Here are a few handy tips to closing your books within five business days
What makes a solid accounting team? Most would say their ability to close the month within a reasonable time frame.
OEMs require financial statements to be submitted by the 15th of the following month, however, for today’s dealer groups, that is way too slow. Today’s average time to complete month end accounting and deliver financial reporting is 5 business days. Some even do it quicker.
Financial information is most useful to end users when it is available immediately following the event(s) that is sought to record. If a car is sold in July, it must be recorded in July.
If shop supplies are bought in September, it must be recorded in September. Delays are unacceptable — transactions must be recorded accurately and in a timely manner. If you follow this practice, your financial and operational reports become a valuable management tool.
Here are some tips to help you find the “Holy Grail” — closing your books within 5 business days:
Align goals and objectives and ensure that your staff and 3rd party vendors understand your cutoffs. Make sure that no conflicting interests exist.
This really starts with your organization’s executive team. Everyone must know and follow the 5-day close rule and it is senior management’s job to educate their team.
Establish and circulate cutoff deadlines throughout the dealership. As an example: Only cars delivered by “X” date will be recorded this month, anything delivered after, even 1 minute after, will be posted the following month.
Leverage accruals where possible. If vendor invoices aren’t received by “Y” date, just accrue for them. This ensures expenses are recorded the correct period without having to delay the closing process. Be stern on this. By following strict schedules, financial data becomes more quickly available to end users. The more you make exceptions to the rule, the harder it is to meet your deadline.
Streamline and automate current business processes. Use technology to make things more efficient. If it doesn’t add value to the dealership, stop doing it. Involve front line staff in this change and reward them for their ideas. Staff members who involve themselves in changes tend to take ownership of new processes, allowing it to become the norm more quickly.
Transactions should be entered into your DMS system as soon as they occur. Set intra-month deadlines for accounting staff to ensure things happen routinely and in a timely manner. Use standard entries where possible — it definitely speeds things up. When posting errors are discovered, work with your team to find the root cause and adjust processes to eliminate the error from reoccurring.
Post bank transactions on a daily basis. Demand that bank reconciliations be prepared, and reviewed, every single day — no exceptions. This is the key to hitting that 5-day close benchmark. Track vehicle deliveries daily and ensure these get posted in a timely manner. If you don’t, bottlenecks will occur at month end.
Think about adjusting commission cut-off dates for sales staff to, say, the 25th of the month. This will cause fewer deals to be delivered at month end which always helps the accounting team during this busy time.
When managing large accounting departments, it is critical to have internal checklists. Each team member should follow their own personal checklist, which, should, all fit into the bigger list.
My experience has also shown me that there are a handful of “non-negotiable” items that must occur daily and some key timelines which make the process work smoothly. I lay these out below:
Non-Negotiable Tasks:
- Bank Reconciliation must be done daily. All outstanding items need to be addressed that same day. No transaction is allowed to carry forward.
- Part Statement invoices need to be posted every day. This will make the month end parts statement reconciliation much smoother.
- Floor plan payouts need to happen everyday. No exception. This ensures your cash position is as true as possible and that your assets and liabilities reflect reality.
- Deals need to be posted within two days after they are received in accounting. No delays are allowed.
- The payables team must post all invoices they receive in the mail before they go home at night. You’d be surprised how doable this is and the huge effect is has on meeting your closing deadline
Key Timelines:
- Business day 20 (the month you are closing) to Business Day 5 (the month after you are closing):
- The accounting team needs to focus on items that impact the P&L (posting deals, invoices, revenue and expense items)
- Business day 6 to Business Day 19 (after you have closed the month)
- The accounting team should be focusing on items that impact the cleanliness of the Balance Sheet (cleaning schedules, printing payables cheques, collecting receivables.)
If you follow these simple guidelines, you will have no problem cutting down the days needed to close the month. Hitting a 5-day close will naturally result. Your accounting team will be the envy of the industry, and very soon, you will be looking for ways to reduce the closing process to 3 days.
Give it a shot! You’ll be happy you did.
