How to Get Your Banker to Say Yes!

Transcription

1 How to Get Your Banker to Say Yes! Building a proactive business relationship with your floorplan lender. With David Jarrett & Jodi Kippe, Partners at Crowe Horwath LLP Moderated by Mike Bowers, Executive Editor, DealersEdge Crowe Retail Dealers: Assurance Tax Financial Advisory Risk Consulting Performance

2 Jodi Kippe, CPA - Executive, Retail Dealer, Fort Lauderdale, Florida jodi.kippe@crowehorwath.com Professional Experience Jodi Kippe is an Executive with Crowe Horwath and Company LLC, a top ten public accounting, and consulting firm. Ms. Kippe is a CPA with over 20 years experience working exclusively with Crowe s Retail Dealer group that specializes in assurance, tax, financial advisory, risk management, and performance consulting to dealerships. She has lectured at NADA and AICPA conferences, and is a published writer, with articles featured in trade magazines, periodicals, and business journals. Professional Activities and Certifications American Institute of Certified Public Accountants Florida Institute of CPA s Crowe Chizek s CFO Roundtable, Moderator SunTrust s Commercial Dealer Services Advisory Board Women s Automotive Association International, Member Frequent speaker at various industry groups and trade associations. Contributor to articles published in various trade magazines, periodicals and business journals, including NADA s AutoExec magazine. Education B.S.B.A. in Accounting, Central Michigan University David Jarrett, CPA - Partner, Performance and Value Creation, South Bend, IN Professional Experience David Jarrett is a partner with Crowe and works extensively with dealerships and financial institutions that lend to dealerships. Mr. Jarrett is the partner in charge of Croweâ s Value Creation group, which is responsible for new product development for Crowe. These solutions include Crowe Navigator for Dealers, Crowe Navigator for Lenders, and many other performance management tools that increase the efficiency of dealership operations and financial analysis services. A frequent speaker at industry professional associations such as NADA, financial groups, and Dealer 20 groups, Mr. Jarrett has presented on numerous topics such as financial controls, profit planning, cash flow planning, and fraud prevention. Professional Activities and Certifications American Institute of Certified Public Accountants Indiana CPA Society New Product Development Professional Certification Frequent speaker at various industry groups and trade associations. Contributor to articles published in various trade magazines, periodicals and business journals. Education - B.S. in Accounting, Purdue Univ., Advanced Management Program, Univ. of Chicago

3 Notice These slides for the webcast presentation ("presentation") have been prepared to present general information on selected accounting and reporting subject matter. The content of this presentation, which is the copyrighted work of Crowe Horwath LLP, does not constitute audit, accounting, financial reporting, income tax reporting or any other professional advice and should not be relied upon as such. The content of this presentation should not be duplicated or redistributed. Crowe Horwath LLP shall not be responsible for any loss sustained by any person or entity that places reliance on the content of this presentation. The content of this presentation was not intended to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer. 3

4 Men are from Mars Women are from Venus 4 4

5 Dealerships are from Mars Banks are from Venus 5 5

6 Until September September No speak No speak the same the language same language No problem We re No problem in Love! We re in Love! 6

7 Then the landscape changed. 7

8 Getting a Common Language with Your Business Partners Mars Team Dealership Key Operating Ratios Venus Team Bank Key Financial Ratios 8

9 Dealer s Key Ratios 1. Net income as percent of gross 2. New / used inventory turns 3. Hours per repair order 4. Total compensation percent to gross 5. CSI 6. Penetration of FI products 7. Market share to competitive brand 8. Market share per factory planning potential 9

10 Lenders Key Ratios 1. Working Capital 2. Current Ratio 3. Vehicle Equity 4. Tangible (Effective) Net Worth 5. Debt to Net Worth Ratio 6. Fixed Charge Coverage Ratio (FCCR) 10

11 Key Ratios: Working Capital and Current Ratio Total Current Assets Total Current Liabilities Total Current Assets / Total Current Liabilities Common uncertainties in calculation. Why do lenders measure? Goal from lenders perspective. 11

12 Key Ratios: Vehicle Equity Cash + Vehicles + CIT + VR + Holdback Floorplan Common uncertainties in calculation; Banks include cash. Why do lenders measure? Goal from lender s perspective. 12

