#94 - Healthy Business Finacials During Covid19 with Dave Wiggins

You are listening to the Independent Dealer Podcast with hosts Luke Godwin and Jeff Watson. Thank you so much for tuning in. Let's do this.

All right, guys, girls, thank you so much for joining us on this special episode of the Independent Dealer Podcast. We have luckily, luckily been able to tag down Dave Wiggins of cla. He is the smartest guy in the auto industry when it comes to, I mean, all things accounting. I mean, this, they probably stop me. We're going to ask you a lot of questions that probably even go beyond what your profession is, but we would love to get your input on some of the major issues that are facing independent dealers. Thank you for joining us.

Oh, thank you very much for letting me talk with you. So I appreciate it and hope I live up to the announcement going in.

I don't think that'll be a problem, Dave, we really appreciate it. I have been crazy this morning with all the coronavirus stuff. I've got so many people out. I've got this, I've got that. Do we have any confirmation on what's going on with what's in the new bill, Dave, that would help us if we keep all these employees on? Do you have any guidance on that at the moment?

Yeah, I guess I'd start by saying, you know, obviously this thing hasn't even passed. They are thinking it may pass sometime today. But this, this is sort of the, the big assistance bill that will help a lot of dealers. You know, if you look this is concerned, Phase three, phase two is basically the family's first Corona Response act bill that really just covered where you had people out because of coronavirus that were employees. And then phase one really was kind of the health care stuff. So it didn't affect us much. This bill really is aimed at a couple things and the two big things I think people will look at is they've opened up about 350 billion for small businesses to apply for loans that, you know, to some extent can be forgiven to cover some of the payroll and some other costs related to this for about two months. That's generally how it kind of works. So, you know, that'll give people assistance with. A big question here is, you know, I don't know what to do. Do I lay people off? I don't want to lay them off, but I'm not sure I can keep them going. The other thing that's in there that I think could be a big issue for some used car dealers is there's net operating loss carryback provisions that would allow you to carry back losses for five years for either 20, 18, 19 or 20 income. So if you had losses then you might be able to, you know, if you had losses in 2018 you couldn't use, you might be able to carry those back five years and try and get some tax money back on a fairly short term basis.

That's interesting. And that would be net loss from dealership operations or is it personal operations? How are they going to look at that?

You know, it looks like it'll probably be on the personal side. Assuming most of the entities we're talking about are pass throughs as s corporations or partnerships, it likely be looking through to the individual. And if they have losses, then they might be to carry those back. Now if you don't have losses, you know, it won't help you much until maybe 2020. You know, if you've got losses due to the coronavirus, you can carry those back, but you may not be able to do it until, you may not be able to do it until you file next year's tax return. So it's not a real emergency assistance measure.

That's interesting. Yeah, I think the loss is going to probably come in 19, in 20, not in 19. I really think that next month is going to be kind of hard on us all. Do you have any, I guess, guidance on maybe what you've seen? I know you've probably talked to a bunch of car dealers. What's a good, what's a good strategy right this second?

I mean, I go through a few things that kind of keep coming up and you're right. I mean, pretty much been talking to dealers just non stop with it, you know. And so I think the big question coming up to everybody primarily deals with, you know, what do I do as far as layoffs. And you know, I'm like, business has slowed down. You know, we've got people working remotely and you know, we're seeing a lot of people take their collection staff, you know, remotely. If you're a buyer patient, but you know, they've got other people and they're kind of like, do I lay them off or not? And I think with this CARES bill, there will be an incentive to maybe look at that a little bit harder. I don't mean it's going to make you completely whole, but, but it'll help. I do think that people need to, that as part of the CARES bill, they're going to be talking to an SBA lender, trying to look at the loan provisions there. And I know we're trying to come up with Some analysis on that, so stay tuned. Like I said, this thing's so new, we've just kind of touched the surface. One other thing I think is critical, I'm sorry to jump in there. Just as you might also look at your relationship with your lenders. I mean, a lot of people have loan covenants and see how your loan covenants look. And you know, if you're going to have violations, be talking to your lenders. We're finding a lot of lenders working with their customers to possibly defer payments. So I've seen that on mortgages, I've seen lines of credit and on floor plan lines where they've said, hey, you know, we won't forego your interest, but you don't have to pay us for two or three months and we'll add it onto the back end or somewhere, we'll amortize it out and charge you once things are kind of back to normal.

