What are Your Numbers?
Were your profits from F&I what they should have been last year? Often dealerships project one figure and the books end up showing a lesser figure. In the analysis of your current paper flow, I am going to point out some checks and balances that should be in place.
Every vehicle sold, whether it is wholesale or retail, should have a sales summary completed. Most dealer management systems have such a program. Often, the report is not completed by the F&I manager.
Some dealership senior managers say they do not want personnel knowing what the profits are. To those I reply, times have changed, and so have dealership processes. Currently, most lenders request a copy of either the manufacturer’s invoice or a copy of a book sheet for the financed units.
The sales managers and F&I must know what the cost is so they can ensure the dealer is either in-line, or identify how much the over advance is. It is a good idea to track the amount of over advance, and how many of your financed vehicles are actually within the lender’s advance guidelines.
The sales summary is a report that identifies how much of the profit is from the sales department and all the F&I profit centers. It identifies the amount of reserve. It also shows the profit from service agreements, pre-paid maintenance, GAP, credit insurance, and AfterMarket items.
Some sales summaries also have room for the sales representative’s commission to be calculated. This is normally a three-part NCR (non-carbon required) form, and all of it goes into the accounting office.
The sales summary is the source document for posting to the accounting system. The amount of reserve profit will show as a receivable.When the contract is funded, the reserve payment is usually a separate deposit/check. A copy of this funding document goes to the F&I department so it can verify the calculation. If the reserve payment is lower than expected, the F&I manager should call the lender and offer an explanation for the discrepancy.
Occasionally, the reserve payment is calculated using the wrong rate sheet. This error can occur on either the dealership or the lender’s documentation. The projected reserve profits should match the lender payment exactly.
For many, the current practice is for the accounting office to receive notice of the reserve payment and make an adjustment in the accounting books, but they never tell F&I. This lack of communication can cause a loss of thousands of dollars.
F&I is usually notified of the revenue shortfall at the year end, instead of immediately, when they can either request additional payments or correct the data.
The year-end books should balance with the Daily Operation Control (DOC) reports. Remember, no one likes surprises. This is the time of year when we gear up for shows and implement new plans. A shortfall in profitability can have long-term repercussions.
The finance manager should also be the one who verifies the amount of refunds and lost commissions due to policies being canceled. Track the cancellations and verify the amount. The educated professional should know how to calculate the rule of 78, in addition to pro-rate time, and pro-rata miles refunds. The policies have the amount of the cancellation fee identified in the policy.
Nobody Watches Your Money Better Than You!
We can all agree that the reports are only as good as the quality of the information received. Monitor and make adjustments to the business model as needed. Track productivity and verify the amount of the projected profits as the year marches forward.
RV Executive Today, March 2008