here is author Brooke Samples’ worksheet for calculating a dealership’s Net Cash Position (Page 17)…
When the car business is very good, your “Cash Position” may become less of a daily worry. However, this is a cyclical business and the “less-than-good times” tend to show up now and then and bad habits are hard to break.
So suppose in spite of your careful management and watchfulness of your Cash Position, you find the business short of cash for monthly expenses? Sometimes you have to become creative. Here are some suggestions:
FINDING CASH
In an emergency, possible sources of quick cash:
Review a side-by-side schedule of the vehicle inventory account and the floor plan account. Floor plan vehicles that you own; these could be dealer trades you didn't sell or used vehicles not previously floored.
Sell used vehicles for which you have titles to either a wholesaler with proven ability to pay promptly or at an auction. Notify the Sales Managers that they cannot purchase any vehicles that you can’t floor plan until you say they can.
Review ALL receivables schedules and work with Managers to collect past due amounts or large amounts—such as those on a warranty schedule or contracts in transit.
Send out Accounts Receivable Statements early.
Put a hold on new charge accounts, like for wholesale parts. Accept credit card, check, or cash payments for new accounts. You are not a bank, reduce “charge” accounts.
Make payments on a company credit card to extend the time to pay. (Pay off the credit card when it’s due.)
Last resort— borrow money, or refinance fixed assets you own free and clear.
To Keep Your Cash Flow Healthy
Reconcile your Bank Accounts daily
Use Positive Pay to reduce fraud (A cash-management service offered by banks to deter check fraud. Any check considered to be potentially fraudulent is sent back to the issuer for review.)
Require completed check request forms, including the purpose. Set a cutoff time for check requests so you are cutting checks in batches—making it more efficient.
Deposit checks at the end of the day via a remote deposit scanner
Closely monitor receivables and review past-due amounts with the appropriate Department Managers. Twice monthly receivables and frozen asset meetings with the Managers will keep everyone on track. It is the Manager’s responsibility to collect past due receivables, not the Accounts Receivable clerk!
Keep Frozen Capital to a minimum by monitoring it weekly.
The above is just a small excerpt for a more detailed DealersEdge Guide – Guide for Dealership Controllers and General Managers.
DealersEdge offers tons of workshops and special reports in multiple formats on this, and many other topics critical to your dealership's success, Learn more and start your free trial at dealersedge.com/freetrial
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