Reconciliation is Key to Cash Control for Dealerships

As a dealership owner, you must also consider how to change your business model to adapt to an increasingly digitally driven environment, which adds a significant load to your already long list of responsibilities. Because managing a dealership is complex, it’s easy to entrust your accounting staff with additional tasks without strict internal controls, regular check-ins, or process and technology assessments. Unfortunately, this leaves a lot of room for error, inefficiency, and even fraud.

One of the best defenses against these risks is good cash management, which includes monthly bank reconciliation to confirm your cash is accurate. Conducting a dealership diagnostic check, along with consistent reconciliation, can help maximize efficiencies and profitability.

Why Good Cash Management is Critical

Careful cash management and monthly reconciliation are essential for dealerships to stay viable and pursue business-building initiatives. Understanding your actual cash flow and current cash status helps you identify and avoid risks, find opportunities to nurture and improve your cash flow, and make well-informed financial decisions.

Consider, for instance, that a team member might be entering numbers incorrectly without realizing it, giving the appearance that you have more cash than you do. Or that there is regular, barely detectable theft occurring internally, adding up over time.

Timely monthly reconciliations can expose discrepancies like these so you can address them.

What Reconciliation Means for Your Dealership

For dealerships, reconciliation primarily refers to bank reconciliation. This is a regular business activity where staff cross-check the general ledger activity with the actual bank account activity to make sure all transactions are posted properly. This is how you will reconcile your cash to your account activity. Other reconciliation activities include vehicle inventory and floor plan reconciliation.

Bank reconciliation is central to cash flow management because this regular view of your actual financial activity and cash status empowers you to identify:

• Where you might improve the inflow and outflow of cash.
• Opportunities to improve processes.
• Unnecessary spending and loss.
• Unusual activity and errors.

If your bank accounts and cash don’t reconcile, it could be something as simple as a miscalculation or something as substantial as fraud. Even a simple miscalculation is worth identifying and fixing to ensure you have the truest understanding of your cash status at all times.

Common Issues with Reconciliation and Cash Control

If you have employees responsible for monthly reconciliations, you must check in with their processes to ensure they’re actually completing the task and doing so with attention to detail. You must also assess whether you can better support them with process and technology improvements.

There are a few ways your reconciliations might be stunted:

• Employees assume any discrepancies will work themselves out, as with payments that are pending and due to process in the next statement
• Employees aren’t adequately trained to recognize errors and inconsistencies
• There isn’t proper segregation of duties, so employees are less likely to catch their own mistakes
• Employees don’t have adequate tools and technology to reconcile errors, particularly in a timely fashion
• Employees aren’t able to conduct bank reconciliations because they are too busy
• Owners and managers de-prioritize reconciliations because the business is doing well and other tasks demand attention
• Employees are participating in fraudulent activity or theft

To solve for these issues, dealership owners and managers must emphasize the importance of reconciliations, ensure segregation of duties and involve themselves in the process to ensure procedures are followed.

Outsourcing reconciliation to a third party can also help solve for these issues. Using an outside party ensures an unbiased perspective, reduced risk of fraud and assurance that the reconciliation is performed timely and properly.

Benefits of Regular Reconciliation

When you conduct or outsource reconciliation regularly, it gives you greater control over your cash. You can catch problems in a timely manner and take care of them before they become costly and detrimental. An inconsistency could be as easy to fix as moving a comma, or it could be a sign of something significant happening in your dealership.

Find Internal and External Errors

All manner of errors could show up when you’re reconciling your cash. The fault may be with the banks themselves, or errors made by your staff. It may even be that employees are consistently making mistakes that you can fix with better training, processes or technology.

How to Identify and Prevent Fraud

Unfortunately, your reconciliations might turn up fraud or theft at your organization. These activities could be incremental and difficult to see, but they add up over time and cost your dealership money. Additionally, you don’t want untrustworthy employees to remain on your staff.

Consider that employees who are responsible for your reconciliations could be participating in fraud. It's important to ensure segregation of duties to prevent this. If you outsource your reconciliation, employees may be further deterred from such activities.

How to Fix Costly Process Issues

Your documenting, accounting and reconciliation processes could be inefficient and full of bottlenecks that cost you money. Performing monthly reconciliations and having control over your cash will help you get a better view of your processes and where you might improve efficiency overall.

Account for Cash More Accurately

Reconciling your cash each month means you’ll have a truer idea of what you actually have available, which empowers you to make business decisions from a point of financial security and assurance.

Cash Management Tips for Your Dealership

To support effective cash control and reconciliation efforts, you must broaden the scope from just comparing documents each month. Good cash management requires:

• Solid internal controls. Proper internal controls are essential to controlling cash and avoiding risks. They include documented procedures, segregation of duties, approval structures, and activities like reconciliation.
• Process improvement activities. Look for process issues that are creating bottlenecks, causing delays and leading to errors with your reconciliation and cash management processes.
• Measure of cash needed. How much cash you need on-hand will fluctuate as your business and demand changes. It’s important to know what you need, what would be dangerously low, and what would be suspiciously high.
• Constant training. Keep employees vigilant and up-to-date on good practice, particularly if you update processes or technology.
• Supporting technology. Your technology and software may be limiting your capabilities and even costing you money. Consider introducing new technology for more harmonious processes, fewer errors and greater efficiency.

You’ll want to align yourself with a team of advisors who have extensive backgrounds in accounting and consulting with dealerships industries. It’s imperative for dealer owners to consistently manage monthly reconciliations and stay alert in detecting discrepancies.

Eide Bailly’s team of dealership advisors can help you develop your reconciliation processes and address any other accounting issues.