Wholesale & distribution service offerings

Expensing applicable retail shelving costs


Wholesalers/retailers often provide display cases or other types of retail shelving to vendors as a means to showcase their products. These wholesalers/retailers incur the costs relating to the development and transfers of the display cases in the expectation that the cases will help increase the sale of their goods. They have no expectation that the display cases will be returned and expect the vendors to make use of the cases for several years.Generally, wholesalers/retailers capitalize the costs related to the display cases. However, a tax deferral opportunity may exist for wholesalers/retailers to expense the costs as they are incurred.

Accounting for vendor allowances/incentives


Wholesalers commonly receive economic benefits and incentives from merchandise/product suppliers that can take several forms. Supplier merchandising programs can include "up-front' advance cash payments that may or may not require performance by the wholesaler or funding of various wholesaler level programs, including advertising and training and volume buying allowances. Often wholesalers will economically realize these benefits and incentives by "charging back" vendors on open invoices or by receiving cash or credit. Generally, accounting requirements dictate that the benefits and incentives received from suppliers directly reduce the cost of the products procured from the supplier (that is, deferred on the balance sheet as a reduction to inventory costs until the associated inventory is sold). However, significant controversy has occurred in the financial community over wholesalers recording these supplier economic benefits and incentives immediately to the wholesalers' income statement and not appropriately suspending them in the balance sheet as a direct reduction of the inventory purchased from that specific supplier. Amounts received in advance of product purchases (commonly referred to as slotting allowances) generally take the form of a deferred liability, amortized to earnings, as a reduction of cost of goods sold - often over the contractual supply term the wholesaler has agreed to with the vendor.In limited circumstances that meet very specific accounting requirements, the benefits and incentives received from vendors may be offset directly against expenses (e.g., a reduction of advertising incurred). However, in general, the treatment for the Federal and State income tax reporting of vendor incentives is similar to the book treatment as described herein (although, in certain circumstances, these incentives may need to be reported as current income for tax purposes).

Finding tax savings in double digit inflation


In the past year, many product prices have increased dramatically and economists are forecasting average inflation of 3-4% over the next few years. Not surprisingly, the most significant inflation increases are found in petroleum, metals, lumber and livestock products.Any company with an inventory based on these items should look at the potential benefit of adopting Inventory Price Index Computation ("IPIC") LIFO in the current year. Such a switch may allow the company to reduce taxable income by deducting inflation included in its inventory. For some, this tax savings could be significant. For those who might consider adopting the IPIC LIFO method, PwC has a LIFO calculator that can be used to estimate the potential first-year tax savings. Keep in mind that in order to use LIFO for tax purposes, it must be used for external financial statements as well. Therefore, the decision to adopt LIFO for calendar year 2004 must be made prior to the issuance of the company's 2004 financial statements.

Enhancing accounting for inventory


One of the most significant issues facing your industry is accounting for inventory. As the result of global competition and e-business, companies are undertaking record levels of mergers, acquisitions, reorganizations and technology-driven changes which, in turn, greatly impact inventory calculations. Moreover, IRS scrutiny of inventory accounting issues has increased in recent years, with more companies experiencing audit activity in the inventory area. PwC helps clients analyze their inventory accounting methods and calculations to improve cost-effectiveness and help mitigate the risks of an IRS audit.At the same time, as your competitors introduce new products to the market, a portion of your current inventory may become obsolete and your reserve for unsalable or obsolete inventory may not be adequate. Moreover, if you deal in rapidly changing technology, it is not uncommon to record significant book charges related to obsolete inventory. PwC helps clients that face shortened product life cycles and inventory obsolescence by sharing best practices and assessing controls to help detect and recognize inventory reserve issues early.

Identifying opportunities to improve cash flow


To remain competitive, you need to effectively manage cash flow. Not only does PwC provide the audit and advisory services to help you identify opportunities to improve your cash flow, but we also seek to identify appropriate tax savings opportunities that may be beneficial to you. Following are examples of opportunities we see to improve cash flow.
  • Capitalized inventory costs, such as G&A, storage and warehousing, may be overstated by wholesalers and distributors. PwC can perform an analysis to identify costs eligible for current tax deductions.
  • Wholesalers and distributors often have significant inventory, multiple location unit of measure errors, and shrinkage. In these cases, a change in accounting method may allow a safe harbor of estimating inventory shrinkage. It may also save administrative costs in supporting inventory counts and more closely aligns book and tax accounting.
  • If your obsolete inventory has increased, it may be due to improper accrual of reserves for obsolete or excess inventory. Wholesalers and distributors can partially deduct obsolete inventory by writing it down below "market" and filing a change in accounting method to limit the IRS adjustments for improper reserves. This effort accelerates inventory obsolescence deductions and helps eliminate interest and penalty exposure.

