Driving Your Dealership Away from Disaster
By: Phil Villegas and Tony Argiz

In the wake of Hurricanes Katrina, Rita and Wilma and with the 2005 hurricane season still active and threatening, many business owners have disaster planning and recovery at the top of their list of priorities. Others, unfortunately, are facing the daunting task of disaster recovery, assessing the scope of damage done to structures, records, and inventory. Many companies on the Gulf Coast, including automobile dealerships, have returned to scenes of pure destruction, with concerns about business plans, cash flow reports, and year-end profit projections buried beneath the question of whether the business will be able to survive and rebuild at all. For these businesses, preparation before the storm may be the key to a comeback, but even for those that did not adequately prepare, financial recovery is possible if special attention is paid to the methodical and disciplined reconstruction of lost or damaged records.

While so many people work to rebuild on the Gulf Coast, with support and help from around the nation, it is important to remember that disaster can strike anywhere, and can take many different forms. For instance, there is the daily threat of computer viruses, hackers, power surges, bomb threats, fire, and employee fraud, just to name a few. For all of these potential business catastrophes, continued preparation is vital, and the right actions after the precipitating event can also make all the difference.

Preparation
Contingency planning is a process that is often discussed by automobile dealers who want to protect employees and assets in the event of a disaster, but unfortunately it is also a somewhat misunderstood and sometimes only partially-followed practice. To truly reap the benefits of preparation, the task of preparing must involve a complete understanding of a dealership’s financial situation, and must consistently account for a variety of potential outcomes.

The overall goal of the plan, of course, is to keep employees safe, protect essential equipment and inventory, safeguard vital electronic and physical documents, and ensure business continuation. Reaching these goals is a challenging task, and requires input from every level of the dealerships operations, from sales, service, and parts to accounting, information systems and human resources.
The importance of dealership-wide involvement is illustrated by the seemingly straightforward task of purchasing insurance. As with many other businesses, the value of dealerships can rise sharply as facilities and information systems are renovated and expanded. So simply buying insurance and filing the plan away is not enough. Infrastructure investments across every department must be constantly evaluated and quantified, and insurance plans should be reviewed and revised annually to make sure that coverage has kept pace with exposure.

Here are some key considerations for the planning process:

Business Interruption:
Purchasing business interruption insurance is critical. Also critical is evaluating the coverage to make sure that the terms are not so narrow as to leave loopholes for the insurance company to deny payment. Also, it is important to check the policy’s definition of what actually constitutes “business interruption,” including when it starts and when it stops. Finally, reviewing the financial stability and status of a chosen insurance company on a regular basis is key, since many have been hit hard in recent years.

Important Records & Documents:
Technology has made it easier than ever to scan, store and retrieve copies of documents electronically. In particular, various backup capabilities allow for hundreds of thousands of pages to be stored on a single tape or disc, and a number of software packages enable you to perform the function in-house. Employing real time scanning and document management software is a good approach.
Backup of important documents, files, and databases should be performed on a daily basis, and resulting copies should be physically stored at a second location, away from your dealership property in a secured facility. Backups should be tested regularly. Finally, articles of incorporation, accounts receivable, client records and important personnel and administrative documents should be among the priority for backup.

Additional Concerns:
By far, insurance and the ability to retrieve important documents are the most essential elements of any business contingency plan. However, there are other considerations, which are also worth noting, including:

• Employee communications plan: In some cases, as with Hurricanes Katrina, Rita and Wilma, a disaster may force a dealership to suspend operations. In these cases, it is important to have a plan in place to reach out to employees to keep them informed so that they will be ready to return.
• Alternative facilities: Planning should include a review of potential alternative facilities in case structural damage prevents ongoing operations.
• Credit: Because insurance payments can be delayed, it is important to maintain a sufficient line of credit for business continuation.
• Tax issues: Depending on the magnitude of the disaster, federal aid may often be in the form of tax breaks at the end of the year. It is critical to stay up-to-date on changes in tax policy in the event of a natural disaster.

Recovery
Even the best laid plans can encounter difficulties, especially in situations of extreme catastrophe. For dealerships devastated by the recent hurricanes, insurance disputes are likely to arise, and important records are certain to be lost or damaged, or in some cases, labeled by insurers as invalid. In these cases, the task of achieving financial security does not end with good planning; it ends with powerful execution.

After any disaster, whether a natural disaster or one caused by an isolated event like a fire or an unseen force like a computer virus, a methodical approach to recovery, though often difficult in trying times, is essential. Outside financial experts can help piece together a powerful picture of a dealership through forensic accounting, creating a virtual roadmap to achieve a renewed business. While the preparation stage is designed to identify and safeguard records and keep a check on insurance, the recovery stage is the critical point where the dealership’s assets are proven and records are obtained and revealed.

Rebuilding the actual structures that form a dealership involves difficult planning and hard work. Rebuilding the financial structure of a dealership is no less challenging. By combining traditional accounting practices and investigative techniques, forensic accounting can provide a disaster-stricken dealership with an invaluable advantage when legal disputes arise, when insurers question claims, and when valuable financial records are lost. Forensic accounting can help recreate documentation, decipher the true value of property, and rebuild operational processes that underlie a business. By analyzing transactions, interviewing involved parties, and interpreting financial data, the forensic accountant builds a legally-sound financial review of a business hit by disaster. This process involves reconstructing documents – such as accounts receivable records – by contacting customers and vendors and obtaining relevant documents.
As mentioned, often disasters do not approach the horrible magnitude of recent events, but instead involve individual cases of digital tampering, sabotage or fraud. In these instances, the approach to recovery must be just as swift, detailed and professional. By evaluating the legitimacy of financial documents, the forensic accountant is able to help detect fraud and uncover the truth, protecting the dealership’s assets.

Planning for disaster is an ongoing effort, and for those dealerships that have not begun the process, the time to start is now. For dealerships that have prepared for the worst, and even for those that have not, financial accounting does not end when the walls come down or when the computer systems fail. The fact is, when disaster strikes, the work of accounting – and of forensic accounting – is only just getting geared up.