Why is business management know how important in operational evaluations?
We have our own accountants & they perform periodic book audits. Why is operational review any different?
- The recording of all transactions and book keeping practices reveal most of the operational shortfalls. Therefore it helps to identify the root cause of each deficiency.
- The information contained on the balance sheet translate into the accuracy of the P/L statement. Otherwise the profit information reflected may or may not be true.
- Profitability analysis without accounting expertise would be misleading since it would not reflect potential theft or dishonesty as well as innocently inflated profits.
- When dealing with comparative analysis and composites, every retailers recording practices will cause variations and therefore lead to misleading information
Why are your custom composites different than 20 group composites?
- Book audits only reveal some of the accounting deficiencies and errors and perhaps some theft or dishonesty. But they can not reflect any sales process deficiency or management control concerns since they only deal with book keeping.
- Operational reviews utilize the information obtained during book review and conclude operational deficiencies and root causes and propose remedies.
- Accountants do not get involved with cost structures, pay plans, expense analysis and profitability issues.
- Evaluation of inventories, aftermarket products, sales process and marketing plans are not addressed by accountants.
What is a pay plan test?
- 20 Group composites are compiled of the participating retailers’ data. Each retailer is from a different market therefore it may not be relevant to your specific dealership.
- They also provide data for the same franchise only and not the competitive segment.
- They do not take into account the recording practices of each retailer which may be significantly different. Therefore the data that is contained in the composite may not be comparable.
- Convergent custom composites are from each retailers relative market.
- It provides competitive segment information as well as the like franchises
- Convergent transforms each franchise’s statement format to single report format to make the data comparable.
- Since each dealer is first evaluated independently, all of the irregular accounting practices are normalized when they are converted into our report format.
- Convergent composites are also manually adjusted to each retailers non-variable specifics to reflect reality.
Why does Convergent perform random GL detail audits?
- Convergent takes each retailers current pay plans at a given month and calculates a total payout for each category on the statement.
- It is then compared to the actual dollar amount charged out on the statement that month.
- The variance helps to identify outside of pay plan disbursements therefore helps to remedy high percentage of payments compared to the business model proposed.
What are EOM Reports?
- ¨When we feel that a particular expense item is inflated on the financial statement, we look for the root causes. Often times reviewing the GL details will help identify miss recordings or deliberate practices to conceal certain expenses.
- ¨Random GL reviews also reveal over payment to vendors, unnecessary expense items and theft.
Why is balance sheet trend report important?
- Customized to each retailers specific needs, Convergent designs End of the Month Reconciliation reports.
- Those reports are tied to certain expense lines on the statement each month and reflect all the detail that makes up that account.
- Most important ones are Commissions reports, Salaries and Wages Group report, Outside Services and Data Processing report as well as Net Additions and Deductions reports.
- ¨Any one of the expense line on the statement including the entire balance sheet can be reconciled to the statement every month if the account needs to be monitored for various reasons.
- Balance sheet is the heart of the financial statement. Every bit of information to the P/L statement flows from the balance sheet. If the information contained on the balance sheet is not analyzed perpetually, the reflected profits may not be accurate.
- Additionally only the balance sheet monthly trend reports reflect significant changes in critical asset and liability accounts such as Inventories, Receivables, CITs, Bad Debt, Flooring, Creditors and Accrual accounts all of which reflect upon the accuracy of profits.