Show Summary:

If your shop shows strong net profit but your bank account feels empty this episode explains why. It defines the gap between paper profit and real cash flow and outlines debt service coverage current ratio and two turnkey rates that reveal true break even. The conversation exposes hidden profit drains such as inaccurate labor costing excess overhead unused subscriptions credit card fees insurance costs and parts leakage. It also examines marketing ROI customer acquisition cost lifetime value and technician utilization. You will leave with a clear plan to protect cash strengthen reserves and make confident financial

Host(s):

Kent Bullard, COO of The Institute

Guest(s):

Eric Joern, CPA, CM&AA, AAM, KAIZEN CPAs + Advisors

Show Highlights:

[00:02:29] – Why profit on your P and L does not mean cash in the bank

[00:05:54] – How debt service coverage reveals true financial strength

[00:08:26] – Current ratio and short term liabilities explained simply

[00:11:00] – Sales tax mismanagement and the tax squeeze trap

[00:13:45] – Inaccurate labor costing distorts gross profit

[00:16:30] – The two turnkey rates every shop must calculate

[00:20:10] – Marketing ROI customer acquisition cost and lifetime value

[00:33:10] – Subscription creep and IT spending that drains profit

[00:51:00] – Parts leakage and missed charges costing thousands

[00:54:45] – Simple expense audits that uncover hidden cash

👉 Unlock the full experience - watch the full webinar on YouTube: https://youtu.be/MfSztSEzZag

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Links & Resources: 

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Episode Transcript Disclaimer

Episode Transcript:

Kent Bullard: Hello everybody and welcome to today's Ask Me Anything. Uh, I'm joined with Eric Jorn from Kaizen CPA. Um, I said that right? Correct. Kaizen,

Eric Joern: you, you, you guys got it down.

Kent Bullard: Nailed

Eric Joern: it. I appreciate that. Love it. Love it.

Kent Bullard: To today, we're gonna be talking about why you're not as profitable as you, you think. It. Um, this isn't a MA so as you guys are asking questions in the comments, me and Eric are gonna be paying attention to that and making sure that we get those questions answered.

Kent Bullard: Okay. Um, a few things I want to just touch base on and we'll, we'll re revisit this again, but we have a few things that we've got coming up that we're doing in partnership with Kaizen. Which is we have a financial intensive, which is gonna be going over all of your finances, getting everything set up correctly.

Kent Bullard: Um, here at Institute Headquarters in April on the 23rd through the 20. Fourth, I think it's a two day. Um, you guys can find that on our website at we are the institute.com/events or upcoming events. Um, and check that out. It's gonna be fantastic. Eric, do you wanna speak a little bit to that?

Eric Joern: Yeah, yeah, I'd love to.

Eric Joern: We're we're excited. We have, uh, our whole entire partner group will be there. So you are getting the whole roster of heavy hitters and it, and it is gonna cover finance from A to Z meaning. How does this interpret financials? Your basic p and l and balance sheet, and what information to clean from that?

Eric Joern: All the way to I've exited my business and how do I manage that new wealth that I created through the process and obviously the steps on how to get from A to Z to. That, uh, that wealth creation stage.

Kent Bullard: We've had a lot of people, especially through our, our round tables and through through the institute work that have asked for, you know, something like this and we, we spent a lot of time going through all the items that need to be included in that us as well as, uh, oh, I guess I'm Cecil today.

Eric Joern: Love that.

Kent Bullard: But, uh, to really just define exactly what you guys need in an intensive. So if you, if you're really scrambling with your finances, this is a, this is the intensive. You should, you should attend. Um, and the last thing, and maybe I'll say that for later, let's, let's just jump into some content.

Kent Bullard: Okay? So Eric, I'm gonna ask you why. In your experience with the shops that you worked with, why do you feel that they're not as profitable as they think they are?

Eric Joern: Wow. Do we not only work with around 200 shops ourselves as current clients, we probably talk to another 200 shops every year that, that are not clients.

Eric Joern: So when we're talk, when we're going through the financials, right, that actually one of the biggest questions we get is, I made money on paper, but I have no cash. Right, and profit can be an interesting thing to to think about, right? You can just say, Hey, this is what is on my p and l, and I'm good and happy with it.

Eric Joern: All, but what we don't know is we were hyper leveraged. Meaning we, we used a bunch of loans to buy everything that we needed, or, hey, we're early, you know, we're early on year one, two, or three. We had to go out to the bank, get loans to buy all the equipment to maybe we bought the shop and now we're paying the TE service.

