October 2008 - Automotive Accountants' Forum

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Colledge's regular forum for Automotive Accountants. This was presented in October 2008 and discussed Global Financial Crisis, Luxury Car Tax, Parts, Cash Flow, Industry Benchmarks

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October 2008 - Automotive Accountants' Forum

  1. 1. Automotive Accountants’ Network Forum For Accountants. By Accountants.
  2. 2. Now is not the time to panic! 22 October 2008 Presenter: Angelo Sirianni, Colledge’s FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  3. 3. This presentation has been prepared by Colledge’s for the general information of its clients and seminar attendees. While the information herein has been prepared with all reasonable care and derived from sources believed to be accurate, no responsibility or liability is accepted by Colledge’s or any of its affiliations, for any errors or omissions including liability to any person of negligence or otherwise. Recommendations may not be appropriate in all circumstances and clients must consider their own personal objectives and financial advice before acting on recommendations in this presentation . Colledge’s (ABN 52 439 950 641) FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  4. 4. We are all inventors, each sailing out on a voyage of discovery, guided each by a private chart, of which there is no duplicate. The world is all gates, all opportunities. Ralph Waldo Emerson (19 th Century American essayist, philosopher and poet) FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  5. 5. <ul><li>Economic Update </li></ul><ul><ul><li>Implications of the Global Financial Crisis for the Australian Economy. </li></ul></ul><ul><ul><li>Why there is unlikely to be a large, across-the-board fall in Australian house prises as there has been in the US. </li></ul></ul><ul><ul><li>Government decisions. </li></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  6. 6. <ul><li>Luxury Car Tax (LCT) </li></ul><ul><li>LCT rate of 33% to apply to all vehicles over the threshold amount of $57,180 (2008-9) including GST. </li></ul><ul><li>  </li></ul><ul><li>If a contract to purchase or import a luxury car was made before 13 May 2008 at 7.30pm AEST, the LCT will remain at 25%, irrespective when the car is delivered. </li></ul><ul><li>  </li></ul><ul><li>LCT rate of 33% to apply to all fuel efficient vehicles over the threshold amount of $75,000 including GST.  </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  7. 7. <ul><li>Luxury Car Tax (LCT) </li></ul><ul><li>  </li></ul><ul><li>Applies to all taxable supplies or taxable importation of luxury cars on or after 1 July 2008. </li></ul><ul><li>  </li></ul><ul><li>“ Fuel efficient vehicle” is defined as fuel consumption not exceeding 7 litres per 100km as a combined rating under the vehicle’s standards in force under Section 7 of the Motor Vehicles’ Standards Act 1989. </li></ul><ul><li>  </li></ul><ul><li>The limit of Fuel Efficient vehicles for 2008-9 is $75,000. The limit is indexed annually using subdivision 960–M of the ITAA 1997. </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  8. 8. <ul><li>Luxury Car Tax </li></ul><ul><li>Primary Producers will be entitled to a refund of the luxury car tax if: </li></ul><ul><ul><ul><li>The luxury car tax was paid at the time, carrying on a primary production business </li></ul></ul></ul><ul><ul><ul><li>Amount of refund is the lower of 8/33 of the luxury car tax borne or $3,000 </li></ul></ul></ul><ul><ul><ul><li>Cannot claim for more than one vehicle per year </li></ul></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  9. 9. <ul><li>Luxury Car Tax </li></ul><ul><li>  </li></ul><ul><li>Tourist Operators will be entitled to a refund of the luxury car tax if: </li></ul><ul><li>The luxury car tax was paid </li></ul><ul><ul><li>The vehicle will be solely used for the purpose of carrying on a business and the principle purpose is carrying tourists for tourist activities </li></ul></ul><ul><ul><li>Amount of refund is the lower of 8/33 of the luxury car tax borne or $3,000 </li></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  10. 10. <ul><li>Luxury Car Tax </li></ul><ul><li>Claiming refunds on eligible cars : </li></ul><ul><li>If eligible, a refund can be claimed once the luxury car tax regulations have been passed. (Refunds will also apply where they have been paid to Customs) </li></ul><ul><li>Claim a refund within four (4) years of becoming entitled </li></ul><ul><li>The legislative arrangement regarding these refunds is currently being drafted </li></ul><ul><li>On the approved form </li></ul><ul><li>Refunds of the LCT are claimed from the Tax Office </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  11. 