How to Read and Analyze the Dealership Financial Statement. Ron Sompels, Partner Crowe Horwath LLP

Transcription

1 How to Read and Analyze the Dealership Financial Statement Ron Sompels, Partner Crowe Horwath LLP

2 Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer

3 Top 10 public accounting and consulting firm in the U.S. largest firm with Retail Dealer-specific practice 2,600 professionals in 28 offices coast-to-coast Crowe Horwath LLP, Retail Dealers Practice Serving Retail Dealers since 1942 Crowe Retail Dealers practice has more than 80 professionals who spend 100% of their time working directly in the profession Currently work with over 600 dealerships We design and develop innovative solutions for Retail Dealers such as Crowe Navigator Dealership Flash offers timely dealership accounting and tax alerts subscribe at

4 Ron Sompels, Partner, Retail Dealers Group Lead Professional Experience Ronald Sompels is a partner at Crowe and the leader of the firm wide Retail Dealers group. Ron has more than 30 years experience in providing assurance, tax, risk management, financial advisory, and performance consulting services to more than 600 retail dealerships. He has conducted courses on many subjects, including inventory control, and is a published writer, with articles featured in trade magazines, periodicals, and business journals. Professional Memberships and Community Involvement American Institute of Certified Public Accountants CPA Societies of Florida, Indiana and Michigan Certified Public Accountant: Florida, Indiana, Michigan, North Carolina and Ohio Certified in Production and Inventory Management (CPIM) Frequent speaker at various industry groups and trade associations. Contributor to articles published in various trade magazines, industry service bulletins and in The Journal of Accountancy. Leadership Tampa Bay Class of 2011 Education B.B.A. in Accounting, Western Michigan University, Benton Harbor, Michigan

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6 Agenda General Information about the Manufacturer s statement Included Entities Basis of Presentation Organization and other Balance Sheet Statement of Operations Departmental Information New Used Parts Service Body Shop Fixed Expenses Other Information

7 What You Should Know Before Using the Statements What entities are included in the statement? Statement may include the activities of more than one franchise. Is the real estate included in the balance sheet? Is there a management company? What is the basis of presentation? GAAP? TAX? Most likely Dealership Accounting Accounting methods and common Book/Tax differences Reserves and adjustments LIFO vs. FIFO? Goodwill treatment? Depreciation methods? Other differences? 6

8 Common Reserves (Know the policy) Common Reserves Lower of Cost or Market Used Vehicles Obsolescence (Parts greater than one year old) Chargeback Reserves (Depends on method and brand) Vacation (Hardly any dealer records correctly) Bonus Accruals (Usually only accrued at year end) Profit Sharing Accruals (Usually only accrued at year end) Self Insurance Incentive Chargebacks Tires for Life and Other Program Reserves 7

9 The 13 th Month Statement Under Dealership Accounting a year contains 13 months! In the 13 th month, most of the common errors and accruals get trued up. Still some GAAP adjustments need to be made. 8

10 Organization of Dealer Financial Statement Caveat - Every manufacturer s statement is different So these comments may be generalizations Statements are anywhere from 4 9 pages In General Page 1 Balance Sheets and Income Summary Pages 2-4 Total Operations and Departmental Expenses Page?? Variable Operations Gross Profit Analysis Page?? Other Department Gross Profit Analysis Page?? Analysis of Other Income and Expense Page?? Other Data Generally Show Month-to-Date and Year-to-Date 9

11 The Unique Alternative to the Big Four Balance Sheet Page 1 10

12 Balance Sheet Page 1 11

13 Operating Statement Before reviewing the operating statement you should understand that under Dealership Accounting many items get buried in Other Income Often this line in the operating statement contains the majority of the dealer income! Need to understand what is in here Packs Incentives Doc fees Other items Also understand the Dealership s policy of Accounting for manufacturing assistance 12

14 Other Income and Adjustments 13

15 Departmental Operating Analysis There are several ways that the Manufacturer s statements present this. Most show a Total Dealership column which includes Sales Gross Profit Itemized List of Expenses Expenses are listed in various categories Selling Expenses Personnel Expenses Variable Expenses Departmental Operating Expenses Semi Fixed Expenses Overhead Expenses Fixed Expenses Expenses are also measured as percent to total gross, per new vehicle sold, or percent to total sales The same format is used to show each department s expense which adds to the total 14