Eric Joern: Well, that, that's not accounted for on the bottom line on your p and l No, that comes out of your profit. So that might be one of the, um, supernatural reasons why you, uh, you might not feel like, Hey, I'm as profitable as the, as the p and l my accountant gave me. Or even worse, the tax return said.

Kent Bullard: I mean, there's a lot of things, there's a lot of things you can look into.

Kent Bullard: You know, I, I've, uh, had a client in the past where, I mean, they were doing about 27% net profit. And so we went through the numbers. We looked at their, their gp, we looked at their parts, we looked at their labor, we looked at their expense controls and everything, and they were a 27%, uh, net operating profit.

Kent Bullard: But like you just said, they were over leveraged. They took a lot of loans. They, they overextended and so their debt repayments every month was like $13,000. So it was eating all of their profits up, let alone being able to set anything aside for taxes or for, you know, being able to, uh, you know. Have, have a, have a cushion, right?

Kent Bullard: I mean, how many shops out there have you worked with that don't have that? You know, three to six months of operating capital.

Eric Joern: Yeah. Build a reserve, right? Pay down debt. Eradicate debt. Build a reserve. Oh, and you gotta pay taxes too, right? So maybe you hit $300,000 of profit on paper and you could be. That profitable performance wise.

Eric Joern: But now we're paying a third Don, uncle Sam. The third goes to debt service and the third is sitting in our savings account. 'cause we had no emergency savings.

Kent Bullard: That's right. And think about that. So if you've, if you've, if you're showing net profitability on paper and you don't have any money, what's gonna happen come tax season?

Eric Joern: Yep. You're gonna, you're gonna get squeezed. I call it a, the tax squeeze.

Kent Bullard: It hurts, it punches you in the face.

Eric Joern: It's uh, it's something that we dealt with a lot. Uh, you know, we've worked with businesses outside of the automotive repair industry. Um, our construction contractor, contracting friends. Right. You guys see 'em in your shops, right?

Eric Joern: They get new trucks pretty, pretty frequently 'cause they don't want to pay tax. Right? So they're buying trucks every year, but they buy 'em on loan and eventually we run out of deductions 'cause we're accelerating. We're super aggressive 'cause we don't wanna pay tax. And now we gotta pay loan payments. But I run out of deductions.

Eric Joern: Next thing you know, I have no cash 'cause I'm using it to pay my my trucks off, but I don't have the tax deduction 'cause I used it or maybe even wasted it in prior years. Now all of a sudden, I don't know where I'm gonna get the cash to pay my taxes. And we see 'em on installment plans for taxes all the time.

Kent Bullard: So, you know, we might be, there might be somebody out there right now who's like, well, I'm not profitable. Yeah. I, you know, so I'm not even showing profit on paper. How do I, uh, and in fact, I'd love to just talk to you about this, about cash flow strategies. How do I know if I'm in a healthy position or not?

Eric Joern: Yeah. We, um, couple things, right? So a, we can put on our banker's lens and a banker's going to look for one and a half to two times what's called debt service coverage ratio. Meaning I'm making enough. Profit and cash flow from my operations to cover my debt. At least one and a half. My debt payments at least one and a half to two times throughout the year.

Eric Joern: So meaning if say, so

Kent Bullard: what's the, Eric, what, what would be the formula for that? How would I know what my ratio is and whether or not I'm, I'm one and a half to two over.

Eric Joern: Yep. So what is, what is your principal portion of your loan payments? So meaning I say I make a $2,000. Per month loan payment of that 1500 pays down my principal 500 is expense on my p and l as interest expense.

Eric Joern: So we have then our net profit at the end of the year. So say that is a hundred thousand and well actually, that that already does, uh, no, it maths out. Nevermind it doesn't. So we have 18,000 that we have in debt service and we have a hundred thousand in profit. Right. We're now covering that debt service.

Eric Joern: Five times it's five and change, but let's just say five times we're covering that. So that means with the profit we can afford to pay our debt payments five times. Good, healthy position to be in. So then

Kent Bullard: you're in a healthy position there. But if you don't, if you're below two

Eric Joern: Yep.

Kent Bullard: How does the bank view that?

Eric Joern: Yeah. Yeah. Two, two, they have to sit in front of a loan committee and make a hard decision. Right. And that you might get some emotional, um, decision making to, to make a debt decision. They might say, eh, we gotta look now at history. What does proforma look like? What do we look at going forward? Um, and we don't want to get into a point where we have, we have the bankers making an emotional decision, right?

