Any time your dealership decides to acquire capital or work
with a new lender, the lender will typically require two years
of financials. You may wonder, “Why do lenders need
my financials and why two years’ worth? They
aren’t loaning money to me. They’re loaning
it to my customers.” Lenders trust you to complete
the loan closing process on their behalf and two years of
financials enable lenders to determine the sales volume for a
dealership, to see the dealership’s growth from one year to
the next and to project how much business the dealer will be
sending.
A lender typically knows very little about your business other
than what you show them from your financials. Have you
made sure they are accurate and considered whether they
are presenting your company appropriately? For example,
let’s say your bookkeeper prefers to cut checks for payables
early and hold them until a later point when deposits are
received. If cash is reasonably tight, but healthy, the checks
that were cut too soon could give your company a negative
cash balance on your balance sheet. Keep in mind this is line
one of the first impression you make with a lender and it’s
saying you’re broke.
Financials will also show if a dealership is earning greater
profit by increasing sales or whether a dealership has
experienced a loss in business. And finally, financials indicate
whether a dealership has equity in the business or has
experience running this type of business.
Another example, assume you have contributed $500,000 to
your company and your intentions are to leave the amount
in the company permanently with no interest payments
or repayment. If your accountant or bookkeeper records
this as a liability, which they probably will unless you specify
otherwise, you have painted a weaker picture of your
company and not taken credit for the capital invested.
Now that you know why lenders require financial statements,
be sure your financials are presented in the best way possible.
If you had a house to sell, would you tell a potential buyer to
take a look before you have it looking its best or would you
pull the weeds, mow the lawn and walk through the interior
to make sure everything looked the way it’s supposed to?
The answer is clear – of course!
56
The point is to recognize that your financials are critical for
lender approval and to review them for accuracy before
they are presented to any outside entity. It can mean the
difference between having a healthy lender portfolio to serve
all of your customers or not.
NATDA Magazine www.natda.org