Year-End Close Pitfalls That Cost Auto Dealerships Money

As the calendar year draws to a close, auto dealerships face the critical task of closing their books accurately and efficiently. A rushed or incomplete process can lead to financial misstatements, compliance risks, and missed tax opportunities. Below, we explore the most common pitfalls and how to avoid them.

Inventory Valuation Errors

Inventory is often the largest asset on a dealership’s balance sheet. Errors in valuation such as failing to account for aging inventory, or incorrectly applying LIFO/FIFO, can lead to overstated profits and tax exposure. Best Practice: Regularly reconcile inventory schedules with the general ledger and review aging reports to identify write-downs early.

Floorplan Interest Treatment

Floorplan financing is a reality for most dealerships, but misclassifying interest expense or failing to accrue it properly can distort cost of sales and net income. Best Practice: Ensure floorplan interest is consistently recorded in the correct period and consider its impact on lending covenants.

Accrued Incentives and Holdbacks

OEM incentives and holdbacks often span multiple periods. Missing accruals or misaligning them with earned revenue can create timing mismatches. Best Practice: Maintain detailed schedules for all OEM programs and reconcile them monthly to avoid surprises at year-end.

Timing of OEM Rebates and Chargebacks

Rebates and chargebacks can swing dealership profitability significantly. Recording them in the wrong period can mislead stakeholders and lenders. Best Practice: Confirm rebate timing with OEM statements and document assumptions for transparency.

Additional Pitfalls to Watch

• Fixed Asset Schedules: Ensure depreciation and bonus depreciation are correctly applied, including making sure depreciation is being correctly claimed on vehicles in the loaner pool.
• Payroll and Owner Compensation Alignment: Misclassifications can trigger compliance issues.
• Documentation Readiness: OEM statements, incentive schedules, and floorplan agreements should be organized for tax prep.
• Cash Flow Management: Seasonal dips and floorplan pressure require proactive planning.