Consistency Would Make A Big DifferenceWritten By: Garry Bartecki
Article Date: 07-04-2005
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
Ask 10 dealers how they account for rent-to-sell and you'll get 10 answers.
The First AED CFO Conference was held in late May. It was an interesting and fun experience. We had numerous speakers to deal with the complex tax and accounting issues associated with this industry. Attendees were primarily dealer CFOs with a few manufacturers represented. It made for an interesting group that was not afraid to offer an opinion or suggestion.
What did I learn from this Forum? Plenty.
First, I see a need for more CFO input into industry issues. These are very bright people with insight we aren't making use of. They know the numbers and what they mean, and can convert an idea into a financial presentation pretty easily.
On the other hand, CFO's are being pushed to the limit and need all the help they can get with many of the tax, accounting and operating issues they face daily. A CFO's agenda today includes compliance, growth planning, operational benchmarking, system upgrades and being a turnaround specialist. The expectations of today's CFO are growing by leaps and bounds, with few additional resources being provided.
Your CFO is going to become a much bigger part of your management team in the next five years. In keeping with our goal to help dealers succeed, AED plans to provide more tools to make CFOs' jobs easier. AED plans to offer information and tools to be used by CFO's to deal with specific issues and bring consistency to the accounting practices followed by this industry.
Consistency in application of tax and accounting policies for the construction equipment industry would go a long way in bringing the industry up a few notches in the eyes of the IRS, banks and finance companies. It would, without a doubt, make the industry easier to understand and thus more "financeable." But, because of the way our industry works, consistency is lacking, making it hard for outsiders to understand the business.
For example, our financial merchandising techniques are difficult to understand: Rent-to-sell is a perfect example. Ask 10 dealers how they account for rent-to-sell for both book and tax purposes and you'll get 10 different answers.
Another example deals with balance sheet and cash flow statement presentations. Dealers use various methods to account for inventory, use classified and unclassified balance sheets, and prepare cash flow statements using various formats - again, a lack of consistency that makes it tough for outsiders to get comfortable with the industry.
At the CFO Forum, the following issues surfaced that need follow-up before the end of this year:
- An industry balance sheet presentation is a must. We follow a suggested format in the CODB and suggest members use that format along with related footnotes.
- The cash flow statement that is part of your annual report needs to be standardized. To many readers, the cash flow statement is the most important statement of the three and needs to properly reflect how a dealer earns cash from operations, finances operations and invests cash. With the many ways a dealer makes money, it's important to properly coordinate these transactions to properly reflect cash flow from operations.
- Accounting for Variable Interest Entities is upon us for 2005. If your company has related party investments or rents property from a related party, you may have to consolidate the related party financial statements with your operating company. For most of you, this will not be a pleasant
experience. The rules for making this determination are very complex, and we need an industry-related worksheet to help prepare data to be used to make a decision.
Consistent application of these items would be of great help to the industry. In addition, I believe dealers need help with interest rate issues and credit card processing fees. Swaps, caps and the other opportunities available to dealers to control interest costs are needed to assist CFO's in
these efforts.
One last item that came to light at the Forum, and that has to do with the complexity of the tax tools currently being discussed in the industry: A lot of changes have taken place on the tax side, all of which require very careful study before implementation.
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