Slush fund positives may not outweigh negatives

Management may not be pleased to find out mistakes are being hidden

Most dealers have some sort of slush fund or reserve account. Many times it is funded by setting aside $100–$500 per vehicle sold, vehicle purchased or service contract sold. Sometimes it is funded by money not regularly received, such as advertising coop, floor plan assistance, stair step funds, etc. Usually these funds are not part of the cost of the car, but are an additional manufacturer incentive to sell vehicles.

Slush funds are used to level out earnings, used car wholesale losses or income for the entire dealership. While these funds make dealers feel good, slush funds tend to cause some problems.

Though dealers are aware the account exists, but they don't always know how the account is used. While it's intended to level out earnings, it may also be used to cover accounting mistakes or hide service policy tickets that might upset management. In these cases, the slush funds conceal issues that need to be addressed. In the worst-case scenario, a slush fund can also provide an ideal opportunity for an unethical employee to steal from a dealership undetected.

In addition to these issues, a slush fund can make it difficult for management to identify trends. For example, if $200 per deal was contributed to the slush fund in 2003 but $500 in 2004, management has to remember to account for this while analyzing their business.

I f the slush is used against floor plan interest one month or one year and in a subsequent month or year is used to reduce advertising , it makes it difficult to analyze expenses and identify trends that help you manage your business.

Most accountants do not recommend using slush accounts. Accountants know that numbers don't lie, and that from a management perspective it is best not to cover up a bad month.

It is far preferable to take a hard look at the underlying causes of a bad month and then use your management skills to minimize the pain.

If you must use these accounts, here are some tips:

• Review the detail regularly. Use benchmarks, such as vehicles sold times $500 per vehicle, to see if the credits make sense. Demand to see the detail for all charges to this account. Require only your approval for all charges.
  
• Recognize income from this practice into just one account, i.e., other income, used car adjustment, etc.