Comments Off on Safeguarding your credit card terminals from inappropriate behavior
By Phil Villegas
There are multiple fashions by which individuals can take funds from a dealership. Nearly every position within a dealership has a way of monetizing inappropriate behavior. Most dealerships will attempt to implement safeguards in key areas of risk, particularly over cash, whether it be two signatures on all checks, segregation of duties on deposits, or review of bank reconciliations. However, there is one area of cash controls that I commonly find does not have an adequate level of internal controls, and that is over credit card refunds.
Many dealerships allow for customer credit card refunds on nearly any terminal without any system of internal control. We’ve seen multiple occasions where these credit card terminals have been used to embezzle funds from dealerships by individuals giving refunds on personal cards. In all cases, we found that some basic internal controls could have prevented this from occurring.
To safeguard against credit card refund abuse, [...]
Comments Off on Bonus Depreciation can reduce your 2016 taxable income for Qualified Improvements to your Dealership
By Dan Flugrath, CPA
The Protecting Americans from Tax Hikes Act (PATH ACT) added a new provision for Bonus Depreciation regarding Qualified Improvement Property (“QIP”). The significant change is the dealership or dealership owners or principals can own the premises.
QIP are improvements to the interior portion of a building that is non-residential property that is placed in service after the date the building was placed in service. There are 3 improvements which do not qualify for this expensing election:
Enlargement of building
Any elevator or escalator improvement
Internal structural framework of building
Prior to the PATH Act, Qualified Leasehold Improvement Property (“QLIP”), improvements to leased property that was at least 3 years old, that was not leased to a related party and met the definition of Improvements similar to the QIP rules above was eligible for bonus depreciation.
The difference between the QIP and the QLIP rules are:
Comments Off on The costly proposition of understaffing the accounting department
By Marilou C. Vroman, CPA, CPE
We often encounter dealers who ask: how many people should we have in the accounting department? As retail automotive advisors, we love to reference NADA, which has a guide of 15 total employees for every one accounting staff. Our answer is typically: NADA guide, plus one.
The accounting department is a cost center which is typically difficult to calculate an ROI. However, in an environment where cash is king and profitability is everything, justifying additional headcount is often frowned upon. Why would we want to add more people?
Accounting staff are often playing catch up, feverishly billing the stack of deals that comes up the last day of every month, preparing commissions, meeting tax deadlines, processing timely payroll and so on. We find the pressure on staff to just “clean” the schedules each month is often so great that thousands of otherwise collectible dollars are written off with little [...]
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.