The front end of your dealership is built to attract customers, but that can also work for your service department. Is it in a location that allows customers to easily get in and out? Are the lanes wide? Customers don’t want to drive through a maze to get to your service department. It should be located in a prominent place, but also customer friendly. It is not uncommon for customers to drive out of their way to go to a place they are comfortable with and have had good experiences with in the past.

Are your service advisors still writing repair orders? You can streamline your processes by giving them computer tablets, with the biggest advantage being more face time and overall interaction with the customer.

Are you only marketing via mass mailers? If so, consider adding CRM (Customer Relationship Management) software that sends service reminders to customers based on the last date of the service performed and also reminds them about services that were recommended during their last visit. CRM software packages generally allow customers to make appointments online, which is important, especially for younger customers.

Anyone that has been in the automotive industry for a while knows that it is cyclical in nature. So, as vehicles sales are steadily increasing, take the steps now to ensure that service revenue will be there for you during the lean years to come in future.

Joe Goodmiller

As a reminder, dealers who receive more than $10,000 in cash in a single transaction or related transactions must complete Form 8300, Report of Cash Payments Over $10,000 Received in a Trade or Business. Form 8300 is due by the 15th day after the cash was received and dealers should retain a copy for five years from the date it is filed.

Dealers are also required to give notice to customers in a written or electronic statement to each person named on a required Form 8300 on or before January 31st of the year following the calendar year in which the cash is received. The statement must show the name, telephone number, and address of the information contact for the dealership, the aggregate amount of reportable cash received, and that the information was furnished to the IRS.

You may be subject to penalties if you don’t file a correct and complete Form 3800, as well as the required notification statement, on time, unless you can show that the failure was due to reasonable cause. Penalties start at $25,000 for a failure due to an intentional or willful disregard of the reporting requirements, so it is vital to be in compliance.

Edward Hooper, CPA

A dealership that has properly elected the lower of cost or market valuation for used vehicle inventory may write down a decline in the value of inventory from its cost in the year in which the decline occurs.  This is done even though the vehicle has not yet been sold.  However, deducting a write down reserve or estimated amount is not allowable for tax purposes.

Substantiation is the key in writing down the vehicles and the write downs must be calculated on an item-by-item comparison. Dealers are required to use an official guide for used vehicles and must do so based on make, model, year, vehicle condition, mileage, and optional equipment. Proper records must be maintained that show this comparison and the comparison must be used consistently and correspond to the dealership location and time period.

Now is the time for dealers to review their record keeping and ensure that the dealership maintains adequate, detailed records that support the deduction. The used vehicle write down in many instances can have a substantial effect on the dealership or its owner’s tax liability.

Edward Hooper, CPA

Downloading the trial balance into Excel and then importing it to their tax or auditing software is a big time saver for accountants, as well as downloading schedules to Excel. The mini schedules seem to work best for downloading to Excel. Once the schedules are in Excel, they can be analyzed by sorting them in various ways. For example, a receivable schedule can be sorted by age or amount. This is helpful when trying to find out how many receivables are aged over 90 days or how many credit balances are in your receivable schedule. This also works for new and used inventory schedules.

Using schedules in Excel to reconcile the flooring account is another big time saver. Most flooring schedules received from financial institutions are in vehicle identification number (VIN) order.  Once you get the flooring schedule into Excel, it can be sorted by the VIN. This generally helps speed up the flooring reconciliation process. You may also be able to request the flooring schedule from the financial institution in Excel, rather than have to convert it into Excel.

These are just a few ways Excel can help you and your CPA work more efficiently.

Kane Lavin, CPA

• Information about the existence of a state Exchange, a description of the services provided by the Exchange and information about how to contact the Exchange to request assistance.
• Whether the employee may be eligible for a premium credit through the state Exchange.
• If the employee purchases a qualified health plan through the state Exchange, the employee will lose the employer contribution and that all, or a portion of, such contribution may be excludable from income for tax purposes.

One of the more confusing aspects of the employee notice requirement is that most states have not, and many do not intend to, set up the marketplaces required under the 2010 Affordable Care Act.  In fact, only about 1/3 of the states have already established the Exchanges. At least for now, the administrative burden required to distribute a notice may generate more questions than it addresses.

Edward Hooper, CPA

Rent expense –
In closely held corporations, the owner of the dealership is also the owner of the property the dealership is located on. The land and buildings are often owned by a separate entity.

Note payable to a shareholder -
Instead of putting permanent capital in the dealership, they will draw up a note payable to the dealership at a reasonable rate of interest.

