Why are expenses so mysterious?  Why don’t they show up as expected?  Why do managers assume on the 20th that all their expenses besides payroll are on the DOC?

i hear the same compliant over and over- I can’t predict what my expenses are going to be, I always ask why do you think they are going to be different than they were last month? If you haven’t made any significant changes to advertising, payroll or inventory- why would you expect variation?  Add in the unforeseen expenses that crop up every month and small gains usually are offset by the unforeseen policy or other customer adjustments.

So what can you do so you can predict where you are gonna land? Start by looking at last month, like it or not- it is the best reflection of where your businesses expenses are currently running.  Same time last year never made any sense to me, too many variables change.  It might indicate sales trends – but assuming you change pay plans and advertising and inventory levels vary at your store – comparing expenses to last year is a fruitless task.

Too much time is wasted chasing historical numbers that don’t matter- if it isn’t currently affecting net income – who cares- nail down what is impacting your profitability on the books today and fix it.

How many hours did you spend vetting your most recent iteration of your latest pay plans? Did you even have your controller run the numbers after you finished designing it?  Or did the Controller find out it changed about 3 Weeks after it was in place and have to go back and correct a bunch of postings because of it? Does the pay plan follow the key metrics you look at every day? If not, why not?  Failure to tie the pay plans to the big picture is the number one reason you’re mad when the employee is “working” his pay plan.  If you had designed it right, when he is working it, it benefits you. Not only does it benefit you and the bottom line the unexpected does enter into the numbers and Comp starts to follow sales/gross, novel idea huh?

So if you want to create predictability, take some critical thinking time and really work through the numbers on these pay plans.  If you design it right your payplans shouldn’t need to change and any special incentives for the month should compliment the current plan and reach unique monthly goals.

Get the predictable on the DOC. Make sure that the standard entries are posted each month by the 10th, along with any other bills that can be determined and accrued for – like a firm advertising budget.  With the advent of outside payrolls lots of  Controllers put off posting payrolls until they have time.  Payrolls should be posted within 24 hours of the pay date,  now the DOC is getting closer to true expenses. If you don’t see a jump in payroll on the DOC after a payroll – it’s gonna creep up on you at month end.

Do a mid month sit down – unless your smart enough to be doing it weekly in your weekly asset meetings.  Review the DOC  with the managers and see why they haven’t had time to get to approving invoices and why those invoices aren’t already posted.

Chargebacks – the nemesis that every dealership is currently facing- it is killing profitability and losing you customers because typically it is appearing on your financial impacting your profitability and no one handled the customer early enough in the process to save the customer and at least offer them a free oil change or bring their new car into service. Every refund should be signed off by a F&I or sales manager as it should impact their pay plan.  Controllers should be producing a monthly log of chargeback so with detail for you to cover weekly in the asset management and DOC meeting.  NO Surprises!

These are basic, simple techniques that make a real difference because if you spend time with these items your expenses won’t be a surprise and you will be in control of your profitability