The Cost and Savings of Promoting From Within Your Organization

With an industry as unique at the dealership industry, hiring managers often look within their organizations when trying to fill open positions in the back office. This is a double-edged sword that can either save you money or cost you a lot of money; the odds are 50/50, at best.

The skillset necessary to be successful in the dealership accounting space is specific and takes time to acquire. Oftentimes you will find long-tenured dealership employees who have moved through the ranks as positions became available. Many times, these are success stories, and the individual has gained many skills, become cross-trained, and has a wickedly accurate understanding of the ins and outs of dealership accounting because they have occupied every seat in the accounting office. Some of those folks may have even sold a car or two or worked the box. Unfortunately, sometimes as the employee travels through the various positions they reach the apex of their abilities. This is often referred to as the Peter Principle – a person rises to the level of their incompetence. Despite this well-known managerial phenomenon, they are considered loyal to the company and are promoted with the hope that they will eventually grow into their role.

For some positions this is a good strategy. For example, moving a cashier to the motor vehicle desk or the motor vehicle clerk to the accounts payable desk. It will foster internal growth, morale, and build loyalty all the while saving money by not having to hire from outside the organization. This does not work as well when you are looking for an office manager or controller. The individuals who hold these positions need to be comfortable with all aspects of the position, from the daily activities to the things that only happen once a month, once a quarter, or (gasp!) once a year. Promoting from within to this position needs to be a long-term goal and the promotion needs to make sense. For example, training an assistant controller to eventually take over for a retiring controller or training an assistant to take a position in a newly acquired location or franchise within the organization. This process is intentional and could take years, depending on the role and the person.

When you promote from within, your salary starting point is the person’s current salary but if you look outside your starting point is the current market value of that position. I can tell you that these days the job is demanding much more than it ever did before. If someone is promoted before they possess the necessary skills to perform the jobs required of the position, it can cost dearly, more than the savings of the other candidate’s salary or the recruiting fee. If the basic understanding of the balance sheet and income statement is not there, expenses can get hung up on your balance sheet and your store may not be as profitable as you thought it was, thereby making uninformed business decisions that originally felt like sound decisions. For example, if floorplan fees are posted to a liability and not expensed or if loan payments are posted to a liability in totality instead of expensing insurance and interest costs. Entries can erroneously be made to the wrong accounts and when the factory or a banker looks at your statement, your equity position may not be accurate, and you may appear undercapitalized. In the (common) extreme case, the dealer may even be losing money when the books indicate a profit.

An interview is necessary with both internal and external candidates. The interview process may be more informal with internal candidates but is still a very important part of making a hiring or promotion decision. When making a hiring decision it is always best to have someone who is familiar with all aspects of the position you are filling. They can ask specific questions that would show a candidate’s understanding of the position or lack thereof. This will help weed out the unqualified candidates and/or develop a training plan and timeline for a less experienced internal promotion.

In today’s talent market, the salaries demanded are higher than they have historically been and often it makes sense to train from within but that comes with a time commitment from both the team member and the dealership. The team member must make a commitment to work a little harder and a little longer and the dealership must give that person the time to gain the knowledge to be successful. Each dealership is different and what makes sense at one store may not make sense at another store. So, before you decide which avenue to take, ask yourself if the person you are considering is the person you want responsible for your personal tax liability based on accurate accounting and ultimately the profitability of your store. If you get to the end of your search and you are not sure, reach out to me, I’d be honored to help you asses your candidates (loosely and informally stolen quote from Top Gun).

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For more information on this topic, please contact a member of Withum’s Dealership Services Team.