Sales and purchases of used vehicles parts, and service work with affiliated dealerships - 
Owners of dealerships often own more than one dealership. It is not uncommon for them to buy and sell these items to one another.

Allocation of certain expenses between affiliated dealerships - 
Expenses of this type include payroll for certain employees who do work for multiple dealerships, computer expense when multiple stores use the same server.

Notes receivable to a shareholder -  
Dealers have occasion to borrow from the dealership instead of borrowing from a bank.  A formal note should be drawn up and a reasonable amount of interest should be charged.

This is not an all-inclusive list of related party transactions. Your particular dealership may have other such transactions.

These transactions are important in understanding the operations of each dealership. They are also required disclosures for financial statements prepared by your CPA. It is good practice to accumulate these transactions as part of your year-end processes and for ownership to review.

Kane Lavin, CPA

The ideal time to start a succession and estate plan is when you are in your late 40’s or early 50’s.  Building a succession plan early in your career can allow the succeeding generation to plan on how to properly finance a buy/sell agreement.  Waiting too long to create a succession and estate plan could result in family members not being able to finance a buy/sell agreement and your dealership being sold to a unrelated party for an undesirable amount.

With the presidential election in November, there is a great chance that major tax reform will occur after the election. Currently, there are some favorable tax laws for estate planning purposes but, come 2013, these could disappear.  As such, now is a great time to reach out to your CPA to inquire about potential succession and estate planning so we can help you and your dealership ensure years of future success.

Brian Campbell, CPA

• Vehicle receivables – contracts in transit and vehicle down payments;
• Accounts receivable – parts and service;
• Receivables from manufacturer – warranties, PDIs, holdbacks, and incentives; and
• Finance reserves – commissions earned on selling contracts in transit to various financial institutions   

These receivables vary slightly on how fast they are usually paid. Vehicle receivables should be paid in 3 to 5 days. Parts and service receivables and finance reserves should be paid on a monthly basis.  Manufacturer receivable payments vary by type and manufacturer. Warranties and incentives are generally paid each week. Holdback is generally paid on a quarterly basis.

The best way to monitor receivables is the use of proper schedules that show the correct aging of the receivables and timely meetings with those involved in collecting them. Most Dealership Management Systems have schedules to properly age different types of receivables. It is important to match the various receivables with the correct type of schedule. Meetings are generally held once a week with those involved or more frequently if deemed necessary.

Remember, uncollected receivables turn into write-offs, which decrease the profits of your dealership. Take a good look at the schedules you use for reviewing and collecting receivables and ensure they are providing you enough information to evaluate aging and collectability.

Kane Lavin, CPA

In addition to the use of bonus depreciation, Section 179 provides for a special deduction of up to $25,000 per vehicle for heavy SUVs. To qualify for Section 179, there are overall expense, qualifying property, and business income limits, so it is important to review those requirements before claiming the deduction.

Finally, after taking Section 179 and 50% bonus depreciation, the remaining balance is depreciated over a 5-year period using MACRS (regular) depreciation, which is 20% in the first year. It is important to note that these deductions are required to be taken in the following order:

• Section 179
• 50% Bonus Depreciation
• Regular Depreciation

To illustrate, a new heavy SUV used 100% for business that costs $60,000 and qualifies for Section 179 could be written-off in 2012 as follows:

Section 179: $25,000
Bonus Depreciation (50% of remaining balance): 17,500
Regular Depreciation (20% of remaining balance): 3,500

Total First-Year Write-Off: $46,000

The remaining $14,000 would be recovered in years 2 through 5 by means of regular depreciation.

Pass this information on to your sales team…it just might just be the tool they need to close a deal.

Edward Hooper, CPA

Chances are, today’s buyer is searching the Internet and researching their desired vehicle prior to even stepping foot on your lot. A blog can help your dealership get to the top of the list when searching for a certain vehicle model on a search engine, such as Google or Bing. Starting a blog is the easy part; the hard part is keeping it up to date. In a perfect world, the blog would be updated once a week. That being said, how do you come up with enough topics? Look around your dealership. You have sales, finance, parts, and service departments to help you out. Ask the people on the front lines, “What questions are your customers asking you?” “What are the current trends?” “Are people leasing or financing and what are the advantages and disadvantages of both?” You can also post customer or employee reviews of the latest and greatest vehicle options. The topics are endless; however, the trick is to keep them current and relevant, which takes effort. The higher the number of hits to your website, the higher amount of foot traffic in your store; it’s a proven formula. So, now you are able to get a potential customer to visit your website, how do you keep them on it? I’ll discuss this in my next blog. 

 
Joe Goodmiller