Start with what type of sales your BDC is going to generate. Your budget should include sales, corresponding cost of sales, selling and fixed expenses. Organize the accounts similar to your existing financial statement layout. It should include columns for the next 12 months and also a year-to-date column to allow for seasonal times and building up the volume your BDC will handle. Once you have this layout completed, set up columns to add your actual monthly balances for comparison and variances.
One of the best ways to track BDC revenue and expense is to set up a new separate department on your DMS. This is easily done on most of the systems in use today. If you have a system that doesn’t use departments, you can still accomplish this task by using separate accounts for revenue and expenses. This will allow you to print an income statement for only your BDC department each month to review against your budget for that month. Factory franchise statements don’t have a BDC department, so you will need to print off a department income statement as noted above to see the results of your efforts.
Sales and Cost of Sales Accounts
Once you have the department set up, add new general ledger accounts for sales and cost of sales, and code these new accounts with your new department number. These accounts will track all sales specifically generated by the BDC. You can link these new accounts to the existing similar financial statement lines.
Sales Expense Accounts
Next, set up selling expense accounts. These accounts are going to accumulate the most important activity to measure your sales and gross profits against. These accounts should mimic your already-existing accounts for sales expense but include any specific new accounts you are going to incur. Multiple advertising accounts should be used for each different type of advertising or promotion you may use. This will allow you to easily see the true expense for each type used. Since you are tracking where your sales are generated from, you can easily make changes in your budget to expand the advertising in the media that generates the best results.
Make sure you also track the personnel costs of your BDC in distinct categories, such as clerical, managers and sales staff. Whenever you have personnel, you are also going to incur payroll taxes, workers’ compensation and health insurance, absentee compensation, and other related costs. Accounts should be set up to track these expenses separate from your normal dealership operating expenses.
Fixed Expense Accounts
You can even set up fixed-expense accounts for this new department to allocate expenses incurred in addition to your normal operations. Some of these accounts are utilities, telephone, rent, insurance, office supplies, data processing and technology design for Web sites, training, etc. Most dealer management systems allow you to allocate these costs automatically by modifying the percentages for each departmental master expense account to allow for the new department. If you don’t have this feature, you can still charge this department manually for some fixed dollar amount or percentage of the total as you post the individual expenses during the month.
Now you have completed the necessary accounting setup of your BDC department and general ledger accounts to monitor the results of your efforts. You are now ready to start posting your sales, cost of sales, selling and fixed expenses to your new general ledger accounts. Care should be taken when allocating and entering sales and expenses to ensure only expenses for the BDC department are charged to these new accounts.
You should be able to print daily, weekly and monthly financial statements from your DMS. Depending on your DMS, you may be able to enter your budget amounts to compare against the actual amounts generated. If not, you may be able to export the actual amounts from your DMS and import them into your budget spreadsheet. Or, you may have to print the financial statement and manually enter the amounts in the budget spreadsheet. Once you have accomplished this task, you are now ready to analyze actual versus budgeted amounts. To aid your analysis, a variance column that computes the differences can be added between the actual and the budgeted columns for each month.
Now, that wasn’t so bad, was it? Without departmentalizing and separating your revenues and expenses from your existing and normal operations, you really have no basis in which to easily and quickly evaluate if your BDC is paying its own way. Let me know your results. I hope you are successful!
Vol 5, Issue 7