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DIscuss solutions for dealers getting into BHPH or thinking about it.
Location: Russellville, Arkansas
Latest Activity: on Sunday
Started by Dominic McWhorter Aug 23, 2012.
Started by Rob Hagen. Last reply by Frank Dec 8, 2011.
Started by Mike "BK" Anthony. Last reply by Brad Sutterfield Apr 29, 2011.
For inventory purposes accrual just means you buy a car in December at auction for 5,000 and put 700 into it to be lot ready. At December 31 since it isn't sold, that 5,700 is on the balance sheet as inventory rather than expensing the 2 cost components of that car immediately. When the car eventually sells, then that 5,700 offsets the selling price as a cost of sales to get the gross profit on the sale--assuming no other costs are involved for this example. As for collections, a finance co separately organized can certainly book and record pmts as received which is cash basis. That way if a customer has defaulted for 2 months you aren't still taxed on unreceived interest income (like you would be on the accrual basis). The problem is you really shouldn't be using both methods inside of one entity. In MA, where I am, it's illegal for a dealership to write and service its own paper which is why dealers have to set up rfcs as non-depository banks with the Div of Banking. Apparently in whatever state you live that's not an issue.
However, by not having separate entities you lose the opportunity to discount the sale of those notes between the dealer and the rfc at FMV and deduct it for taxes immediately which is what Gene is talking about when he mentioned leaving money on the table for taxes.
Thanks Nathan for your comment. Not being an accountant, I am not sure what inventory being a material part of the income calculation means, but I can tell you he uses inventory cost less down payment to determine gross (which is almost always negative). He books and records payments as they are received. I think he could be in violation of several statutes. Your thoughts?
For taxes if inventory is a material part of the income calculation then accrual is required. Dealers have to be accrual unless somehow all their cars are on consignment to them which would be odd.
Great to hear from you. I have not worked with a dealer in BHPH that used the Cash Basis for accounting. I am not sure why they would do that. They should have an RFC and assign the loans to that company once the contracts are complete. Their accounting should resemble a retail dealership, sales transactions and indirect funding from a bank with a loan discount. You are right to be skeptical in my humble opinion. It may be easier for the accountant to maintain the books but the books are inaccurate and money is being left on the table from the tax advantages.
Gene, I have a question for you. I have a prospective BHPH client who does not have a separate Finance Company. Further, he runs his accounting using the "Cash" basis which has been blessed by his accountant.
I am very skeptical about this advice. All my other clients have a Finance Company. My thoughts are once you enter into a "contract" with your customers, Cash Basis is out the window. Your thoughts?
A few years ago I was on a Best Practices Panel in Dallas with other dealers in BHPH. We discussed how each of our operations were set up and how we handled our daily challenges. One dealer on the panel who has been in the business for decades having multiple locations shared with me the most important lesson he had learned during those years. "Get into a 20 Group". This very successful dealer said it was the best thing he had ever done for his business.
NCM Associates have been in the 20 Group business since 1945. NCM specializes in group moderation and training for all types of operations in and out of the automobile industry. If you would like to improve your business, keep up with everything that effects what you do and fellowship with your peers, join a 20 Group and follow the lead of thousands of other dealers across America.
Go to www.ncm20.com to get started. There are BHPH/LHPH and independent groups and new groups getting started right now.
And a GREAT 2013 to you.
Thanks Dugan for your comments. You are right, there are no excuses, at least ones we can eat or grow our business on. I hope you have a good year in 2013 even with all the headwinds coming.
January 2013 Happy New Year to All
It has been some time since I have communicated with you and try as I may, it gets harder and harder to find the time to sit down and compose a regular message. I shall try and do better this year.
I thought I would start the year with one of my favorite topics, excuses, and my favorite response:
“There are NO Excuses”
I have heard most of the current excuses, used some myself, but the truth is, there are no excuses. Our business moves on, and regardless of the climate (weather, political or otherwise), we all have jobs to do. Yes, I will admit that Presidential Elections appear to cause goofiness for the last few months in the years in which they happen, and this past election was no exception. Additionally, the current political climate will most likely present some challenges, but our business must continue.
One of the greatest challenges I am forever facing with some of my dealers and managers is their acceptance of “Things as They are”, “Tolerating” things that should not be tolerated and “Failure to Act” when a change is needed. Don’t get me wrong, I am far from perfect, but one thing I see, over and over again are things that need to addressed and we somehow think they will fix themselves. Incidentally, they usually WON’T, and THERE ARE NO EXCUSES.
So as we move into 2013, I challenge you to be on the lookout for anything that has been tolerated, needs action or fixing or has just been done that way forever, because that’s the way we do it. In order to GET different, we have to DO different. No excuses, let’s JUST DO IT.
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