5 Tips to Improve BHPH Accounting Practices
With now being the heart of tax season — for buy-here, pay-here dealers to move metal as well as complete business filings with the IRS — AutoStar Solutions offered five accounting practices operators should implement if they haven’t already.
Senior business analyst Steve Hall shared what he called a “realistic game plan” for BHPH operators who may have some hurdles to clear to sharpen their accounting department or for dealers who simply need a check sheet to run down to ensure things are operating correctly.
“Have you given much thought to your accounting goals this year? I hope one of them is to ensure your financial statements are accurate, reliable and timely and properly represent the results of your business operations,” Hall said in a blog post on AutoStar’s website that promotes its annual conference, Innovate.
“To accomplish this goal, you must continuously analyze each balance on your financials, understand what it consists of, and make adjustments if it’s incorrect,” Hall continued.
“I know many businesses struggle with this particular task, often with perfectly justifiable reasons,” he went on to say. “It may be due to a change in business operations, turnover in accounting personnel, or other disruptions or disturbances.
“Many times, if not most, it can be traced back to a lack of adequate understanding on the part of the personnel charged with the accounting responsibilities and a failure to establish and adhere to proper policies and procedures,” Hall added.
Hall pointed out that two improvements must occur if accounting is a problem in your BHPH operation. Those two elements include:
— You must make the necessary corrections to your financial statements.
— You must do whatever necessary to maintain correct balances.
“The former may be simpler than you think, and the latter may not be. But they both can and should be accomplished,” Hall said.
To accomplish those goals, here are the five steps Hall recommended:
1. Determine Correct General Ledger Account Balances
Hall suggested that dealers consult with their accounting professional. Or if they’re an AutoStar customer, they can arrange for some time with one of of the company’s professional services consultants. Hall insisted that at the very least, operators should tackle their receivables inventory, and then inventory payable, side notes and accounts payable.
“Generally speaking, the detail reports represent your true balances,” Hall said. “Adjust your financial statements to reflect these balances. Then you can work it out from there until you address every account on your financials.”
2. Make Necessary Correcting Entries
Hall instructed BHPH dealers to make adjustments if necessary to correct account balances, even if not certain what the offsetting entry is.
“Many times, you’ll find the net remaining adjustment is negligible,” Hall said.
If operators end up with such a difference that they simply cannot determine what to post it, Hall indicated that they may want to consult with an accounting professional for a suggestion on the proper accounting treatment.
AutoStar noted the viable alternatives generally include:
— Either expensing it in the current period, or a prior period
— Posting it to a balance sheet account and amortizing over time
— Posting to retained earnings, if it is determined to be attributed to prior years
Hall emphasized that operators should elect for the last option without agreement from the store’s accounting professional.
“It may require restating financials and/or tax returns,” Hall said.
3. Begin Daily Reconciliations
Once dealers adjust account balances to match detail reports, Hall recommended that dealers immediately begin reconciling the balances daily.
“The daily accounting reconciliation process is arguably the most important accounting function in the organization,” Hall said.
“If properly configured, and with proper processes in place, the transactional accounting should be automatic,” he continued. “All you have to do is audit it regularly and consistently, then find and correct any discrepancies.”
4. Learn Causes and Initiate Corrective Actions to Avoid Problems
The AutoStar analys suggested that BHPH operators check to make sure daily balances remain correct and make necessary adjustments.
“Doing this will give you a better understanding of what causes incorrect transactions and allow you to react to them properly,” Hall said. “You’ll know you’ve reached your goal when you find virtually no problems to fix.”
5. Become a student of accounting principles relevant to your business
Hall closed by stating that BHPH operators should continue to build on what they’ve learned, constantly adding to knowledge and expertise.
Editor’s Note: More best practices for operators from AutoStar Solutions will appear in future installments of BHPH Report Extra. The magazine’s annual IRS Update is also set to be delivered this month featuring the latest regulatory mandates as well as expert recommendations from firms such as McGladrey and Shilson, Goldberg, Cheung & Associates.