Eric Joern: At the end of the day, they gotta get paid and they gotta safely get paid. Right? They're gonna evaluate a risk-based decision. So when we're in one and a half to two, I believe under one and a half is almost a, at least for most lending situations that we, we go to now you can go SBA, there's a lot of other routes you can jump through, but most banks are aren't happy with a one and a half.

Eric Joern: Uh, one and a half is bare bones, bottom line. Um, so we really wanna see that that's leverage,

Kent Bullard: and especially depending on the ba, the bank that you work with. You might not have a great conversation with them because they're not gonna be kind of like a, a smaller bank that is looking at loans like that.

Kent Bullard: They might be large and they wouldn't care. It wouldn't be worth it to them.

Eric Joern: Absolutely. And then they're gonna look at something like a current ratio, right? How many, how much, how much do I have in current assets? So, so now we're moving to a balance sheet, right? Um, which is weird. Most of us don't even look at a balance sheet ever.

Eric Joern: Right? How many shop owners actually know what's on their balance sheet? So,

Kent Bullard: so just to to recap, we have debt service coverage ratio.

Eric Joern: Yep.

Kent Bullard: Right. Okay. And then now you're talking about your current ratio. What's the current ratio?

Eric Joern: Yeah, current ratio. Simple. Simple equation. Current assets divided by current liabilities.

Eric Joern: So, so what does that mean? So say I, you, I have a lot of terms with my parts vendors, right? And at the end of the month, a lot of us as shop owners have been in this position. We haven't, we've kept our, our finger off the pulse and, and next thing you know, we get that parts statement and it's 15,000. We got 10 grand in the bank and our heart c crunches a little bit.

Eric Joern: Well, we have an under one debt service ratio, right? We have less cash than we have. Debt owed to our vendors and Right. And we're talking short term debt, meaning this is, these are things that we have to pay in less than a year. So that's what, a, not even that,

Kent Bullard: but the short term is gonna have a lot higher interest rate on that.

Eric Joern: Exactly. So

Kent Bullard: even you could be making payments and feeling like you're making a dent, but it's not touching the principle

Eric Joern: for credit cards. Right. It's

Kent Bullard: not touching the principle.

Eric Joern: Exactly. So, so, so we wanna see that at least over one. Right. And it, and it really depends on, on what your, um, how much do you, how much.

Eric Joern: Volume to go through. Right. If, if we're constantly churning, if you're just barely over one, well that gets a little scary, right? You, you lose one, you know, something happens. The shop has to shut down for a period of time.

Kent Bullard: You're not gonna have that, that cushion to be able to keep operations up. Yeah.

Kent Bullard: 'cause you don't have it.

Eric Joern: I,

Kent Bullard: I advise, you know, taking some kind of percentage and doing an allocation every single month or every, every, every period where you're gonna be doing your regular rhythm, either the 12th or 25th, whatever, whatever your rhythm is. And just setting aside that money. Just, just 'cause put it in a, in a bank account that you have to physically go to, to pull money out just so that you know that if something happens, it's there.

Kent Bullard: It's not, it's not touched.

Eric Joern: New Shop, our

Kent Bullard: biggest.

Eric Joern: Using that principle.

Kent Bullard: Oh, go ahead. Sorry.

Eric Joern: Eric. New shop. We're new at this, I guess.

Kent Bullard: Yeah.

Eric Joern: Uh, new shop owners, um, one of the biggest things that we see, sales tax debt, because they don't do exactly what you talked about, right? Every 10th, 25th, whatever it may be, we're moving that money over.

Eric Joern: That is, uh, I'll, I'll call that precious cargo, the sales tax money that you collect because it's never really yours. Taking it, handing it off back to the state. You're never, it's not an income, it's not expense.

Kent Bullard: What would you recommend in terms of how, how, how much should I be putting away for that,

Eric Joern: for sales tax?

Eric Joern: Um, well, the great news is you can run a report on your shop management system that tells you exactly how much sales tax you collected. That's the, that's the simplest way to do it. Right. So we we're on Friday or maybe Monday every week. We go and we look and see in our shop management system, we collected, you know, $2,000 in sales tax and we're gonna transfer that money right over into a, an account that we pay our sales tax out of.

Eric Joern: And that way we don't spend it. And, and we're getting into Profit First Concepts. Uh, I actually taught a class on Profit first, I think last week or the week before.

