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NVLA LeaseWire
07/05/2020 | Issue 10
   

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President's Message
We Need to Keep Our Eyes on the Dashboard
You may have heard the old story about the diner who ordered a steak in a restaurant and was extremely upset when instead of receiving the cut of meat that he was expecting, the server brought a broiled hamburger patty. When the guest complained that he didn’t receive a steak, the server calmly replied, "This is our steak." The customer grudgingly ate the meal, and when the bill came, reached into his pocket, took out a gum wrapper, and placed it on the payment tray. When the server asked about the gum wrapper, the customer explained, "If that was your steak, this is my money!"

This is the time of year when we begin the process of finalizing our yearly financial statements. It’s the time when all the accruals come out of the attic for a full airing. We firm up our general ledger and forecast any entries that will hit before year-end. Thousands of accounting entries go into the big pot to be simmered down and become a soup. Then, that "soup" is served up by the auditors or accountants. Often, the end result bears little resemblance to the broth we thought that we were going to get.

I’m not suggesting that we should respond by mailing a gum wrapper in as payment to the accounting firm because we didn’t get what we were expecting. This isn’t a knock against that excellent and essential profession. And before some thin-skinned accountant sics the revenuers on me, let me tell you that some years we have given our accountants the equivalent of hamburger, and they turned it into Kobe steak by infusing their expertise into the numbers.

I’m talking about understanding that a successful leasing business needs to keep two different sets of books. Now, before you assume the worst, rest assured that I am not suggesting anything near sinister. The two ledgers that I am referring to are the operating financial statements and the year-end accountant-prepared financial statements. In our business, they can present entirely different from each other; this is a good thing because they serve two completely different and necessary purposes. Where the accountants prepare statements that include GAP principals, tax planning, and a certain amount of "accountant-ese," we can’t run our business from them. Operating statements, however, are just that: financial statements that should be used to operate the business. And, here’s the thing: while we have little input into the GAP financials, we can be the masters of our respective domains when setting up our operating financials. You can use them to track whatever you want.

We would be very nervous if, at 37,000 feet, we looked into the cockpit and saw the pilots leisurely reviewing pages and pages of old flight logs while totally ignoring all of the dials and gauges in front of them. Don’t get obsessed with GAP and ignore your dashboard. The time to peruse the balance sheet is seasonal. Managing the company is a year-round, day-in and day-out exercise.

Last month, Leasewire featured an excellent article that shared how some of our members use key performance indicators (KPIs) on their own dashboards. If you are a member of a Performance or Dealer 20 group, you have a leg up on most companies, because in addition to KPIs, you are benchmarked with several other similar companies that operate in the same trenches that you do.

Year-end is definitely the time to fill the pot with the numbers and send it off to the accountants. Be sure that while waiting for the results, you don’t waste critical time. Keep your eyes on your dashboard, because before you know it, another year has passed and you'll need to do it all over again.

-Doug
Closing Your Fiscal Year: Best Practices and Some Expert Advice
By: Jamie Pontarelli, LeaseWire Editor
Steven Posner, CEO of Putnam Leasing and 42-year industry veteran, stresses the value of planning ahead with some real-talk: "I have a saying: in business and in life, it's what you don't expect that gets you. So always be prepared."

In his message this month, and as we are all in the midst of year-end financial preparations, President Doug Moore reminds us to "keep our eyes on the dashboard" and remember that running a leasing company is a day-to-day operation with real-time urgencies, while also keeping our awareness in balance with the bigger picture. Different analytics apply to different aspects of the business, he says. As we approach the end of 2019 and everyone is in the process of putting together year-end financial statements and planning for the upcoming new year, we interviewed NVLA board member Mike North, CPA and partner in Katz, Sapper & Miller with extensive experience in the vehicle leasing industry.

First, North emphasizes the importance of strategizing ahead of time. "Have a conversation now, prior to end of year, about any accounting changes that would impact the way your business closes its financial statements. Better to do this early, rather than after the fact, to reduce surprises. Also, you always want to have a conversation around tax planning before closing your financial statements. If you are conducting any tax projections, those projections may impact decisions we make prior to the end of year. For example, should we accelerate fixed asset purchases or push them into the next fiscal year? If we don't do any tax planning before the end of the year, we won't know what our preferences are."

Additionally, North says that it is crucial for business owners to be fluent in what is on their balance sheets. For example: "Some issues are not big enough to draw attention, so they are not reconciled before they are sent to the accountant. This ends up costing more time and money. These could be things like accrued liabilities and pre-paid assets."

North also notes that accountants will typically look for income statement fluctuations from one year to the next. "If expense accounts or revenue accounts are unusually up or down, be ready to explain the variances to your accountant."

Finally, North recommends being mindful of changes to lease agreements, even changes that do not seem to have any obvious financial implications: "It is best practice to think about any changes related to the terms of lease agreements and discuss them with your accountant to determine if those changes will have any financial impacts."

This month, NVLA's Director-at-Large Nick Markosian also serves up some valuable year-end advice in his own article, sharing about his success with implementing meaningful structural changes that provided the push that gave his organization the most successful year in its history.
How the Entrepreneurial Operating System Fast-Tracked the Success of My Business
By: Nick Markosian, President of Markosian Auto and NVLA Director-At-Large
If you’re anything like me, you started your own business because you love the car industry and thought you could do it better. I started my business when I was 25 years old and grew it with pure energy, enthusiasm, and salesmanship. This approach expanded the business and brought us some real success. Over the years, however, it became clear that we could not grow beyond a certain point without a solid structure.

