Mergers and acquisitions of various groups, forming ever-larger multi-franchised syndicates, follow each other in quick succession. The Motor Trade is a vital part of the UK economy with a contribution to the UK Economy of around £20 billion per year. In the first 3 months of 2020 alone, for instance there have been 12 significant acquisitions and it is entirely possible that the Coronavirus pandemic will lead to even more activity in this time of major upheaval.
Recent examples of acquisition activity include:
- 1. In 2020 Sytner Group’s latest turnover was listed as over £6 billion. In 2017 they took over from Pendragon as the UK's biggest Dealer Group after acquiring CarShop.
- 2. Lookers acquired Lomond Group and are now #2 in 2020 – a £5.1 billion company.
- In March 2020 Vertu (now #5 on £3billion+ turnover), indicated that 2020 could be a year of acquisitions, their MD stating that “the current pipeline of potential acquisition opportunities is strong”.
This type of activity creates challenges for Group Financial Controllers who not only have to continue to manage the organic growth of the franchises they control, but suddenly have to deal with another, often major, set of back-office processes as they absorb another set of franchises.
Top 20 motor groups typically have to transact business with 25+ franchises and operate 50+ car dealerships. Arnold Clark for instance, currently in 4th spot on the 2020 AM 100 list, registered over 250,000 cars.
Motor Groups: A Constantly Evolving Industry
In many cases the option of integrating new franchises and dealerships into the systems of the acquirer, while desirable, is just too complex to undertake – despite the attractions of potential economies of scale.
The result is that many Motor Dealer Groups become a collection of processing islands with independent clusters of back-office systems and administrators. The compromise is to have those outlets feed periodic spreadsheets and reports to group administrators who then consolidate the figures for top management.
We at Aurum Solutions believe that there is an opportunity to find a better way, which minimises operational upheaval while providing potentially significant economies of scale for Motor Groups – Automate then Centralise the Reconciliation function.
Why focus on the reconciliation function?
Every significant motor group in the Top 100 needs to reconcile tens of thousands of transactions per month. The largest groups process hundreds of thousands per month as each new car sale, for instance, generates multiple accounting entries that must be reconciled against internal and/or external sources.
- - Back office systems to bank statements and payment service providers
- - Manufacturer Discount Reconciliation (where the dealer accrues various discount components against each new car chassis number such as loyalty bonuses, sale period promotions, model promotions etc.)
- - Car Finance transactions
- - Parts department inventories vs sales
- - Customer deposits and final payments
If transactions are not properly reconciled, omissions, exceptions, and eventually losses will be the inevitable result.
The importance of having robust transaction control and audit systems in place was brought home again very recently as a director of a van dealership in Scotland was disqualified from acting as a director for 8 years. The Insolvency Service commented “Without a full account of transactions it is impossible to determine whether a director has discharged his duties properly…”
At many motor groups, perhaps surprisingly, these reconciliations are handled relatively manually, ticking off one report against another or ticking on screen with little or no audit trail. Many use Excel spreadsheets or Access Databases and believe that’s as automated as they can get. It is not!
There is a different, more efficient way – The Aurum Reconciliation Platform which links directly to your existing Dealer Management System.
Here’s what Andy Hornsby, Group Financial Controller, Lifestyle Europe (now part of Hendy Group) has to say:
We’d struggled along for years before realising that there was a solution out there. I spent ages searching the Internet for something that fitted our needs. The trouble was that we already had a complete accounting package specific to the motor trade, so bank reconciliation software was all I needed...
Our Assistant Accountant used to do reconciliation manually. She can now spend time doing more interesting and useful work, which is great for her motivation.... We've also been looking to move towards weekly or even daily reconciliations but with our old system that would have been out of the question.
The Three Steps
So how should a large Motor Group go about gathering these economies of scale?
1. With Aurum Solutions’ help, create an inventory of your target reconciliation processes and develop an implementation sequence for absorbing transactions from your distributed administration centres.
2. Implement Aurum at your main group processing centre, creating a “Centre of Excellence” with Aurum-trained reconciliation staff. By developing a set of automated matching rules, a higher and higher percentage of transactions will be matched without human intervention, thereby leaving less exceptions to be followed up by your staff.
3. Gradually transfer the distributed reconciliations processes to your central hub and build your central team accordingly. If implemented efficiently you will find that, with a fraction of the cost and effort of consolidating complete back office systems, the group will significantly lower its overall cost of reconciliation processing while increasing your ability to track the history of each and every transaction.
If you would like to discuss how Aurum Solutions can help your group achieve this, just click on the link below and we can schedule a 15-minute discovery call then follow up with a demonstration of Aurum.