Kent Bullard: Um, it's something I'm, I'm personally really passionate about. I've been doing Profit First myself personally for, you know. A very long time, and it's something that's like a, I also did it in juxtaposition with like, uh, Rami, uh, the automated, like, I'll teach you to be rich.

Kent Bullard: Okay. Yep. Those systems, because like behaviorally, like I am, I'm impulsive, I have a DHD, I have a hard time managing my finances, so I try to create the systems that are automatic that I don't have to touch because as soon as I touch it, I'm gonna break it.

Eric Joern: Yeah.

Kent Bullard: Oh, a hundred percent And I'm gonna ruin something.

Kent Bullard: Um, but for me, I also make sure that there's at least an additional cushion on top of that. Not just, you know, say we took in 2000, but maybe I might have like a, a five to 10% cushion on top of that to say, okay, instead of 2000, we're gonna do $2,200 and move that over.

Eric Joern: Absolutely

Kent Bullard: right, so that you have just a little bit more just in case.

Kent Bullard: 'cause something always happens. Something always comes up.

Eric Joern: And the great news, if the cash is not in your bank account, you're probably not going to spend it.

Kent Bullard: Exactly. You, I don't see it. It doesn't exist.

Eric Joern: Yeah.

Kent Bullard: Right.

Eric Joern: A hundred percent. All right, so, so we talked about cash flow, but now let's talk about, you know, hey, I think I'm.

Eric Joern: Like most shop owners we're probably mostly making our profitability decisions based on our shop management system only, and I think

Kent Bullard: half the conversation there

Eric Joern: ha exactly. I think most of you know why shop owners think they're profitable and then they're really not come from, Hey, we have not captured accurate data inside of our shop management system.

Kent Bullard: That's the other thing is like, you know, I've, I've, I've brought in a few. New clients over the past, you know, one or two months. And we go in there and we're looking at their labor gp, the shop management system says that they're at 70% or around there. And I go, all right, I automatically don't trust that.

Kent Bullard: So let's jump in. And we see that it's not, it's not adding any kind of a, a labor or wage or cost to that in the shop management system.

Eric Joern: Yeah.

Kent Bullard: Which, if we actually ran the numbers, you know, like one of my clients, um. Three weeks ago they were, we were doing the math and it's like, that's the thing. I love it that Wayne says it, the math's got a math.

Kent Bullard: So we look at the math, got a math, we're missing, we're missing $15,000 at the bottom line, but we've got our margins, quote unquote. But when we add back in, we see that, oh, we didn't get a 70% labor gp. Mm-hmm. We got, you know, a lot less than that. Less than 50% or around 50%. And if you were to add that back in, well that's where the money went.

Kent Bullard: That's where your net profitability went. You know, we talk about shooting for that 65% gp so that you have that. But here's the thing, and this is the way I like to think about it. So my GP essentially is for every dollar I bring in, like if I were to bring a dollar in and my GP was at 50%, that's 50 cents on the dollar.

Kent Bullard: I get to pay my expenses with those 50 cents. And so then it comes down to cost controls. And this is where I see a lot of the shops are like, well, I don't, I'm, I'm getting the margin Now. You set your, your parts margin, your labor margins. You're, you're getting a little better about how you, how you estimate the jobs and, and the work and all that, and how we sell it.

Kent Bullard: We get more conversion, but at some point, all of that money doesn't make it to the bottom line. Where do you see a lot of people kind of miss when it comes to expense controls? What are the things that are out of, out of sync or, uh, out of leverage or over leveraged?

Eric Joern: Yeah. Yeah. Well, a lot of what we see is those who, who aren't intentional with their spending.

Eric Joern: So they might be working with a marketing agency. Because somebody told 'em to, right? Hey, you need to spend more on marketing. You need to spend 5% of your sales on marketing. They hear something like that. And I'm using marketing because

Kent Bullard: I'm

guilty.

Kent Bullard: We've said that,

Eric Joern: but with a

Kent Bullard: caveat and an

Eric Joern: Exactly. Yeah. It is.

Eric Joern: Uh, yeah. Five. Go spend 5%. Okay, cool. We're gonna go sponsor my, my, uh, my nephew's baseball program. Um, well, not really good ROI out of it. Theoretically, you could spend, hey, and you know what, and if you spend the same amount on marketing, but it works. It increases sales. Now we have more. We have a lower overhead cost and a higher net income cost.