11. <ul><li>Luxury Car Tax </li></ul><ul><li>Administrative Arrangements for Dealers: (applicable from 1 July 2008) </li></ul><ul><li>  </li></ul><ul><li>Application of the new rate of 33%: </li></ul><ul><li>  </li></ul><ul><li>To any taxable supply of a luxury vehicle on or after the 1 July 2008. This means, the new rate applies when the car is delivered, even if the sales were attributed to a tax period prior to 1 July 2008. </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  12. 12. <ul><li>  Luxury Car Tax </li></ul><ul><li>Administrative Arrangements (cont) </li></ul><ul><li>Dealers who anticipated the rate rise: </li></ul><ul><li>Must provide a refund of the additional 8% LCT for cars contracted before 13 May 2008, 7.30pm AEST, and delivered after 1 July 2008. </li></ul><ul><li>Must report and pay the remaining additional 8% LCT in your first activity statement after 3 October 2008. </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  13. 13. <ul><li>Luxury Car Tax </li></ul><ul><li>Administrative Arrangements (cont) </li></ul><ul><li>  </li></ul><ul><li>Dealers who did not anticipate the rise: </li></ul><ul><li>That is, contracted on or after 13 May 2008, 7.30pm AEST, and delivered after 1 July 2008 </li></ul><ul><li>Seek the additional 8% LCT payments from buyers, unless this right was specifically excluded in the contract </li></ul><ul><li>Must report and pay the remaining additional 8% LCT in your first activity statement after 3 October 2008 </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  14. 14. <ul><li>Luxury Car Tax </li></ul><ul><li>Administrative Arrangements (cont) </li></ul><ul><li>Ongoing Reporting and Payment </li></ul><ul><li>  </li></ul><ul><li>Following the initial payment of the LCT as described previously, dealers must continue to report and pay LCT in-line with their usual obligations. </li></ul><ul><li>  </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  15. 15. <ul><li>Luxury Car Tax </li></ul><ul><li>Administrative Arrangements (cont) </li></ul><ul><li>Calculating which rate applies: </li></ul><ul><li>  </li></ul><ul><li>To determine the applicable LCT rate will depend on the following: </li></ul><ul><ul><ul><li>When the car was ordered </li></ul></ul></ul><ul><ul><ul><li>When the car was delivered </li></ul></ul></ul><ul><ul><ul><li>The type of car, e.g. fuel efficient </li></ul></ul></ul><ul><ul><ul><li>Whether primary producer or tourism operator   </li></ul></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  16. 16. Luxury Car Tax The LCT rate applied will vary FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM Delivery Date Applicable LCT Rate Cars delivered or imported before 1 st July 2008 <ul><li>25% </li></ul>Cars delivered or imported after 1 July 2008 and before 3 October 2008 including fuel efficient vehicles under $75,000. <ul><li>33%, or </li></ul><ul><li>25% for cars contracted before 13 May 2008 7.30pm AEST </li></ul><ul><li>Primary producers and tourism operators can claim a refund of the LCT from the Tax Office up to $3,000 on an eligible car </li></ul>
  17. 17. Luxury Car Tax The LCT rate applied will vary (cont) FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM Delivery Date Applicable LCT Rate Cars delivered after 3 rd October 2008 <ul><li>33% </li></ul><ul><li>25% Fuel efficient vehicles under $75,000 </li></ul><ul><li>Primary producers and tourism operators can claim a refund of the LCT from the Tax Office up to $3,000 on an eligible car </li></ul>
  18. 18. <ul><li>Parts </li></ul><ul><ul><li>Key Parts Department Indicators </li></ul></ul><ul><ul><ul><li>Total Parts Gross 27% </li></ul></ul></ul><ul><ul><ul><li>Total Parts Expense 45% </li></ul></ul></ul><ul><ul><ul><li>Total Parts Selling Gross 55% </li></ul></ul></ul><ul><li>* Before allocation of departmental expense </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  19. 19. <ul><ul><li>Parts </li></ul></ul><ul><ul><li>Parts Department Breakeven </li></ul></ul><ul><ul><li>Mark up required to breakeven </li></ul></ul><ul><ul><li>Parts Department Expense add Allocation of Fixed Expense = Total Parts Department Expense </li></ul></ul><ul><ul><li>Total Parts Department Expense </li></ul></ul><ul><ul><li>Total Part Cost of Sales </li></ul></ul>= Mark up to Breakeven FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  20. 20. FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  21. 