Comments Off on Respect your slush funds…or they may just disappear!
By Mercedes Hendricks, CPA
“Save it for a rainy day” – that was a phrase my dad would say when I received some money as a kid that I wasn’t expecting. This saying has a positive connotation, right? Receive some money today, put it in the bank and save it for when you need it. In dealer’s terms, I am referring to factory incentives, sales packs and other similar items where you have recorded a reserve instead of recognizing the income, even though it has been earned. This is a philosophy that many of my dealership clients use in one way or another.
While a common practice, interestingly, we have seen first-hand how this approach can get dealers into trouble. The problem with “rainy day” reserves is that there are rarely sufficient controls in place over how they are to be used, which can lead to errors, or worse, manipulation. If you are going to [...]
Comments Off on Advances in F&I technology should lead to decreased compensation
By Phil Villegas
Over the course of the last several weeks I visited 3 different dealerships that are using docuPAD by Reynolds. For those of you unfamiliar with docuPAD, it is a large screen that sits on an F&I managers desk across from the customer. Per the Reynold’s site “It provides personalized menu presentation, presents forms in an electronic menu format, discloses necessary contract and lease information, and captures files in an electronic deal jacket.” I wouldn’t consider myself a techie, but I certainly appreciate the innovation to improve uniformity and compliance during the presentation of F&I products.
During these visits I’ve inquired of the dealers using the docuPAD about their general thoughts. The dealers generally liked the systems after getting through the initial implementation, but they felt that they have not yet experienced a measurable increase in the F&I PVR. Though, all three commented on the timing and efficiency with which clients are now [...]
Comments Off on Will the adoption of LIFO on your 2016 return be beneficial to your dealership?
By Daniel Flugrath, CPA, CFP
Most likely the answer to this question is “yes”. Many economists are stressing caution regarding a warming economy, along with the anticipated interest rate increase expressed by the voting members of federal governors who meet next on March 15, 2017. If 2% inflation occurs, applying 2% to $1 million of beginning inventory could yield as much as a $20,000 deduction (assuming a consistent model mix). Adopting LIFO is done by filing the IRS form 970 with your dealership’s annual income tax return. The election does NOT require IRS approval. There are three different LIFO methods that are widely used by dealerships: Alternative LIFO, Vehicle Pool Method, and IPIC.
Generally, under the Alternative LIFO for new vehicles, for each separate trade or business, all new cars, including those used as demonstrators, must be included in one dollar-value LIFO pool, regardless of manufacturer; and all new light-duty trucks, including those used as [...]
Comments Off on Image compliance is required, customers liking your facility is optional
By Marilou C. Vroman, CPA, CFE
Over the years, I’ve had the pleasure of visiting hundreds of dealerships, both as a consultant and a client. It seems image compliance has become a central point for dealers to ensure uniformity in brand presentation, recognition by customers, and at times, to earn incentives from the manufacturers. While compliance is important, and most often required, how much of that capital investment will yield a direct benefit to your customers?
Interestingly, I find dealers spend millions of dollars to comply but some of the greatest returns on investment come from the smallest of dealership expenditures. For example, let’s discuss coffee. We are all familiar with Starbucks, which centers its business around providing coffee and a comfortable and pleasant place for its customers to willingly spend time working, meeting acquaintances, or just relaxing. In contrast, we’ve all had it, the dealership coffee which tastes as though it should be dispensed [...]
Comments Off on Simple Yet Effective Procedures for Accounting to Monitor Fixed Operations
By Mercedes Hendricks, CPA
I spoke with a Controller recently who asked me how she could better monitor the parts and service departments. This Controller understands financial statements better than anyone, but when it comes to fixed operations she’ll admit she struggles with obtaining and interpreting data in order to ask effective questions and hold the managers accountable. Here are three basic procedures accounting can perform that will not only enhance the understanding of parts and service operations, but will also let the managers know they are being watched.
Run the open RO report and have one of the accounting members go to the service department and locate each of the vehicles on the report. Since RO’s should be closed when vehicles are returned to customers who have paid their portion of the services, all of the vehicles on the open RO report should be physically present.