When they say in that bill, Dave, that they may forgive that loan for people who keep. Keep staff loan, what. What does that mean? They may do it? That just seems a little uncertain.

Yeah, I think I would say that, you know, as the bill stands now, I don't think there's a may about it. I think it is factual. How it works exactly. It looks like what you'll do is you'll look at your last year's payroll and you'll be eligible to get a loan for two and a half times your average month. So you look at your last 12 months, you figure average payroll and you can get two and a half times that. And. And then they'll forgive the loan for basically expenses that occur over a couple of month period with regard to employee payroll, payroll taxes, retirement contributions, health insurance and rent. So it is pretty clear they will forgive it. The exact specifics and calculations we don't really know yet.

And do we have to keep every employee owned to take advantage of that at the same exact thing they're making right this second? Or do we have any guidance on that yet?

What we know is that basically, no, you don't have to keep every employee on. If you have scaled back employees dramatically, then they'll scale back what your forgiveness is. There's kind of a ratio that they're going to do that on. But no, you don't have to have it. And the other thing that's interesting is for people that have laid off people already, that the bill allows you to rehire them and count their wages when they're rehired as part of the Forgiveness. So it gives you some ability. You know, a lot of people two weeks ago laid off people and you know, now they can look at rehiring them or rehire them, you know, as things change a little bit and get some of that forgiveness. Hmm.

So interesting. Dave, tell me this as an independent dealer, I'm a buy here, pay here. But what are some of the key factors, key financial numbers. We need to have a really good dial on. Like what should we really be paying attention to right now to make sure that our businesses are staying healthy?

Well, I mean, I guess what I would say is obviously cash flow right now. I think that, you know, doing some sort of short term projections of cash flow is critical. You know, you've got to know how long you can continue on to make good decisions. Some people have, you know, they've got good cash flow, they've been profitable for a number of years. You know, they'll say, hey, I'm just going to keep all my employees on for two, three months. I can weather it. There's some people that can't. And you got to know that. So I'd say you need to know what your cash flow is and sort of if you've got borrowing basis, you've got to know, you know, how much room on your borrowing base do you have. And then again, like I said, I would be talking with your banks about, you know, what they'll allow you to do to delay cash payments and looking at your payables, you're going to need to look at those and schedule those out. And I'd say, which isn't my, normally I'm talking about financial statements and income, that kind of thing. I'd say for the, the short term period, I'd really focus on cash flow for the next two or three months to make good short term, sound decisions.

Yeah, and I think that's something that all of the dealers need to hear is you do need to sit down in front of your QuickBooks and your spreadsheet and whatever it is and do that analysis of what's coming in the door. Whether it's from your retail sales, if you're still able to do that, whether it's from wholesale, whether it's from your buy here, pay here portfolio and say your cash flow from your payments of your customers got cut in half because they're all unemployed and you're deferring payments or working with them. You know, be conservative in what that cash flow is going to look like. And like you said, project that out on your expenses, your Payroll, your rent, maybe you are getting some deferred payments on your line of credit or your rent. You know, factor those in. But be conservative, because what you don't want to do is end up having a bunch of bills come up. And what you need to know is these are. These are like February's bills, right? I mean, you were going full speed in February, and all those invoices from your vendors are going to come up. You know, your parts guys, your, you know, some of them are. It's going to be a month or two before you see any kind of, you know, break or discount in your rates.

And I think the key is to communicate with your vendors, you know, and that. Talk to them, you know, let them know. I mean, if they, you know, everybody's in that. Most people know they're kind of in this together. If they know that you're going to take care of, you've got a good relationship, you know, they're going to work to make it work for everybody.

I think that goes for our customers, too. And as buy here payer dealers, I think we can understand that, that the more our customers are willing to communicate with us, the more they tell us what's going on, the better we are in dealing with our customers, you know, so get in front of this thing, for sure.

We talked a little bit, Dave, about the SBA hardship loans. Would you recommend that all dealers should get that process started? Do we need to download? I think it. I think they got rid of the online application. I looked this morning. I think you download the documents, fill them out and send them in or something. Do you recommend that we get in line and get a loan number or wait to see how this pans out?