21. <ul><li>Return on Investment Parts Inventory </li></ul><ul><ul><li>Parts Selling Gross Annualised </li></ul></ul><ul><ul><li>Parts Inventory </li></ul></ul><ul><ul><li>* Parts Selling Gross = Parts Gross Profit Less Parts Department Expense </li></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  22. 22. <ul><li>Forecast Parts Inventory Needs </li></ul><ul><ul><li>Determine if there is excess inventory that needs liquidating </li></ul></ul><ul><ul><ul><li>Projected Performance </li></ul></ul></ul><ul><ul><ul><li>Projected Cost of Sales (Annualised) Desired Stock Turns </li></ul></ul></ul><ul><ul><ul><li>Compare Actual Inventory with </li></ul></ul></ul><ul><ul><ul><li>Average Inventory Needed </li></ul></ul></ul><ul><li>= Under or Overstocked situation </li></ul>Average = Inventory Needed FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  23. 23. <ul><li>Forecast Parts Inventory Needs (cont) </li></ul><ul><ul><ul><li>2. Part History </li></ul></ul></ul><ul><ul><ul><li>Actual Cost of Sales (YTD) Annualised Desired Turns </li></ul></ul></ul><ul><ul><ul><li>Compare Actual Inventory with </li></ul></ul></ul><ul><ul><ul><li>Average Inventory Required </li></ul></ul></ul><ul><ul><ul><li>= Under or Over Stock situation </li></ul></ul></ul><ul><ul><ul><li>Therefore, commence discussion with your Parts Department </li></ul></ul></ul>Average = Inventory Required FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  24. 24. <ul><li>Inefficient Parts Inventory </li></ul><ul><li>Suggest Guide 1½ month’s supply = 8 Turns </li></ul><ul><li>Determine Sales required for Inventory on Hand </li></ul><ul><ul><li>Inventory Value x Turns = Cost of Sales </li></ul></ul><ul><ul><li>Determine Revenue base on GP% desired (achieved) </li></ul></ul><ul><ul><li>Determine Gross Profit required </li></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  25. 25. Inefficient Parts Inventory (cont) Example: Inventory $432,708 Turns 8 GP 21.9% Therefore required Sales and Gross Profit should be: $432,708 Inventory x 8 Turns = $3,461,664 Cost of Sales 78.1% Revenue = ($3,461,664 / (1-21.9% = 78.1%) = $4,432,348 Gross Profit = $ at 21.9% = $970,684 FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  26. 26. <ul><li>The Inventory Control System </li></ul><ul><li>Does it fit the Dealership needs? </li></ul><ul><li>Periodically check several Parts on hand with inventory records </li></ul><ul><li>Become more involved in Parts Department – constant reviews </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  27. 27. <ul><li>Ordering </li></ul><ul><li>Base orders on movement, turn patterns & lead times </li></ul><ul><li>Establish turn objectives for total and specific lines </li></ul><ul><li>Watch turn by line – minimum turns per year </li></ul><ul><ul><ul><li>Very fast movers should turn 12+ times per year </li></ul></ul></ul><ul><ul><ul><li>Fast movers should turn 6 times per year </li></ul></ul></ul><ul><ul><ul><li>Medium movers should move 4 times per year </li></ul></ul></ul><ul><ul><ul><li>Slow movers should turn 3 times per year – keep stock to a minimum </li></ul></ul></ul><ul><ul><ul><li>Utilise stock orders to get best price </li></ul></ul></ul><ul><li>Avoid use of non stock items </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  28. 28. <ul><li>Control of Stock </li></ul><ul><li>Post stock when put in bin </li></ul><ul><li>Require requisition or invoice for every order </li></ul><ul><li>Periodic physical stock take </li></ul><ul><ul><ul><li>Use outside teams to ensure objectivity </li></ul></ul></ul><ul><ul><ul><li>Do it at quiet time – weekend, etc </li></ul></ul></ul><ul><li>Plan layout to expedite stock activity = fast movers up front </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  29. 29. <ul><li>Parts Salaries versus Parts Sales </li></ul><ul><li>Productivity </li></ul><ul><li>Measure Parts Department employees productivity </li></ul><ul><li>Review dollar sales achieved against actual salary cost incurred </li></ul><ul><li>Benchmark $ Sales per $ Salary </li></ul><ul><li>Total Parts Sales YTD Total Salary Cost YTD </li></ul><ul><li>Evaluate Parts Department personnel performance </li></ul><ul><li>Level of personnel required </li></ul><ul><li>Parts Department potential </li></ul>= $ Sales per $ Salary FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  30. 30. <ul><li>Cash Flow Analysis </li></ul><ul><li>Cash is King! </li></ul><ul><li>Two key financial analysis of the balance sheet </li></ul><ul><ul><li>Net cash position Cash needed to meet the obligation of the business </li></ul></ul><ul><ul><li>2. Working Capital A favourable balance of assets over liabilities so it has the capital to generate income </li></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  31. 