Month-end Closing: Do It Right! Always Know the Score!
In my travels across the country, I have seen dealerships that don’t know if they made any money or not until months after the year ends. How can this be, you ask? Well, the answer is quite simple. The accounting department is usually running behind – way behind! It may be the month of April, but the accounting department has yet to close the books for January, February, and March. What this means is that the financials now become like a batch of scrambled eggs – running four months of numbers together like an omelet that contains ham and cheese (my personal favorite of course).
The Cure: Always Close Each Month in a Reasonable Amount of Time
We recommend that you close each month no later than the 10th day of the subsequent month. In other words, the books for January 2012 should be closed by February 10th, 2012. We assume that you realize the value of closing the books for each month in a timely manner, but just in case you’ve missed the boat, let me speak on this matter by sharing an illustration with you.
Have you ever gone to a football game? How many players are allowed on the playing field? How many quarters of play are allowed per game? How are points given to each team? What services do the players provide the owners and fans? How do you know who finally won the game? Needless to say, each game has rules that govern how the game will be played and how to keep track of the score in order to determine a winner. A football game ends after four periods of play, unless of course the game ends up in a tie. Each touchdown is awarded six points, while extra points are awarded one point. A touchback counts for two points, and a field goal is worth three points. At the end of regulation play, which is four 15-minute quarters, the team with the most points wins – that’s how it works! Now what does all this mess have to do with dealership bookkeeping, you ask? Each month is like a football game to a dealership. The players are the employees who need to be paid. The number of points earned for the month are determined by the amount of RVs/Boats, service, parts, and F & I revenue you generate. The game starts on the first of the month and ends on the last day of the month. You can’t go back and add points or take away points after two or three months. You win the game if your points for sales are greater than the penalty points you pay for the cost of goods sold and for dealership expenses. The final scorecard is presented to the owner/GM in order for him/her to evaluate the outcome of the month. Basically, the balance sheet and profit/loss statements are the two key scorecards management uses to figure out how the game turned out for the month.