Comments Off on Ego is the single greatest cause of unsuccessful dealership acquisitions
By Phil Villegas
During my career I have been fortunate enough to experience a multitude of dealership buy/sell transactions, from being an employee at a dealership, to working for a dealership group acquiring stores, to my current role of advising dealers on the merits of deals they are considering. I’ve seen transactions of all sizes and franchises, from coast-to-coast. In this, I have been exposed to many different types of operators and their respective personalities.
Dealers will expand their businesses for numerous reasons. From opportunity knocking on the door regarding an available store in the neighborhood, to investing excess funds in a known industry, to creating a growth opportunity for existing loyal employees; there are plenty of valid reasons to acquire a dealership. Where we have seen the pitfalls of dealership acquisitions is when the potential buyer’s ego is the primary motivator for expansion. We typically witness this when a dealer has been successful running [...]
Comments Off on New Reporting Requirements on Foreign Owned Disregarded Entities
By Dan Flugrath, CPA
The Treasury Department and the IRS finalized regulations on reporting and record maintenance regarding foreign owned disregarded entities on December 13, 2016. If your U.S. dealership is fully or partially owned by a Single Member Limited Liability Company (SMLLC), which in turn is owned by foreign individual or foreign entity, these new rules apply for your 2016 income tax returns and going forward.
Disregarded entities can be domestic or foreign entities. The new rules are for reporting purposes only. No changes apply for purposes of filing income tax returns.
The new regulations impose information reporting requirements on financial transactions between the disregarded entity and its foreign owner. These rules are not limited to the retail automotive industry. The foreign or domestic disregarded entity must obtain a Federal tax ID number if any reportable transactions occur. Previously these disregarded entities had no obligation to report information to the IRS.
Comments Off on Facility Potential – How Much is Your Service Department Capable of?
By Marilou C. Vroman, CPA, CFE
Dealers tend to look at high level indicators of store performance. The questions often heard at month end are: “How many cars did we deliver?” or “Where is fixed gross going to end up?” At times, more specific questions should also be asked such as: “Is our service department operating at its full potential?”
While there are many variables that work together to generate service profits such as technician efficiency, productivity and parts availability, a closer look at facility utilization may reveal great opportunities.
The dealership has a maximum realizable service capacity which should be compared to actual labor sales monthly. This maximum capacity is referred to as “facility potential”. Facility potential is calculated via the following formula: Number of bays multiplied by the number of days in the period multiplied by 24 hours multiplied by the dealership’s effective labor rate.
This calculation assumes that the service department is [...]
Why are we talking about petty cash? It’s petty! … Or is it? We have seen several cases at dealerships recently where abuse of petty cash has led to tens of thousands of dollars in losses. It is a testament to how often the petty cash may be overlooked at a dealership and where key controls to mitigate losses may be missing.
Petty cash at dealerships often have balances that range from $500 to $3,000 to cover immediate cash needs, such as spiffs and deliveries, without having to wait for accounting to issue checks. While a common practice, this comes with the risk that cash could be misappropriated. What is the best way to prevent this from happening? Segregation of duties.
Access to the petty cash box should be limited to select individuals that do not also have access to accounting functions in the DMS, such as journal entries, or cash [...]
Comments Off on Make your life easier, accrue for the “extra” payrolls!
By Mike Frakes
Early in my career when I was a Controller, I was surprised by those two “extra” payrolls that occur every year. The dealership was on bi-weekly payroll and I was not accruing for the two times a year that there were three payrolls in a month. This resulted in two massive expense spikes. Nothing will take the wind out of a General Manager’s sails quicker than him or her thinking a certain amount of net profit has been generated based on average expenses only to find out that it was a three-payroll month.
I began accruing for the additional two payrolls in my second year as a Controller and continued to do so year after year. The calculation was simple. I took the last payroll of the year, added 10% and annualized it to get my monthly accrual amount. For example, if the final payroll was $100,000 for non-commissioned employees (including payroll [...]