We’ve all heard the saying “Cash is King.” Have you considered the cash balance of your dealership may actually be costing you? If your working capital exceeds the manufacturer standards and debt covenant requirements, you may be paying unnecessary floorplan interest. In today’s interest rate environment, a little effort in managing cash flow can result in significant savings. For example, $1 million in excess operating cash from flooring units unnecessarily would cost the dealership $70,000 in one year at 7%. By maintaining a lean cash position and efficiently managing cash flow, you can reduce borrowing and related interest costs. Efficient cash flow management requires diligent adherence to sound business processes and management of the whole balance sheet. Every car dealer knows inventory management is vital in controlling floorplan interest. The following are a few suggestions for managing the remainder of the balance sheet and cash flow:

• Manage the timing of floorplan payoffs, customer lien payoffs, and tax and title payables with the funding of the deal. Deals should be funded within 3-5 business days if all paperwork is completed accurately and in a timely manner. Most liabilities associated with a deal can be paid after the deal is funded without risking noncompliance. Continual review of contracts in transit and related liabilities will reveal if there are issues with following proper procedures in F&I.
• Review factory receivables for incentives and warranty claims weekly. Are claims taking longer than they should to be paid? Are incentives being written off because of lack of follow-through? Remember, every dollar in a receivable is a dollar not available to pay down debt and reduce interest costs.
• Take advantage of vendor discounts and avoid paying late fees and interest. Many vendors offer an early payment discount or charge interest at a high rate if payment isn’t made on time. Determine credit card balances are paid in full and on time each month.
• Make all payroll tax, sales tax and pension payments on time and accurately. Penalties and interest charges by taxing authorities are expensive and should be avoided.
• Lastly, take advantage of the floorplan offset accounts. Many lenders allow the dealer to “offset” 50% of their floor plan balance in this account, usually earning interest at the floor plan rate. These accounts are highly liquid and can be transferred to the operating bank account quickly if needed.

If you have floorplan debt, determine the minimum cash balance with which you can operate and use the guidelines above to reduce debt and interest costs.

Tasha Sinclair, CPA/ABV, is a principal of Tetrick & Bartlett PLLC and has been providing accounting, tax, valuation and consulting services to automobile dealers since 2002. Tetrick & Bartlett PLLC currently serves over 50 dealers in West Virginia, Virginia, Ohio and Pennsylvania, and is a member of the AutoCPA Group, a nationwide organization of CPA firms specializing in services to automobile dealers. Tasha can be reached at tsinclair@tb.cpa or (304) 624-5564.