Well, there's a couple things. There's a couple programs with the sba. There's the economic injury disaster loans, which were kind of the first ones out there that tied up the websites and kind of locked up this new bill when it goes into place, makes all these other SBA Title 7A loans available. And those will be, I think, the way it look, you'll probably talk with SBA lenders, I would say, to some extent. I mean, I think everybody. It makes sense where you at. Some economic hardship is going to want to go one of these two ways. But it probably makes sense at this point to kind of wait and weigh them out, because there are, you know, about three different ways you can go. You can go with the economic injury loans, you can go with the Title 7 loans, or there's also some credits available. Tax credits available for employees, and you kind of got a balancing act. It looks like you're gonna. Which one in your situation makes the most sense?

Interesting.

Is there a reason for someone not to apply for one of these hardship loans? Let's say I can trim my. You know, I'm a buy here, pay here. You sign off on everything pretty much that I do, one of your guys there. But if. If I'm a dealer and I can keep everybody or keep somewhat of a staff on board, and I can make the payments. I mean, I can make payroll, and my collections are still pretty strong. Should I also try to get that SBA loan so that I can get some of that money back? Or do you think it's just maybe I shouldn't do that?

From what we've seen, I don't think there's any damage in applying. I mean, everything I've seen, you can apply, you could even get it granted to you and then decide you don't want it. But I think you're gonna have very few situations that's the case. You know, I think if you have a situation where you've kept all your employees on and you haven't been damaged at all, you know, maybe it's not something you want, but I think that's way in the minority. So I think, you know, I think for most people that you're going to definitely want to be looking at that. And like I said, probably makes sense once we get this cares bill to look at applying and start that process.

Imagine two to three months of payroll, interest, rent, you know, those things that can be forgiven. I mean, for the three or four hours it might take you to gather these documents and send in your personal financial statements and your tax returns and everything else they ask for, that's probably a pretty good gig, you know?

Yeah, I think. I think this is a big package, and, you know, there will be some abuses, like always, but it's a big package. And they also even talk about simplifying. I mean, if you've ever been through the SBA process, it's painstaking. Yeah, this is going to be a lot simpler. I'm not going to say there isn't some information you have to provide, but, I mean, you. This is going to be much simpler. And they've even got language to the effect that you don't even have to try and assess the ability to repay to some extent. They said right now, since we don't know what's gonna look like in the future, you know, the intent is to get the money out to help people hang on and keep their employees.

What this is gonna. I don't mean this. Anybody. Listen, I don't mean this to be greedy or anything. What if you're paying the rent to yourself to another corporation, like a lot of us that own the dealership do? If you. I mean, that doesn't seem like that should be paid back. Should it or shouldn't it?

I haven't seen anything regarding that. That may be something that's likely. Something will be in what they'll issue regulations on this, and I would guess that's going to be maybe a month before we get regs. I don't know that question. But on the. On the side, I'm like, why should it be different? I mean. Yeah, just because it's not paying somebody unrelated, why shouldn't you be able to use it for paying yourself if you've got a mortgage or you've got money tied up there? Now, again, I don't know that. That's just a, you know, that's just kind of off top of my head. I've seen nothing directly on.

Yeah, I mean, that would make sense to me. It is what it is. Whether I'm paying Wells Fargo or whether I'm paying, you know, my retirement account, it seems like it's still a hardship and still a loss and still, you know, financial benefit. We need. Dave, can you talk to any Updates on the 2019 tax filing? For those of us that haven't heard or don't know the filing dates been delayed and the due date of your final tax payments, have those been delayed as well?

Yeah, that's right. What they've essentially done is move the April 15th date back to July 15th. So that means any tax return that was due April 15th is now due July 15th. And the other thing that does include is first quarter estimated payments, which are normally also due for first quarter. 2020 is due on April 15th. So all of that will be due July 15th. What's interesting is the second quarter estimate, at least for IRS purposes, is Normally due on June 15th. That is still due June 15th. But you can have the situation where you pay the second quarter estimate prior to paying the first quarter estimate. With regard to states, we don't know. I think we're gonna find a majority of states follow it, but they're looking at their own economics and they're kind of all over the board, so you kind of have to look at each state individually.

