Deal Pack Blog

Helpful Answers To BHPH Dealers: What is the Best Split of the Profit for a BHPH and it’s RFC?

posted on: September-24-2012
by: Deal Pack
category: Tips

You determine the splitting of the profits between immediate recognition and taxation of your profits by keeping them on the sales side, or delayed recognition and (potentially) taxation by discounting the receivable when you sell it to your Related Finance Company. The “Split” or discount percentage that you choose is very important for a multitude of reasons. You want to keep both sides of the business profitable, yet recognize the earnings when you receive the money. You may want to consult a local CPA when setting this up for the purposes of staying within the law.

 

Either way you set it up, whatever money that you receive as payment will be taxed accordingly. But you have to bring enough of your profit over to the RFC to cover the potential losses that we all know are associated with a BHPH, or sub-prime auto lender.

 

The other thing that you have to think of, is how much of your RFC money do you want to have floating out as profit on the sales side, when you are trying to finance as many loans as you can? It depends on which business activity do you prefer to be your money maker. If you want to make most of your money on the actual sale of the vehicle, then set a higher cash down payment, and a lower discount percentage. This will make your profit come out on the front end, with an immediate profit, immediate taxation, and a bigger chunk of your RFC money at risk. If you prefer the finance side to make more of the money to cover the losses, have a medium down payment, and a larger discount percentage when selling the loans over to the RFC. Again, consult a local CPA for the legality.

Subscribe to Deal Pack Blog

Enter your email address and be notified of new posts.