16 The Unique Alternative to the Big Four Department Operating Analysis Page 2? 15

17 Department Operating Analysis Page 3? 16

18 Departmental Operating Analysis Problems No common format makes it difficult to compare stores No comparative data or benchmarks Many of the expenses (mostly fixed in nature such as insurance, rent, or others such as employee benefits or payroll taxes) are difficult for department managers to control. They are allocated to the departments based on square footage or personnel cost. Need a better way to manage Many Dealers have a tool they use to analyze their statements. Ask them for it!! 17

19 Departmental Operating Analysis A good analysis tool will... Contain comparative data Analyze contribution margin by department Analyze controllable expense as a percent to gross Segregate fixed costs Compare to benchmarks Suggest separating expenses into two categories Controllable Expenses Non Controllable Expenses 18

20 Departmental Operating Analysis New and Used Vehicle Departments - Controllable CONTROLLABLE EXPENSES Commissions Advertising & Promotion Supervision Interest - Floorplan F&I Compensation and Expense Demos/Company Vehicles Other Salaries Prep, Deliver & Policy Other Controllable Expenses * Total Controllable Expenses * Includes Equipment, Other Supplies and Training 19

21 Departmental Operating Analysis New and Used Vehicle Establish Benchmarks as a % to Gross Profit % of Total Gross CONTROLLABLE EXPENSES New Used Commissions 24.0% 23.0% Advertising & Promotion 12.5% 13.0% Supervision 10.0% 10.0% Interest - Floorplan 0.0% 1.0% F&I Compensation and Expense Demos/Company Vehicles 2.0% 1.0% Other Salaries 3.5% 3.5% Prep, Deliver & Policy 2.0% 2.0% Other Controllable Expenses * 1.5% 1.5% Total Controllable Expenses 55.5% 55.0% * Includes Equipment, Other Supplies and Training 20

22 Departmental Operating Analysis Fixed Operations Departments - Controllable CONTROLLABLE EXPENSES Salaries & Wages Advertising Demos/Company Vehicles Policy Adjustment Tools & Supplies Other Controllable Expenses * Total Controllable Expenses * Includes Equipment, Other Supplies and Training 21

23 Departmental Operating Analysis Fixed Operations Departments - Controllable % of Total Gross CONTROLLABLE EXPENSES Serv. Parts Body Salaries & Wages 34.0% 28.0% 34.0% Advertising 2.5% 4.0% 2.0% Demos/Company Vehicles 1.0% 2.0% 1.0% Policy Adjustment 2.0% 0.5% 2.0% Tools & Supplies 7.0% 1.5% 3.0% Other Controllable Expenses * 2.0% 2.6% 1.5% Total Controllable Expenses 48.5% 38.6% 43.5% * Includes Equipment, Other Supplies and Training 22

24 Departmental Operating Analysis Other Non Controllable Expenses % of Total Gross EMPLOYEE EXPENSES Salary Administrative 3.0% Employee Benefits 3.0% Payroll Taxes 4.0% Total Employee Expenses 10.0% INSTITUTIONAL EXPENSES Institutional Advertising 0.0% Insurance 2.0% Office Supplies 0.7% Taxes - Other 3.0% Total Institutional Expenses 5.7% SERVICES Data Processing 1.7% Outside Services 2.9% Professional Services 1.0% Total Services 5.6% 23

25 Departmental Operating Analysis Other Non Controllable Expenses % of Total Gross FACILITY Telephone 1.0% Utilities 2.5% Insurance - Building 0.0% Repairs and Maintenance 0.0% Taxes - Real Estate 0.0% Total Facility 3.5% MISCELLANEOUS EXPENSES Depreciation 1.5% Interest 1.0% Miscellaneous 0.5% Travel & Entertainment 0.5% Other General & Administrative 0.0% Total Miscellaneous Expenses 3.5% Total Before Rent 28.3% Rent & Equivalent 7.0% Total Non-Controllable Expenses 35.3% 24

26 Departmental Operating Analysis Make Comparable CONTROLLABLE EXPENSES Bench %of Gross March April May Commissions 23.0% 320, % 435, % 410, % Advertising & Promotion 13.0% 177, % 172, % 154, % Supervision 10.0% 275, % 428, % 456, % Interest - Floorplan 1.0% % 0 0.0% 2, % F&I Compensation and Exp 58, % 82, % 73, % Demos/Company Vehicles 1.0% 20, % 21, % 28, % Other Salaries 3.5% 8, % 9, % 11, % Prep, Delivery & Policy 2.0% 35, % 52, % 56, % Other Controllable Expenses * 1.5% 8, % 3, % 11, % Total Controllable Expenses 55.0% 905, % 1,206, % 1,204, % 25