Hey, everybody. Jeff here. Sorry to interrupt the interview, but I wanted to make sure everyone knew about the new and improved theindependentdealer.com website. It is the place to find out what is going on with the podcast. Check out all of our episodes on itunes, our social links. You can also give us your email and we will add you to our mailing list. So you are the first one to know about what is coming up new and exciting here at the podcast. Also, check out our video library. You can also ask us questions, find out more about myself and Luke and see our calendar of events, places we'll be speaking, where you can catch up with us and meet us in person. So theindependentdealer.com and now back to the interview. Luke, any other questions you've got for Dave while we've got him here? I know we've taken up his time.

I appreciate the yeah, one last thing, cash flow wise, that we were talking about earlier. What is, you know, what's the best way for a dealer who maybe doesn't have the experience that Jeff and I do and not a 20 group and doesn't have CLA as a resource? What's the best way for a dealer to look at our cash flow going forward and figure it out? Do you have a secret sauce that we can do?

Well, I wouldn't say a secret sauce, but I think this one you're going to essentially just really take what a lot of people take your cash balance kind of project out what cash flow you think you've got coming in, you know, schedule out, you know, what payments you're going to have going out and, you know, sort of make decisions there. And that's where I do sort of lean anymore. As I've read the question of, you know, layoffs and stuff. You know, I think there's ways to maybe that, you know, people know that businesses and individuals are hurting. And with the new bill, it may make sense to look at salary reductions. You know, I've seen people where they're reducing 10, 20% across the board instead of I think that could make sense, but I think it really is just take a piece of paper, start with your current cash balance, figure out what you've got available to borrow on with your line of credit, estimate out conservatively what your collections will be if you're in binder pay here or what your sales will be in your gross receipts, and then schedule out basically your payables and your notes. And so, you know, it's sort of the way most people actually work, you know, when they're kind of looking at you know, cash balances.

Cool. Well, I think, I think we all need to do that.

Yeah. And the caution I'd have when I think about that and cutting those expenses. Just be careful that you're not stepping over dollars to pick up pennies. You know, don't be cutting your, don't be cutting your accountant out. Don't be cutting your, you know, association dues or even your 20 group. You know, you're cutting some of these things that are what is going to get you through this, you know, cutting your advertising to zero, you know, and all of a sudden the wheels completely come off because you're not out there, like just like Dave said, maybe trim it back a little bit, maybe trim some of them back, but make sure you're not cutting crucial, you know, things.

Yeah. And I would add on to that. I think what you're saying is a lot of the measure here, I mean, there's a lot of panic going on. And it's interesting. What I see is most of the people dealing with that seem to be handling it well. If you watch the news and the politicians, it can really get you stirred up. And I think, you know, realize most people, you know, this is a long term process. I mean, don't, you know, don't, like you said, save pennies and step over dollars. You know, make, make good decisions. And I've seen people, as hard as it was to get people, you know, you take and you lay off some of your text and I mean, I've had discussions with clients. It's like, hey, this might be an opportunity. If you're in a good financial spot, look for those key people you've been trying to get and make your team stronger.

Yes. Really, that's.

Yeah, sure, we said that in last Thursday's episode. Hey man, there's going to be some real good people laid off that if you can put out some help wanted ads, you might be able to really get some A players on your team.

And it also might be a good time to get rid of some of those people who you hadn't been crazy about because they're going to get really good benefits for being off and you're not going to get charged for it.

Yeah, they're going to get unemployment. And I guess I would say kind of along that line. We've got a letter coming out, I know, to our clients, just basically that in everything there's always opportunity. And you know, you want to look at this, you know, and kind of look at it from that aspect because some people are so concerned they're just reacting and it's like, look for the opportunity. There are some opportunities out there.

So I love that. That is. That is so point on.

Yeah. Thank you, Dave. Appreciate your time today and I hope you've got the. I don't know whether you've got the coffee pot on extra large and double shots because you are. You are really helping us out. So stay awake and alert. We appreciate it.

We really appreciate all you do, Dave.

All right, well, thank you guys. Be glad to talk again and thanks for the opportunity.

We will probably get you back on once we get all this passed and get it sorted out. Thank you.

All right, sounds great.

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