International Door & Operator Industry

NOV-DEC 2018

Garage door industry magazine for garage door dealers, garage door manufacturers, garage door distributors, garage door installers, loading docks, garage door operators and openers, gates, and tools for the door industry.

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32 International Door & Operator Industry™ MANAGEMENT Continued from page 31 a loan, attract the attention of a buyer, or just to provide a clearer picture of the dealership's finances. Dealers can be quite creative in trying not to show taxable income. Our firm once had a client who proudly told us he was going to show a $200,000 profit, but by giving himself a bonus, giving all of his employees an unanticipated yearend bonus, and selling some assets at a loss. By doing this, he managed to turn his $200,000 profit into a $1,500 loss. After listening to his proud manipulations, we simply asked, "What is wrong with making a profit?" Even if he paid full taxes on his $200,000 profit, his tax bill might have been as much as $80,000, leaving him with a residual of $120,000. This would have increased his working capital and most likely, his cash position. Some dealers treat their businesses as their personal piggy bank. Non-business expenses are run through the business and charged to the company: personal vehicles, children's credit cards, club dues, etc. This presents at best a cloudy view of the true financial performance of the company. Ultimately, this cloudy picture can confuse even the dealership owners of how well the company is doing. As dealers think of the future and this current strong economy eventually slows down, a lack of working capital created by a "show no profit" mentality will paint an unrealistically negative picture to a banker seeking to process a loan request. Bankers and potential buyers want to see a clean financial performance…without a great deal of explanation by the dealership owner. Another dealer trick is to have several business enterprises and mix expenditures between the entities, often having one business paying for the expenses of material and labor for the other. This again obfuscates the performance of both businesses. The answer is to understand that taxes are just another expense of the company or of the business owner, depending of the tax structure of the dealership ("C" Corp., Sub "S" or LLC). In short: • Run the business to show a profit. • Pay your taxes (don't spend too much time trying to avoid taxes). • Leave cash in the business for a rainy day. • Don't delay paying bills on time. • Work to make the business liquid. When the economy eventually weakens from the gallop it's enjoying today and sales and profits fall (even slightly), the prudent dealer will be happy to be liquid and happy he or she did not fall into the fallacy of managing to avoid taxes. Happy also will be your banker, suppliers and possibly even that person interested in buying your business as you transition into retirement. John E. Zoller and David H. Bowen comprise Zoller Consulting, Inc. of Wooster, Ohio. Zoller Consulting provides consultation of managerial effectiveness and financial performance of construction related businesses. They also offer customized seminars and training sessions. In addition, Zoller Consulting provides acquisition management, including finding buyers or sellers, locating funding sources, transaction structuring, and negotiating and organizing the transition to new ownership. Contact Zoller Consulting, Inc. at 330.262.8500 or John@zollerconsultinginc.com. • Run the business to show a profit. • Pay your taxes (don't spend too much time trying to avoid taxes). • Leave cash in the business for a rainy day. • Don't delay paying bills on time. • Work to make the business liquid. Plan Ahead Plan Ahead

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