Written by AutoSuccess on 09 December 2014.
Our guest blogger today is Joe Clementi. Joe is the general manager and sales trainer at Sacramento Kia in California.
Expense Management Might Not Be Sexy, But It's Critical to Your Bottom Line
Expense control is not as exciting as closing a sale, providing a solution to an unsolvable problem or landing that big parts account. The very topic of expense control, however, is a critical component for sustaining profitability in a competitive market. Department managers understand the importance of controlling expenses but, most likely, it is not top of mind.
Expense Plan Tips:
• Every month, the department managers should work with the GM and/or the dealer principle to review their expenses. On the 10th of every month (on or before the date you perform your payable), all department managers meet with the GM or dealer. We refer to this as an "expense party." The "expense party" is the opportunity for everyone to review the accounts payable.
• Each department manager reviews his or her department expense with the GM or dealer principle. The expense receives a "value" placed on it. The value is based on a scale of 1 to 10.
I. If the expense scores a 3 or below the expense is eliminated.
II. If the expense falls into the 4 to 7 range, we review it to see how the expense can be decreased.
III. If the expense is an 8 or above, we ask how to better manage it.
• Proper monthly review will help eliminate unnecessary expenses, reduce waste and control excess.
An expense is simple to incur and difficult to manage. Some solutions include:
• At the end of each month, subsequent to the last day of the month-end and prior to statement finalization, have the controller or other designated employee,= prepare an expense detail, by vendor for each expense account and other income/deductions. This report should be rolled forward monthly for effective management evaluation of each expense account. These summaries should be provided to each department manager prior to closing of the month-end. The month-end should be closed only when each manager has turned in his or her signed summary indicating that each expense, for which he or she is responsible, has been effectively reviewed and deemed complete and accurate.
• Run a trend analysis report and review it monthly. Any fluctuations versus prior month-to-date should be analyzed. The analysis report should compare each department's expense with a standardized guide. Use of an expense composite trend report as compared to similar franchises of high performing dealers should be used. From these reports we can determine if the expense is in line or out of line.
Dealerships spend thousands every month on gasoline but take little control on the expense that can be reconciled. Review of dollars will often highlight waste, theft and assist with control. Some sample solutions to these problems are:
• Issue each driver (employee) a PIN. Every time that employee gets gas for any purpose, they must use their PIN. The use of PINs makes everyone getting or receiving gas accountable.
• Accounts Payable must review and match the bill with the receipts and the PIN used. Any vehicle receiving gas will be matched to a PIN associated with the employee. Proper balance is essential and any discrepancies or missing receipts need to be addressed immediately with the department manager.
Engaging employees to accelerate the process of trimming expenses is essential. To truly control expenses, one has to understand them. Careful review of departmental expenses will often shine a light on a process deficiency. Dealers and their respective GMs must make expense control the responsibility of all employees. Offer incentives or rewards for employees who help uncover waste and save the dealership money. Department managers must always pay attention to the cost of sale accounts as well. Remember, controlling a dollar spent is more work than making that same dollar.