About 80% of your DMS is devoted to Accounting. I don’t mean the accounting department and the function of producing a monthly financial statement or daily DOC, but rather the process of accounting for the operations of your dealership. Your DMS “accounts” for the amount of time that a technician takes to complete a job along with the amount of times you’ve done that same operation or replaced that same part. It accounts for the gross profit you make on the part and compares it to whether you installed the part in the shop or sold it to another dealership. If it is a Tier 1 DMS, it helps you determine if you should keep more in stock because the cost is very small (ordering escalators) or sell it at a higher mark up (list escalators.) These types of extra features can often determine if you have a DMS that is focused on profit or bookkeeping. Over the past few years many dealerships jumped from a Tier 1 system that had these features into a Tier 2 or Tier 3 system that cost a lot less per month. The objective of this change was to increase profit by reducing technology expense. For some dealers that were only using a fraction of their DMS, this was a successful move. For others, they have found out the hard way that ended up with a “bookkeeping” DMS instead of one that truly helps the dealership keep a focus on profit. Is your accounting office a bookkeeping department or focused on profit? During my Profit Accounting Academy workshop this summer, I plan to train controllers, CFOs, and other key dealership personnel on ways they can use their DMS and other technology tools to create a focus on profit accounting instead of merely bookkeeping. Part of the training will involve restructuring the accounting office to better align the staff to tasks that they are best at performing. Our old accounting offices were structured in a “desk” type of organization. A new car desk office clerk would perform all the tasks involved with selling new vehicles. This might include stocking in new units, finalizing the deal in the DMS, and paying off the trades. This clerk typically performs the tasks rather methodically instead of with a focus on profit. If one of the tasks is to submit the contract to the bank for payment and she has a stack of twenty deals on her desk to do – she might not get that contract submitted that same day – or even for days if the office is trying to close the books. A profit focused office would perform tasks based on their skill level and with an urgency based on how the task is scheduled.
Another key element of profit accounting is establishing metrics for gross profit and expense accounts. Instead of the old method of trending or detailing an expense account, profit accounting establishes very specific metrics for their own dealership. Industry benchmarks are fine in comparing one dealership’s performance to another, but unless the two operate identically – they don’t work. For example if you have a benchmark of 24% for sales commission and your gross profit average minus your pack amounts, multiplied times your pay plan works out to 19% – then that should be the metric you’re reconciling to. You need to explain any variances from that metric of 19% rather than accepting that 24% is close enough because that is what other dealers have for that expense. The same is true with service gross profit. Your metric is simple; your posted labor rate less technician cost. This would be your dealership’s specific amounts – not a benchmark of 68-70%. If your posted labor rate is $100 and technician cost is $25, then 75% is your metric. You need to investigate erosion of that 75% gross profit. If you have an office manager, controller, CFO – or another key employee that needs to understand profit accounting, then consider having them attend my profit accounting academy in July. You can find out more information at www.sandijerome.com or send me an email with your questions about metrics. The final element of profit accounting is managing your resources – with a focus on cash. Understanding better how to convert assets to cash is a key element of increasing profit. No matter how much cash you have (or don’t have) – the timing of this conversion of profit to cash is the key to retaining the most of your hard-earned profit.