Eric Joern: So that's why I talk about being intentional with your expenses. Right? What is my ROI on that individual expense? Will it increase labor or will it increase? Um, increase gross profit will increase revenue. And if we can increase revenue, we could start outrunning our other expenses after we pay our technicians and pay for our parts.

Eric Joern: Now we, but a lot of people don't even know what

Kent Bullard: their, what, where that, that first break even is.

Eric Joern: Yep. The turnkey rate. And now you, and you have two questions to answer, right? Yeah. Turnkey rate on your p and l and turnkey rate from a cash flow standpoint, right? Because we started the conversation about talking about debt service, but on my p and l is, is our turnkey rate, right?

Eric Joern: What, what other expenses do I need to pay, but if I ignore my debt service? I, I'm not really hitting the cash net profit that I need to the money that actually will end in the shop, right? 'cause if we're doing planning on profit, right? Ideally we say, okay, we want to hit, uh, and when it comes to profit, I start like, like, I like to talk about dollars and percentage, right?

Eric Joern: Mm-hmm. Percentage says I'm operating efficiently, but dollars are what I can do with that profit.

Kent Bullard: Exactly.

Eric Joern: And if I want to do a build, right? Hey, I, I wanna do an expansion on my shop. And I need to earmark how much, how much, how many dollars did I have? And I, and if I set that and I say, Hey, I want to hit this profit and have this excess profit to, to fund this buildup for next year, but I forgot that, hey, I also need to include my, my loan payments in there.

Eric Joern: I'm gonna come up short of that number because I just did, I did the math, didn't math

Kent Bullard: you, you didn't do a proper burn rate calculation. I know that I'm gonna be spending an additional 5,000 a month for the next eight months. They said it's gonna be four months, I'm gonna double up. 'cause construction usually takes longer than that.

Kent Bullard: Yeah. And instead of 5,000, maybe I'll shoot for 8,000 a month and if, if, if I don't have that 8,000 in, in, you know, uh, my net operating after the fact. Well even then, 'cause you're, again, you were saying paying the debt service off. Right? Mm-hmm. All that debt, all that liability that's gonna eat away at your cash flow.

Eric Joern: You might have the percentage, but you don't have the money, then

Kent Bullard: you don't have the money and the dollars to pay it.

Eric Joern: Yep. Super important to think about that. Um, but now as we're, we're coming through the operating expense section, right, right away I'm going to look at occupancy. What's it cost for me to be in my building, right?

Eric Joern: Because if I'm at 12.5% for that number. Well, I don't have an operating expense problem. I have a revenue problem. That's where my focus needs to be all in on revenue at that point. But if I'm at 4%. My net income's not where it wants to be and my, what my gross profit is. Now we need to start combing through the rest of the expenses.

Kent Bullard: So, so first off, you said marketing and I, I want to caution people. So if we're already having an issue when it comes to revenue. Like overall revenue. One of the worst things we can do is turn off the spigot, so it comes with an asterisk. There's always a few things I look at when it comes to marketing.

Kent Bullard: I'm gonna just go through them really briefly. The first is, are we optimizing every vehicle that's coming in? So 300% rule, good, thorough inspection? Are we estimating all the work that was found and identified, excuse me, identified and determined how those gonna kill me for that? And old hell, at

Eric Joern: least you didn't fumble kaizen.

Kent Bullard: Right. Right. And then, and then the third and the third a hundred percent is that we, that we presented and converted as much as the work as we can. The, the next thing is are we, are we actually following up on that deferred work? 'cause that's another bit of opportunity. Uh, then I look at regular touchpoint with customers.

Kent Bullard: So what is our incoming phone script that would convert more of our best customers? And we address that. What does our check-in process look like? Where we can set expectations and also look at things like, you know, uh, making sure, Hey, where did you find us? So we know what lead source is gonna be most effective.

Kent Bullard: And then at the end, like when we do the customer checkout, we ask for the three RSS review, referral and return appointment. Then we look at. What is our next best step when it comes to marketing our current customers? How many people haven't been in the last six to seven to eight months that we can call and get scheduled an appointment?

Kent Bullard: Do it on slow day action plan.

Yeah.

Kent Bullard: Then not even touching marketing yet. We're gonna go to referrals. Can we ask our customers to get us a referral and go through referral list? And then once we've exhausted a lot of those things, then it can come down to how are we spending our marketing dollars?

Eric Joern: I think people forget about how valuable.