31. Cash flow Analysis Net cash = Cash sources versus Cash demands Cash Sources Cash on Hand Cash at Bank Finance contacts Marketable Security Vehicle Receivables Cash Demands Accounts Payable Customer Deposits Service Contracts Overdraft FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  32. 32. <ul><li>Cash flow Analysis </li></ul><ul><li>The Cash Flow Statement </li></ul><ul><li>Cash Flow from Operating Activities </li></ul><ul><li>Cash Flow from Investing Activities </li></ul><ul><li>Cash Flow from Financing Activities </li></ul><ul><li>Equals Net Change in Cash Held </li></ul><ul><li>Reconciliation </li></ul><ul><li>Opening Bank Balance </li></ul><ul><li>Closing Bank Balance </li></ul><ul><li>Equals Net Change in Cash Held </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  33. 33. Cash flow Analysis The Cash Flow Statement Example: “Home Town Motors” Year ended 30 June 2008 Profit $931,872 ROS% 4.4% GP% of Sales 13.1% Working Capital 1.4 : 1 Net Change in Cash Held $96,142 Why has cash held increased only by $96,142? FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  34. 34. <ul><li>Cash flow Analysis </li></ul><ul><li>The Cash Flow Statement </li></ul><ul><li>Cash Flow from Operating Activities $226,929 </li></ul><ul><li>Cash Flow from Investing Activities $(107,181) </li></ul><ul><li>Cash Flow from Financing Activities $(23,605) </li></ul><ul><li>Equals Net Change in Cash Held $96,142 </li></ul><ul><li>Reconciliation </li></ul><ul><li>Opening Bank Balance $692,400 </li></ul><ul><li>Closing Bank Balance $788,542 </li></ul><ul><li>Equals Net Change in Cash Held $96,142 </li></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  35. 35. Basic Cash Flow Analysis Net profit Add back Non-Cash item (Depreciation / Amortisation) = Cash from Operations Cost Generation +/- Changes in Current Assets: Decrease = Cash Inflow Increase = Cash Outflow +/- Changes in Current Liabilities: Increase = Cash Inflow Decrease = Cash Outflow = Cashflow generated from Operations FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  36. 36. Basic Cashflow Analysis (cont) +/- Addition or Reduction of Fixed Assets = Cashflow for Investing Activities +/- Long-term Liabilities = Cashflow for Financial Activities = Cashflow Statutory Method FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  37. 37. <ul><li>Excess Cash Tied Up </li></ul><ul><ul><li>Guide months </li></ul></ul><ul><ul><li>Parts & Service Receivable 1.5 </li></ul></ul><ul><ul><li>Warranty & Parts Receivable 0.8 </li></ul></ul><ul><ul><li>Used Inventory 2.0 </li></ul></ul><ul><ul><li>Parts Inventory 1.5 </li></ul></ul><ul><ul><li>New Inventory* 1.5 </li></ul></ul><ul><ul><li>* Not necessarily excess cash tied up, relates to excess inventory leading to excessive floor plan changes </li></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  38. 38. <ul><li>Credit & Collection Program </li></ul><ul><ul><ul><ul><li>Use an ageing schedule </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Credit application for new customers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Credit limit for all customers </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Credit approval for sales over $XXX </li></ul></ul></ul></ul><ul><ul><ul><ul><li>One person to approve all credit </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Discount for timely account payment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Invoices sent within five working days </li></ul></ul></ul></ul><ul><ul><ul><ul><li>(points 8-14 next slide) </li></ul></ul></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  39. 39. <ul><li>Credit & Collection Program (cont) </li></ul><ul><ul><ul><ul><li>Invoice during month – not month end </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Add cost to overdue accounts </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Cease credit for anyone outstanding </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Letters to past due accounts </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Have DP follow up </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Collection agency for overdue accounts </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Periodically follow-up written off accounts </li></ul></ul></ul></ul>FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM
  40. 40. Benchmarks View Colledge’s and AutoTeam Australia’s Automotive Industry Benchmarks FOR ACCOUNTANTS, BY ACCOUNTANTS COLLEDGE’S AUTOMOTIVE ACCOUNTANTS NETWORK FORUM

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