While dealers may look to their dealer or CPA reviewed/audited financial statements as an indicator to their financial performance, neither of these will provide a dealer with what can be considered the actual earnings of the dealership are. Dealers have a great amount of discretion in shaping the reported financial performance of a dealership, whether through rent, compensation, packs, or expenses as examples.
In basic terms, a normalization analysis is looking at “addbacks and deducts” to the dealer’s profit that could be considered non-operational, non-recurring, or unsustainable in nature.
Some examples of addbacks and deducts to a dealership’s income can be:
Owner/Family Salary
Market Rent
Management Fees
Product Packs
Personal Expenses
Off the Books Income
Tax Efficiency Items
Non-Operational Interest
One-Time or Extraordinary Events
13th Month Adjustments
The value in completing a normalization analysis for owners even if they are not selling rests in having an objective viewpoint of the actual performance of the dealership as stand-alone business. Over the course of time, dealers tend to allow a financial status-quo to remain in place while at the same time weaving in numerous profitability impacting measures that only go to obscure the actual profitability of a store. From not recording market rent to packing F&I products as an example, dealers create a less than objective financial picture of a dealership which fails in being truly represented in a dealer financial statement or CPA financial.
AN INCOME NORMALIZATION IS INTENDED TO PRESENT AN ACCURATE PICTURE OF THE DEALERSHIP’S ACTUAL FINANCIAL POSITION.
WITH OUR DETAIL ANALYSIS OF THE DEALERSHIP'S FINANCIALS WE WILL:
Assess the dealership’s true financial health and performance.
Perform assessment of any items on the balance sheet that are of risk or concern.
Gain an understanding of the true earnings for the dealership.
Identify real earnings of employees paid on the bottom line.
Identify potential tax adjustments that may have been missed.
Provide an opinion to the real business market value.
Provide an opinion as to the real profitability of the dealership.
IN OUR DETAIL ANALYSIS OF THE BALANCE SHEET, WE WILL PERFORM THE FOLLOWING STEPS IN ORDER TO GAIN A TRUE UNDERSTANDING OF THE DEALERSHIP'S TRUE EARNINGS:
Trial balance detail analysis for three years.
Detailed schedule review.
Recognition of the real balance for asset accounts.
Financial statement analysis with our Axiom 115 Point Inspection (KPIs).
Review of reporting from dealership.
Selection of transactions via analysis of GL detail.
Interview with departmental managers.
Analysis of additional documentation such as property appraisals, property taxes and long-term notes.
AXIOM’S NORMALIZATION GOAL IS TO PROVIDE DEALERS AN OBJECTIVE AND ACCURATE ASSESSMENT OF THEIR PERFORMANCE AND PROFITABILITY.