13 Key Ratio: Tangible (Effective) Net Worth Net Worth (Owner s Equity) + Subordinated Debt Intangible Assets Common uncertainties in calculation. Why do lenders measure? Goal from lender s perspective. 13

14 Key Ratio: Debt to Net Worth Ratio Total Liabilities / Net Worth Common uncertainties in calculation. Why do lenders measure? Goal from lender s perspective. 14

15 Key Ratio: Fixed Charge Coverage Ratio (FCCR) EBITDAR (Earnings Before Interest, Depreciation, Amortization and Rent) / Debt Service Common uncertainties in calculation. Why do lenders measure? Goal from lender s perspective. 15

16 Risk Management Old World Relationship with Lender was a heavy influencer Statements were not regularly spread Assurance requirements (audit, review, compilation). Tax returns were enough Covenant violations identified late and easily waived Risk scores generically applied; quantitative measures Risk was mitigated by the blue-sky factor 16

17 Risk Management New World Monthly statement spreading Integrity of statement presentation Electronic data inspection Portfolio reporting, benchmarking and trending Industry specific scorecards and rating Added dealer requirements covenants Guarantees Risk adjusted interest rates 17

18 Risk Management Process Risk Scorecards Quantitative Factors 1. Financial ratios 2. Asset management indicators 3. Floorplan audit results 4. Covenant calculations 18

19 Floorplan Audit Results Impact on Credit Do you know the results of your audits? Results could create yellow and red flags. Causes actions to occur if there are issues Dealer should sign off on all audits and review the results with dealership management 19

20 Risk Management Process Risk Scorecards Qualitative Factors 1. Value of dealership s franchises 2. General Manager experience 3. CFO/Controller/Office Manager 4. Market penetration/csi 5. 13th period adjustments 6. Annual financial statements Audit/Review 7. Other 20

21 Risk Assessment Qualitative Factors Value of the dealership s franchises Scale of 1-5, how good are the franchises? Toyota/Nissan/Ford/Dodge General Manager experience Length of experience at dealership Previous track record of performance 21

22 Risk Assessment Qualitative Factors CFO/Controller/Office Manager Experience in dealerships? Track record? Turnover? Market penetration / CSI How does the store compare to the region? Trending up/down 22

23 Risk Assessment Qualitative Factors 13th period adjustments Never a surprise Out of nowhere? Audit/Review/Tax return Level of service? Do they have dealership CPA s? Are there surprises in the statements? 23

24 Risk Assessment Qualitative Factors Others Length of time in business Over built facility? Over expansion? NSF checks? 24

25 Floorplan is Not a Commodity Anymore Captive finance companies Banks Small Business Administration 25

26 What You Are Going to Hear from Lenders Sufficiency of capital Access to capital Personal guarantee plus PFS Unrelated investments on the balance sheet Maintain accurate financial records 26

27 How Do You React to the Changing Environment Share your annual plan/budget Provide timely and accurate financial statements Communicate large or unusual items/events Floorplan payoffs in accordance with agreement Quarterly review of loan covenants 27

28 New Relationship Prepare Business Plan or Info Packet Detailed financials records Financing needs: current and proposed Dealership management and ownership structure Franchises and locations Operating policies and procedures Internal control structure 28

29 Developing a Business Relationship with your Lender Understand how your bank is evaluating your performance Risk Rating Ratios and Benchmarks; Monitor, meet and discuss. Annual risk evaluation meeting Asset management guidelines Upcoming maturities and renewals 29

30 Notice These slides for the webcast presentation ("presentation") have been prepared to present general information on selected accounting and reporting subject matter. The content of this presentation, which is the copyrighted work of Crowe Horwath LLP, does not constitute audit, accounting, financial reporting, income tax reporting or any other professional advice and should not be relied upon as such. The content of this presentation should not be duplicated or redistributed. Crowe Horwath LLP shall not be responsible for any loss sustained by any person or entity that places reliance on the content of this presentation. The content of this presentation was not intended to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer. 30

31 Questions and More Information David Jarrett, CPA Partner Crowe Horwath LLP Jodi Kippe, CPA Partner Crowe Horwath LLP Download Crowe s Dealership Flash article on Dealership Financing at See Crowe at NADA - Booth 2267 and Robert Zwiers Workshops on UNICAP Feb ,