It has been a very busy month; getting the CFO Conference put together, dealing with the potential tax changes coming down the pike, attending our first 20 Group meeting and, in general, talking with dealers about various operating and financing issues.
“What’s in there” refers to discussions at the 20 Group meeting. I work with ADP’s Performance Group to process the meeting data and provide a moderator for the meeting. Since this was the first meeting the participants had to get acquainted with the data and each other and as a result listed the various changes and corrections that had to be made to make the data reliable and comparable for future meetings.
The Performance Group reports are quite detailed and each participant knows which data belongs to whom. Basically, each revenue silo is broken down so that you can place your company on either the left or right side of the “average performance” bar. Being on the left side is good. The right side is not so good. The far right side is not good at all. This layout made it easy to scan the reports and zero in on areas where you needed to spend some time getting help to get to the left side. On the other hand, your expertise can help with those pages where you are on the above average side.
The experienced moderator easily guided the group in a review of the data, asking questions as he went along to help the participants understand the reason why a number was what it was. The way the data is expressed, variances are easy to spot (both too good to be true and those well below average) and in many cases the participant had to check to see “What is in there” before responding to the group. If you didn’t know what an account balance represented before you got to the meeting, you had a much better understanding of the account make up and what should be in there when you left. I can’t imagine each and every participant not walking away with several ideas or questions to follow up on.
These new 20 Groups are indeed a work in process but I have no doubt every participant will enjoy better operating statistics going forward. Imagine you have a department on the far right side of the report, and you have nine other business leaders leading you to at least the department average over the next 60 days. Nice cost effective place to be these days.
Last month I believe we discussed the tax risk associated with the post Bonus Deprecation years. Since that time a number of dealers have projected their tax liabilities under various scenarios and now believe the risk is real. As you may recall, most of your rental equipment has a zero tax basis and will generate a 100 percent taxable gain when it is sold. I think we called this “Double Trouble,” in that the gains are larger with current deprecation methods only providing partial relief. Even with book losses, the tax gain could be lurking on your tax return ready to bite you when you least expect it.
If you find yourself in this position, the tax can be mitigated with the use of Like-Kind Exchange tax accounting if you are planning to replace the units you are selling within six months from the date the unit is sold. Done correctly, LKE provides cash flow benefits while being cost effective.
As you may or may not recall, the other issue related to tax is the estimated tax requirement related to the year when you have a big tax bite. Since this double whammy is most likely to carry over to more than one accounting period, the cash requirements to cover your tax liabilities over a 12 month period could be far in excess of what you are expecting.
Get someone familiar with the dealer business, rental and LKE to review your tax position and relative tax exposure for the next two or three years. It is better to know now if you have a problem so you have time to deal with it.
I have been hearing and have experienced a softer financing environment, and find that banks are more receptive to financing dealers now that the economy is turning with equipment values trending upward. We have sources if you need one.
We are running out of space this month and will catch up with you next month. Any questions, give me a call.
Garry Bartecki is a CPA MBA with GB Financial Services LLC. You may contact him by e-mailing firstname.lastname@example.org.