What Reconciliation Means for Dealerships

For dealerships, reconciliation primarily refers to bank reconciliation. This is a regular business activity where staff cross-checks the general ledger activity with the actual bank account activity to ensure all transactions are correctly posted. 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 do not 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 always have the most accurate understanding of your cash status.

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 complete the task and do 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 pending payments and due-to-process payments in the following statement.
• Employees are not adequately trained to recognize errors and inconsistencies.
• There is no proper segregation of duties, so employees are less likely to catch their own mistakes.
• Employees do not have adequate tools and technology to reconcile errors, particularly in a timely fashion.
• Employees cannot 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 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 these issues. Using an outside party ensures an unbiased perspective, reduces the risk of fraud and provides assurance that the reconciliation is performed timely and correctly.

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. 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 are 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 you can fix with better training, processes or technology.

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.

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 will have a truer idea of what you actually have available, which empowers you to make business decisions from the point of financial security and assurance.

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Cash Management Tips for Dealerships

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 create 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 practices, 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 will want to align yourself with a team of advisors with extensive backgrounds in accounting and consulting with dealerships industries. It is imperative for dealer owners to manage monthly reconciliations consistently and stay alert in detecting discrepancies.