Comments Off on It’s not only about identifying vehicles on the schedules or floorplan
By Phil Villegas
We often come across dealerships where the process of taking monthly physical inventories is a bit relaxed. When asked about their physical vehicle inventory procedures, we are often told:” Yes, we do physicals…our sales department handles that” or “Our bank does a floorplan check monthly” or “Yes, we have a porter touch all the cars.” While these might be elements of verifying the vehicle inventory, these approaches do little to identify any missing cars.
We typically recommend:
Have an individual who is independent of the sales department write down/scan all cars present on the lot. Do not provide an accounting schedule or other listing of inventory to those conducting the physical.
The results of the physical inventory should be reconciled with accounting schedules to identify both vehicles missing from the lot and vehicles missing from the schedules.
A reconciliation summary of the status of all missing units should be properly investigated [...]
Comments Off on Interpretation of the APA – as with healthcare, get a second opinion.
By Marilou Vroman, CPA
Buying a dealership can be an exciting and stressful proposition. Working with manufacturers, lenders, attorneys and accountants all in the interest of getting past the closing table to run your new automotive retail venture. Many of the hurdles of acquiring a dealership can be overcome, but one area that can create a significant amount of stress between buyer and seller is negotiation and interpretation of the asset purchase agreement (“APA”) which governs the sale of the dealership assets.
For those contemplating their first acquisition, the APA will typically highlight what will be purchased (e.g. inventories, fixed assets, goodwill etc.) and the method of valuation of each type of asset. The interpretation of the “what is being sold and for how much” can put a dealership transaction at risk if left until the date of closing to be discussed between buyer and seller. For example, an APA will typically include new vehicle [...]
Comments Off on Do you picture yourself applying for an Open Point (Part 2)?
By Eduardo Hernandez
One critical aspect of the open point application process is explaining to the manufacturer why you, the dealer candidate, are the best candidate for the proposed market. This is most often demonstrated with a business plan.
Well-placed pictures can help paint an illustration in the minds of the executives reading your business plan as to why you are the best candidate. There will be dozens of qualified applicants and visuals can help illicit the emotional response that makes the difference between being awarded the open point or going home empty handed after spending countless resources on the application. Even if you aren’t considering applying for an open point soon, taking pictures of key events can help you in the event you decide to apply so you aren’t scrambling for pictures at the last minute or worse, using stock photos.
Generally speaking, try to always take high quality pictures. It’s very disappointing when [...]
Comments Off on Thinking about applying for an Open Point (Part 1)?
By Eduardo Hernandez
Whether you’re an experienced dealer with multiple franchises, a rising sales manager, or anything in between – has the thought of applying for an open point ever crossed your mind? Investing some time to keep your resume updated can save you hours of headaches if you ever do decide to apply for an open point.
Many, if not all, applications will ask you to summarize various aspects of your resume on the application. By keeping your resume up to date, it will make filling out the application and creating a business plan that much easier because you would be keeping many of the items manufacturers ask about in one place and current. Some of the items we’ve seen manufacturers ask about include: employment history, awards, community involvement, and formal education. Take credit when credit is due, and here are some tips to help you:
Comments Off on Who’s on the WardsAuto Megadealer 100, Who Isn’t
By Phil Villegas
The WardsAuto 2017 Megadealer 100 seems remarkably similar to 2016’s list of major dealership groups.
Yes, there was the occasional jostling of positions across the rankings, but it was minimal in the top 25, and even less so within the top 10.
The main observation of this year’s ranking is also a kind of trick question: What’s missing?
Here’s the point. If you look to the list as a strict barometer of the industry’s health, you would believe there is a decline. The combined WardsAuto Megadealer 100 revenues were $192 billion in 2014, up to $206 billion in 2015.
But in reviewing 2016, revenues declined to $194 billion. In reality, however, the industry is just fine. The main reason for the decline is that CarMax, (with its approximately $16 billion in revenue) chose not to report this go-around. The used-car megadealer had been a regular participant in past years.
Comments Off on The Hidden Cost of Materiality Thresholds
By Marilou Vroman, CPA
As you may know firsthand, many automotive dealers are required to have regular financial statement audits or reviews performed to meet lender requirements, or at times, for piece of mind. While audits and reviews are important for third parties relying on the financial statements, all too often we find some dealers believe an external financial statement audit or review is also designed to detect fraud. While certain procedures may lead an auditor to detect fraud, procedurally, there are limitations such as materiality thresholds that may prevent inappropriate activities from being detected.
For those familiar with fraudster’s tendencies, embezzlements typically begin at small dollar amounts to “test the waters” and to identify if a scheme can be perpetrated without detection. Once the perpetrator has been successful with their initial scheme, the tendency is to increase the reward while the perceived level of risk declines. For example, a salesperson may collect $500 cash [...]
Comments Off on Fraud Prevention Tips for your Dealership
By Mercedes Hendricks, CPA
We all know and understand the fraud triangle; that fraud most often occurs when individuals have external financial pressures, are presented with opportunities to commit fraud, and can rationalize their behavior. While you may not be able to influence financial pressures or rationalization, you can minimize the opportunities by implementing preventative internal controls.
What do these internal controls look like?
A no-tolerance culture for fraud. Sure, no one will say that they tolerate fraud. But take a close look at the culture of your dealership. Do you talk about fraud and communicate your no-tolerance policy? Do your leaders follow that policy and model it for the rest of the employees? Creating an environment where integrity is the trump card is a great way to prevent fraud.
Require individuals with access to the DMS to take vacations, and have their duties covered by another trained employee during their absence. You might [...]
Comments Off on Implementing strong guidelines in the parts department to prevent theft.
By Jorge Arrieta
In any dealership, parts may be considered assets at the highest risk. Why? Because parts theft could very easily remain undetected since few people monitor parts activity besides parts managers. Between the high transaction volume, frequently changing part numbers, returns, new vendors, and special orders, it can be a challenge to know everything that has been happening in the parts department.
By implementing a daily bin count and an annual physical inventory, dealers and controllers can have more control over their parts inventory.
When performing a daily bin count, one should select a few high risk parts from the parts pad and verify they are still in inventory. Some examples of parts to select include those that have a history of plus/minus adjustments, scrapped parts, and parts sold for low or negative gross profit on parts tickets or repair orders.
We recommend having an individual from the accounting office trained on the [...]
Comments Off on Charging Market Rent on Your Dealership Can Save You Money and Prevent Unwanted Surprises
By Phil Villegas
More often than not we come across stores that are showing rent expense that is far below what the dealership would pay in the open market. For the most part, this happens because the rent has not been reviewed or adjusted for many years.
However, with increasing industry and commercial property values in many areas, we recommend adjusting the rent charged to your dealerships to market. This may actually save you money in stores where the General Manager, Controller or other personnel have a pay-plan component that is based off of the bottom line. Having the proper rent amount also provides for a financial statement that is reflective of the current market. We have seen dealers severely disappointed when selling their stores to find out their perceived profitability dropped because of a market rent adjustment.
An easy way to determine fair market rent is to take your most recent appraisal, or come [...]