Unlock Frozen Capital

by: Stephan King, CPA and Partner, Moss Adams LLP

We all agree that cash is king. In these changing economic times, generating and retaining cash is a must. Last month, I tried to give you insight into improving your dealership’s cash position. Dealers who are short on cash often look for ways to find additional money. These dealers are adept at unlocking frozen capital from their businesses. There are a number of ways to improve your dealership’s cash position.

As I mentioned last month, dealers often speed up the collection of receivables, reduce inventory levels, or defer payment of payables. Successful dealers are creative and look for ways to unlock frozen capital from the less obvious places. Do you know how to identify frozen capital? Have you explored ways to maximize cash in limbo from unlikely places?

TAXES
You are probably asking, “What are other less obvious ways to unlock frozen capital?” The answer is taxes. Previously paid, present, or future income, property, and use taxes are potential sources of frozen capital. There are a number of methods to minimize current and future taxes. There are even some ways to get back taxes you paid in the past. Many of these opportunities are used by larger dealerships. They are proven approaches to tax reduction and minimization. They can include utilization of LIFO (last in, first out inventory accounting system) or cost segregation studies.

Are these terms familiar to you? Have you discussed these ideas with your accountant? If not, should you? The adoption of LIFO for motorhomes 10 years ago could have saved a dealer with $3 million in inventory in 1996 dollars approximately $200,000 or more in income taxes, an average of $20,000 per year. This is real cash in your pocket!

REAL ESTATE COST SEGREGATION STUDY
Also, the use of a real estate cost segregation study could accelerate depreciation deductions to periods much shorter than the normal 39 years. Dealers are depreciating portions of their real estate over periods as short as five years. A retroactive recalculation of depreciation can put more money in your pocket today. Have you considered a cost segregation study for your property?

Have you unwillingly or inadvertently accelerated payment of income taxes? Would recovering some of your prior taxes make a difference to you and your dealership today?

These are just two examples, but there are many other ways to put money in your pocket. Nationally, there is an overall decline in RV dealership profitability. Higher interest rates and fuel costs slowed the tremendous growth experienced by the industry. However, these can still be pretty profitable times for RV dealers, if certain steps are taken.

So, are you doing things today to weather any future down-turn or softening in the industry? Are you looking for ways to release frozen capital from your dealership? Will your dealership have staying power?

Stephan King is a certified public accountant and partner of Moss Adams LLP. Moss Adams serves over 400 dealerships nationwide, providing creative solutions to clients’ complex issues. For more information contact them at (800) 905-4010 or visit their website at www.mossadams.com.