Comments Off on Taking Ownership of Your Largest Movable Asset
By Phil Villegas
In continuing my theme of focusing on the fundamentals, I thought I’d focus on one of the most basic internal controls that is overlooked or not taken as seriously as it should, and that is the taking of vehicle physical inventories. For most dealerships this is the single largest asset on the books, and unlike real estate and Blue Sky, these asset can actually be easily moved. Time and time again when we inspect dealership’s physical inventory counts we are left concerned with the thoroughness and seriousness with which they are completed. Many stores will not complete new car inventories since they will say the floorplan company does that or many accounting offices will simply say the sales department does that.
In our opinion, the accounting department is not doing its job if it does not take full ownership of the vehicle inventory process. Deferring this key control to a floor plan [...]
Comments Off on The 2016 Presidential Election: Considerations for 2016 & 2017 Income Tax Planning
By Dan Flugrath, CPA
One of President-Elect Trump’s campaign themes was to lower business and individual income tax rates. Currently for 2016, Individuals are subject to a top income tax rate of 39.6% plus 3.8% tax on net investment income amounts while C Corporations are taxed to a top rate of 35%. House speaker Paul Ryan put forth in August 2016 a tax proposal called “A Better Way for Tax Reforms”. Under House Speaker Paul Ryan’s proposal, the maximum tax rates for small businesses and corporations are reduced to 25% and 20%, respectively.
President-Elect Trump is expected to lower Individual top rates to 33% and C Corporations to 15% based upon his campaign. With this expected lowering of tax rates, year-end tax planning strategies are easier to understand relative to previous years, especially for high income taxpayers. Increasing lawful deductions and deferring income amounts to 2017 as much as possible can [...]
Comments Off on Try this simple calculation to make a big difference in your parts department!
By Marilou Vroman
How well is your parts department performing? Are revenues up from last year? Are margins over 40%? These are some of the more common indicators of a healthy parts department and the best parts managers will certainly be watching these numbers closely.
However, there are many other performance indicators that are equally as important and should be reviewed by both the parts manager and the general manager. Below is one of our favorites:
Level of Service/Fill rate – These terms refer to how well the parts department inventory in stock has met the demands of its customers. It’s great to keep inventory levels low and maintain proper days’ supply, but are you stocking the parts that your customers actually need?
Here is how to find out: Take total parts sales for the period and divide number into total sales plus the total dollar value [...]
Comments Off on Using F&I History to Detect Cash Theft or Lapping Schemes
By Mercedes Hendricks
Thousands of transactions run through a dealership in any given month, sometimes any given week or day. Most of these transactions, such as vehicle sales, are typically initiated in operational databases such as F&I and are not recorded in the general ledger until the deal jacket is brought up to the accounting office to be finalized.
In looking at the F&I History, you can easily see when deals were initiated and when they were finalized. F&I History will also indicate whether a deal was financed, paid in cash or some combination thereof.
This data can tell you how long it takes to finalize a deal. This piece of data can be particularly interesting for cash deals. Completed cash deals should only take 24 hours from its contract date to be delivered to the accounting office to be posted in the general ledger. If a cash deal [...]
Comments Off on Transferring Your Dealership to the Next Generation can be Costly (if the IRS has its Way)
By Dan Flugrath
The IRS has proposed regulations that eliminate the majority of valuation discounts for minority transfers of interests for controlled family partnerships, S corporations and other family ownership structures to other family members, such as the next generation. The IRS likely will finalize these proposed regulations sometime in 2017.
The proposed regulations take aim at eliminating discounts for lack of marketability and lack of control. The changes deal with lapsing rights and liquidation restrictions. The regulations disregard certain restrictions for transfer tax purposes.
Let’s consider this example: If Dan, Jim and Bill, all brothers, each own equal shares of a partnership or S corporation. Dan needs to sell, but must obtain the consent of Jim and Bill in order to sell to an outsider. This restriction would be ignored for valuing the transfer.
In addition, lapsing rights will become taxable transfers. The proposed changes treat [...]
Comments Off on Export Transactions – Is Your Dealership Compliant?
By Vincent Rodriguez
Is your dealership properly handling exports transactions in accordance with state and federal laws?
In our Axiom Analysis, we often discover weaknesses in vehicle export processes and documentation. If an international customer purchases a vehicle with the intent to export, the customer is not exempt from sales tax unless he or she provides proper documentation.
If a customer intends to export a vehicle, the dealership has the responsibility to prevent the customer from driving the vehicle off the lot by issuing a temporary tag. Direct exports are typically not charged sales tax and are not registered. In turn, typical export rules indicate the vehicle must be paid in full, an affidavit that the vehicle won’t be driven in the selling dealer’s state must be signed, and a bill of lading must be collected for the deal jacket. In addition, we often recommend new vehicles be titled to prevent a MSO from being [...]
For this edition of The Weekly Spiff! I am taking my CPA hat off. I am writing this as a customer, as a buyer.
I walked into a car dealership a couple of weeks ago to buy a new car. I knew exactly what I wanted and I was ready to walk out of that dealership with a new set of keys in my hand. I had a great test drive experience and the sales associate was very knowledgeable. I was ready to buy! Unfortunately, the dealership did not have the exact car I wanted. The sales associate assured me that he would find the exact vehicle and be in touch. We exchanged information and I drove off.
That was on a Sunday. No call or e-mail on Monday. Tuesday nothing. Wednesday…did this guy even remember I was alive? I still have not been contacted (now three weeks [...]
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 [...]
Comments Off on Capitalization vs Expense: Are You Getting the Most Out of Your Dealership’s Policy?
By Dan Flugrath, CPA
Did you know that the IRS has increased the De Minimis Safe Harbor rules pertaining to the capitalization of fixed depreciable assets? For entities that issue what the IRS calls “Applicable Financial Statements” (“AFS”, i.e. audits) the limit increased to $5,000, and for those entities not issuing AFS (i.e. compilations or reviews) the limit increased to $2,500. What does this mean for you? As you purchase depreciable assets, as long as you have a written capitalization policy, you can expense those assets falling below the limit, increasing your taxable deductions.
Let’s consider this example: If 20 desktop computers are purchased at $2,500 each for a total of $50,000, the 20 desktops can be expensed immediately pursuant to the above rule.
If your dealership has an AFS, these additional rules apply:
The accounting policy and procedures MUST be written;
You must consistently follow that policy for both book and [...]
Comments Off on Quick look at shop charge settings can turn an expense into income – here’s how!
By Marilou Vroman
When was the last time your dealership’s shop charge settings were evaluated?
Many dealerships charge customers for shop supplies on repair orders to recover some of the cost of incidentals, such as brake clean or wheel weights, for example. For some dealerships, these credits are set high enough to exceed the monthly expense incurred. If your store is incurring a net expense for service supplies each month, it may be time to evaluate the shop charge settings.
Shop supply charges are typically determined based on a predefined percentage of repair order labor sales and often have a minimum and/or maximum charge. Dealers may be missing an easy income opportunity when the DMS settings for shop supplies have not been updated to correspond with changes in service business and the increasing cost of shop supplies.
The process of adjusting these settings is quite simple. For example, in [...]