27 The Unique Alternative to the Big Four Gross Profit Analysis New and Used Page 4? 26

28 Gross Profit Analysis New and Used Page 4? 27

29 Gross Profit Analysis New Benchmark Dec 2008 (YTD) Dec 2009 (YTD) Dec 2010 (YTD) SALES - UNITS New Car - Retail New Truck - Retail Total New Units GROSS New Car - Retail ,401,260 9,506 3,030,597 5, , New Car Incentives (Memo Only) 4,179,152 (0) 2,775,825 (0) 2 0 New Truck - Retail , (140,785) (843) 120, New Truck Incentives (Memo Only) New F&I , , , Fleet & Other New ,144 5,005 25,110 Total New Gross 5,044,864 5,720 3,359,067 4,659 1,227,957 1,629 28

30 Gross Profit Analysis Used Benchmark Dec 2008 (YTD) Dec 2009 (YTD) Dec 2010 (YTD) SALES - UNITS Used Car Retail Used Car Retail - Certified Used Truck - Retail Used Truck - Retail - Certified Wholesale Total Used Units 728 1,151 1,236 GROSS Used Car - Retail 1, ,403 4, ,968 3, ,321 2,162 Used Car - Retail - Certified - 949,615 3,753 1,496,346 3,191 1,459,827 2,908 - Used Truck - Retail 1, Used Truck - Retail - Certified Wholesale - 214, , ,663 1,334 Used F&I , , , Other Used Total Used Gross 2,183,898 5,301 3,165,446 4,477 3,080,199 4,550 29

31 Gross Profit Analysis Service Benchmark Dec 2008 (YTD) Dec 2009 (YTD) Dec 2010 (YTD) SERVICE SALES Customer Pay 2,647, % 3,151, % 3,401, % Warranty 1,438, % 1,005, % 900, % Internal 421, % 528, % 515, % Sublet 330, % 216, % 245, % Other 245, % 251, % 255, % Total Service Sales 5,083, % 5,152, % 5,318, % GROSS PROFIT Customer Pay 72.0% 2,066, % 2,515, % 2,758, % Warranty 72.0% 1,093, % 783, % 701, % Internal 69.0% 307, % 379, % 377, % Sublet 7.0% 78, % 67, % 66, % Other 0.0% 126, % 125, % 113, % Unapplied (-) 0.0% (3,747) -0.1% 0 0.0% 0 0.0% Total Service Gross 3,668, % 3,872, % 4,016, % 30

32 Gross Profit Analysis Parts Benchmark Dec 2008 (YTD) Dec 2009 (YTD) Dec 2010 (YTD) PARTS SALES Customer Pay 2,344, % 2,814, % 2,748, % Warranty 1,918, % 1,339, % 1,347, % Internal 208, % 335, % 288, % Wholesale 631, % 700, % 674, % Counter 192, % 169, % 153, % Other 717, % 862, % 994, % Total Parts Sales 6,012, % 6,223, % 6,207, % GROSS PROFIT Customer Pay 40.0% 959, % 1,165, % 1,119, % Warranty 27.0% 540, % 394, % 416, % Internal 20.0% 35, % 66, % 54, % Wholesale 23.0% 147, % 166, % 176, % Counter 34.0% 70, % 59, % 61, % Other 20.0% 122, % 131, % 162, % Parts Adjustment 0.0% % (66,820) -1.1% (100,735) -1.6% Total Parts Gross 30.0% 1,875, % 1,917, % 1,890, % 31

33 Other Information in the Statements Be careful because much of the information is based on Memo Accounts which are inputted monthly Receivable Analysis Inventory Analysis Hourly Labor Rates for Technicians Labor Hours Repair Order Counts 32

34 The Unique Alternative to the Big Four Other Information in the Statements

35 Other Information in the Statements 1 34

36 The Unique Alternative to the Big Four Other Information in the Statements 2 35

37 The Unique Alternative to the Big Four Other Information in the Statements 3 36

38 Other Information in the Statements 4 37

39 Other Information in the Statements 5 38

40 Key Benchmarks by Department 39

41 Key Benchmarks by Department 40