Reducing employee health and welfare costs


Employee benefit costs have escalated to become one of the highest expenses for wholesalers and distributors, after payroll. What does this mean for your organization? For many, it means introducing more efficiency into the buying power of benefits.For non-union employers, one of the first steps towards controlling benefit costs is to compare them to industry averages. Another tactic is to reduce inefficiencies associated with your benefit dollars. By reviewing vendor contracts, renegotiating the benefits and conducting vendor performance reviews, wholesalers and distributors may reduce costs associated with their employee benefit programs. Costs may also be reduced by reviewing and addressing the specific cost drivers (e.g., health risks) impacting a specific business. Costs may be trimmed through coaching and lifestyle change programs. Efforts in these areas may yield higher quality benefits for employees and greater cost savings for all. The above is just a short description of some of the actions you can consider and does not encompass all options. Furthermore, for purposes of retaining employees, you should understand their benefit needs before trying to reduce the associated costs.

Staffing for future growth


Our human resources services practice helps our clients increase the competitive and economic power of their most important resource — their staff. For example, we offer a range of human resources (HR) data tools and metrics designed to help quantify the predictable impact of your human capital investments on business performance. We also benchmark HR operational practices and performance to help reduce costs and enhance service quality. In addition, we help implement effective delivery solutions around HR information systems, payroll and HR processes.

Improving management of licenses/agreements


Intellectual property and intangible assets have become a significant area of focus for many wholesale and distribution companies. By better managing existing licensing and other contractual agreements, you can potentially increase the realized value of your property/assets. This, in turn, may lead to enhanced revenue streams, increased business partner relationships and added value to the company overall.PwC is a leader in helping companies improve the value of their intellectual property and intangible assets. Our professionals focus on providing clients with a variety of licensing program solutions - ranging from initial partner due diligence and selection to structuring/executing licensing agreements and performing licensing audits. In the past, we have identified significant levels of under-reported royalties for many of our clients, as well as recommended internal control improvements to help support more accurate reporting in the future.

Reducing shipping costs across states/countries


As wholesalers and distributors expand into new markets, the corresponding customs duties, taxes, and the costs of regulatory compliance also expand – leading to additional product cost, risk, and logistical "drag." The commercial objectives of the company can also be significantly compromised. Traditionally, many wholesalers and distributors view these costs as fixed or unmanageable. However, they are largely unaware of strategies designed to help them to effectively manage the costs or reduce them significantly. At PwC, our worldtrade management services team creates and helps implement strategies to help wholesalers and distributors to plan and control the commercial movement of goods/products across borders. Through business process analyses, system redesigns, duty reduction/refund program implementation, risk management, and compliance assessments, we will analyze the customs costs and the associated costs of compliance and help you develop efficient and cost-effective processes. This, in turn, may lead to improved margins, speed and certainty.

Evaluating the requirements of new regulations


A recent Financial Accounting Standards Board ("FASB") ruling, FIN 46, created new accounting standards that can significantly impact the consolidation of related enterprises holding real estate used in the business — whether separately owned or controlled by the shareholders. Another pair of rulings from the FASB, EITFs 01-9 and 02-16, affected the accounting practices by wholesalers (including resellers) for considerations given to customers and considerations received from vendors. In addition, the FASB's EITF 00-21 may have an impact on the way you recognize revenue, especially for example if you are distributors providing other value-added logistic services in addition to the sale of products to your customers.Although the above changes often come with guidance, there may be potential conflicts between the rulings and the IRS's treatments of allowances and revenue recognition. Furthermore, wholesalers and distributors usually have a relatively short window to review these new developments and determine their impact on their respective businesses. PwC's assurance and advisory professionals can assist you with evaluating the implications and determining which alternatives may be of particular value to you.

Improving through M&A solutions


In this increasingly competitive landscape, you have to continually find new business concepts, products, channels and innovative solutions for your customers—both locally and overseas. You may consider an acquisition of one of your competitors or suppliers to improve your market share and raise economies of scale. Or you may be interested in selling a product line or the company as a part of a well-thought out exit plan.Our transaction services practice, comprised of a select team of senior deal professionals, can assist you in identifying, evaluating and executing various strategic alternatives for increasing the value of your business. Our professionals have deep experience on both the buy-side and the sell-side of various types of transactions, including divestitures, mergers, strategic/corporate acquisitions, joint ventures, corporate restructurings and leveraged buyouts. As appropriate, they might also facilitate, as well as help prepare your company for, introductions to some of the nation's leading private investment firms. This function is tailored to your particular preference and can be used to provide informational feedback well in advance of a capital need, as well as formal introductions germane to a proposed investment request.

Benchmarking to improve performance


Benchmarking can be performed across three main levels: (1) within a firm against other units, (2) within a certain industry or (3) across industries. Comparing one firm or one industry against other industries helps one to identify issues and performance gaps that may not be apparent from a narrower perspective. At PwC, we help clients get the comparisons needed for success. For nearly 50 years, we have provided wholesale and distribution companies with reliable benchmarking data to make more informed management decisions.

Providing personal wealth services to owners


As an owner of a wholesale or distribution business, there are many demands on your time. In consequence, you may not always have the time to devote to the effective planning and administration of your personal financial and business affairs. Moreover, is your personal wealth safe should anything happen to your business?PwC's personal financial services team can introduce strategies to effectively enhance and preserve your wealth. We can help you manage risk, build value and improve performance through a customized approach that reflects who you are and where you want to go.