Looking back, these were some of our problems: no processes, no regular structured meetings, no training protocols other than on-the-job, reactive rather than proactive problem solving, no clear vision, good-but-not-great employee morale, and vague goals that did not have measurable results. After visiting other businesses, touring their operations, and attending a handful of leadership seminars, we did see some improvement with our problem areas but still had gaps that eluded our ability to identify and correct.

About a year and a half ago, a close friend recommended the book Traction:  Get a Grip on Your Business by Gino Wickman. I read it and immediately shared the information with our general manager. He loved it and thought that implementing Wickman's principles could solve a lot of our shortcomings. Wickman's approach discusses a specific way to run a business called the entrepreneurial operating system (EOS). While we already possessed many ingredients for an efficient and successful business structure, the EOS provided us with the recipe.  My team and I quickly got to work. Our first meeting addressed the creation and implementation of our core values, vision, one-year plan, and three-year plan. The level of enthusiasm from our leadership team was palpable.  We have since read the book several times, reference it often, and have adopted all of Wickman's concepts in all areas of the business.

Fast forward another year and half: we are now about to end the most successful year in our history. Following the specifics that Wickman outlines in his manual, we have dialed in to what we are best at as an organization and have focused on honing those functions. We have also benefited from Wickman's Identify, Discuss, Solve protocol, weekly meetings, and a shared vision for the company. With this crystal clear vision of where we want the business to go, we now use our newfound structure to work collectively to make that vision our reality. I no longer have to worry about all the little things. In fact, I have spent less time in the business than at any other time in my career. Instead, I am focusing on ways to help my people become more efficient in their respective areas.

Wickman's EOS philosophy addresses every aspect of a business, making it adaptable to the various needs of each individual organization. Out of every initiative our company has implemented throughout the years, the EOS has by far been the most effective. Whether you are running an already successful business with high accountability, lacking a sense of direction, or feel that you need more clearly-defined structure, I think any business would greatly benefit from adopting the EOS model.
NVLA Member Updates
October Kontos Kommentary

The latest Kontos Kommentary for the month of October 2019, inclusive of the month over month and year over year trend table as well as a video version of the commentary. Click here to read more.
NVLA Member to Lead Fleet Funding Initiative

NVLA member Paul Erwin has joined TCF Capital Solutions sales team as national program manager. Paul will lead a fleet funding initiative for fleet management companies. Click here to read more.
Brokers Holding Their Own
By: Sloan Schickler, NVLA Legal and Legislative Counsel
As I previously advised, the broker licensing bill pending in the New York State (NYS) legislature was suppressed last session. Aside from the NVLA, the New York Automobile Leasing Broker Association (NYABA), Honcker (now known as "Rodo"), and the Internet Association, there has not been much opposition to the proposed legislation. Initially, the auto manufacturers were opposed to the bill, but after several amendments, the burden on the automakers was removed and they withdrew their opposition.

Since the legislature went into recess at the end of June, we have been working behind the scenes to meet various members of the NYS legislature, explain the workings of the leasing and broker business and why the proposed legislation is unnecessary. We take the position that the bill will put licensed brokers and leasing companies, among others, out of business, aside from the many legal defects in the drafting. The bill is unnecessary given that there is already a comprehensive scheme to license brokers.

On October 23, 2019, I attended a roundtable concerning the bill as a representative of both the NVLA and the NYABA, along with the NYABA’s lobbyist and independent leasing and broker companies. The roundtable was convened by Senator Kevin Thomas, the Chair of the NYS Senate Consumer Protection Committee, along with Senator Diane Savino, the Chair of the NYS Senate Internet and Technology Committee, and Assemblyman Robert Carroll, the bill sponsor in the NYS Assembly. Other groups attending were the United Auto Workers and local teamster representatives, the Greater New York Auto Dealers Association, the Global Automakers, the NY Auto Dealers Association, Rodo, and several local auto dealers, along with their various legal counsel and lobbyists.

You can bet the discussion at the roundtable was spirited and aggressive. The proponents insisted all brokers conduct fraudulent activity and take business away from dealerships by obtaining vehicles from dealers located outside of the customer’s zone which threatens the dealers’ existence. I was able to dispel their arguments and gain the listening ear of the senators in attendance by demonstrating a comprehensive legislative licensing and disclosure scheme already in place, pointing out that if not enough brokers in NYS are licensed, it is a regulatory enforcement issue and further, that the dealers had not provided specific facts to back their claim of fraudulent activities perpetrated by brokers. Moreover, consumers will be penalized if leasing companies and brokers are eliminated, as consumers will lose a trusted intermediary that helps arrange vehicle transactions. This would in turn reduce healthy competition among dealers.

I will continue to work on this front and have no doubt that things will become heated when the NYS legislature reconvenes in January.

 

National Vehicle Leasing Association
N83 W13410 Leon Road
Menomonee Falls, Wisconsin 53051
United States

nvla.org | 414-533-3300


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