Watch Those Contracts!

From the Best Ideas files of NCM Associates' 20 Group benchmarking meetings comes the following advice from a veteran dealer. I have found more and more of my time eaten up dealing with regulatory issues and legal matters, says the dealer. A few lessons I have learned, unfortunately, the hard way. Here are some things to be on the lookout for regarding contracts: Watch the venue clause. You could

From the “Best Ideas” files of NCM Associates' 20 Group benchmarking meetings comes the following “been-there” advice from a veteran dealer.

“I have found more and more of my time eaten up dealing with regulatory issues and legal matters,” says the dealer. “A few lessons I have learned, unfortunately, the hard way.”

Here are some things to be on the lookout for regarding contracts:

  • Watch the venue clause. “You could end up being forced to litigate in another state, which increases your costs significantly. We learned this in various acquisitions.”
  • Keep copies of all contracts in a common location. “We learned in various sales and acquisitions that we had contracts we didn't know about. The seller loses when contracts are not disclosed in a sale. If the buyer does not agree to assume the contract, the seller gets to keep paying.”
  • Track expiration dates on leases and know your window of time for termination. “Most leases provide that payments continue after the original term at that same rate unless you have given appropriate written notice. There is frequently a narrow window of time to do this. We learned this lesson on some copy machine leases. We had to give written notice not more than 180 days before expiration and not less than 120.”
  • Avoid automatic renewals. “Frequently, agreements automatically renew for (original) terms. Be sure that is what you want. Rarely is there any benefit to allowing the automatic renewal. At minimum , limit it to 30-days notice after the original term.”
  • Some contracts don't look like contracts. “Even our car deals are like this. The front is an order form; the back has all the fine print. Do you read the fine print? If a dealership representative signs it, it becomes a contract.”
  • Know what you are agreeing to. “Contracts and written agreements are to take care of what could happen, but at the time we sign we don't think it ever will happen.”

Here is some advice on cash, checks, credit cards and drafts:

  • Drafts are extensions of credit with the bank serving as the middleman. “Selling to lease companies using drafts can be dangerous. We recently lost $205,000.”
  • All credit cards are not created equal. “The fees can be dramatically different depending on what kind of card the customer uses, if the card is swiped vs. keyed in and if the questions prompted are answered or not.”
  • Credit card companies require you to accept them on all purchases. “This can eat up almost half of your gross profit on car deals. Charge backs can be made for an extended period.”

The dealer says, “It is hard to quantify the cost or savings of the lessons learned. The cost of not knowing has been hundreds of thousands of dollars and many hours of extra work.

“A parting thought: The biggest lesson I ever learned is what is justice. Justice is what the court gives you. It is not necessarily right, wrong or fair.

“Following a few of these lessons will help improve the chances that you like what you get.”

Meanwhile, from the same NCM “best ideas” box comes another dealer's “top 10 list of things every business owner should do.” It is advice centered on deterring internal fraud.

  1. Review year-end W-2 forms for all employees. You might not know how much some of them make.
  2. Know your employees' lifestyles, hobbies, interests, general living expenses. (Compare this to No. 10.)
  3. Have office personnel sign off for work completed during the month. Messy books encourage employee fraud.
  4. Cross-train employees. This is a good way to have them check up on each other.
  5. Enforce mandatory vacations. In many employee-fraud cases, the perpetrator was someone who never took vacations for fear that his or her fill-in might discover the wrongdoing.
  6. Review monthly financial statements. Review the balance sheet as well as the bottom line.
  7. Review all general journal entries and receivables.
  8. Ask questions about specific accounts. The answer generally doesn't matter.
  9. Get the unopened bank statements and review all of the cancelled checks, deposit slips, credit and debit memos. Look at payee, check signer, amount and endorsement.
  10. Open the mail. Don't just slit the envelope. Open it and look inside!
TAGS: Dealers Retail
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