Eric Joern: A customer is once they're in your database, once they exist in your database, what is the cost to get that name inside of your database? You might be surprised it might be a hundred dollars to get that customer in that just that name in your database. So meaning if, if I'm, if, if I. You know, I'm, I'm rushing through and I'm passing on those opportunities and I think you listed it five or six easy opportunities.

Kent Bullard: Oh yeah. And those don't, those don't cost you anything other than time and effort and fixing your processes.

Eric Joern: But if it costs you a hundred dollars to bring this new customer in the door to replace an existing one, right? We're taking that right off, right out of gross profit,

Kent Bullard: right?

Eric Joern: So if you made $300 of gross profit, you really only now have made $200 because of that cost, initial cost of acquisition, you had to pay for

Kent Bullard: the marketing.

Kent Bullard: Yeah,

Eric Joern: you can say, Hey, lifetime value and justify it that way. But I, I don't like doing math calculations to justify, um, improper execution. We can, I love

Kent Bullard: that.

Eric Joern: You can find, well, it's like statistics in general, right? You can find, you can swing the statistics any way you want to justify what you want, want to do.

Eric Joern: But if you do that and you're, at the end of the day, you're not hitting your goals, you're just, you're just giving yourself an excuse. You're not holding yourself accountable too.

Kent Bullard: So, so I wanna go back, 'cause right now we talked about, you know, we're looking at expense control. By the way, those of you who joined us later.

Kent Bullard: In this, uh, live stream, ask questions. We're talking about why you are not as profitable as you think. You know, it looks on paper that you're profitable, but you don't have anything in the bank account. That's what we are conversing about today. Uh, again, joined with Eric Jordan from Kaizen, uh, CPA. The, what I wanna go back to is you said there's two, two turnkey rates that we want to.

Kent Bullard: Pay attention to. What are those specifically? 'cause we, we went into 'em, but I just want to clarify those for everybody out there.

Eric Joern: Yeah. Yeah.

Kent Bullard: The first turnkey rate is what?

Eric Joern: Yeah. What, what is our, our, what is our net income turnkey rate, right? So how much on our p and l does it cost for us to break even? So, so we,

Kent Bullard: right.

Kent Bullard: So that, would that be all expenses plus our. Debt services.

Eric Joern: So I'd do that before debt service, right? 'cause that's the ca, that'll be a cash flow turnkey,

Kent Bullard: right?

Eric Joern: Meaning, meaning we're gonna take that one step further. So, you know, are we operating profit or are we operating at break even, right? Are we charging right margins, et cetera.

Kent Bullard: So, so for those who don't, you know, I'd look at things like, what does it cost me to do? So my cost of goods and services plus my, my expenses, and that could be sales expense, marketing expense, and fixed expenses. Correct.

Eric Joern: Yep. Yeah. What it cost me to be in my building, pay my accountant. I have beautiful to,

Kent Bullard: and so if I were to add that up, that becomes my first benchmark for cash flow.

Kent Bullard: Right? My break even for cash flow.

Eric Joern: Yep. Yep. Let's just say we're in a million dollar shop and that number's 400,000, right? It costs me 400,000 to pay my rent. I pay myself as the, in the peer owner seat. Um, I'm paying my accountant, I'm paying for my shop management system. I'm paying for my marketing agency, et cetera, all those things.

Kent Bullard: So, so at the very least, I have to be doing around $34,000 a month to make that. So that would be my first benchmark to break even. The second turnkey rate is what

Eric Joern: is now we're now we're talking about. Total cash flow. So now we have to factor in what my debt service is, right? What do I have to pay on long, long-term fixed debt?

Eric Joern: So that, that's not gonna include like a credit card unless you're holding credit card long. You, you've accumulated debt on a credit card, you're carrying a balance.

Kent Bullard: I, I'd rather assume people are than aren't. 'cause if you look at, you know, today's statistics, most people have, have, um, that debt.

Eric Joern: And if you're doing that, my suggestion is you're stopping using the credit card.

Kent Bullard: Yeah. Stop and freeze it. Cut it. Yep. Throw it away. Uh, we're, I wouldn't close the account there. Somebody would argue, well, I want to, I want to have my credit, my point liability. How are my points? Liability alone is just either that or set it to automatically pay off every single month, but you still have to account for it.

Kent Bullard: So my second would be, okay, how much do I pay in my debt services monthly?

Eric Joern: Yep. Yep, yep. So what do I have to pay for debt service monthly? So, right, if, if, if, if I'm, if I have that same example and we're at 34,000 and we have another 6,000 a month in, in debt service, now we're at

Kent Bullard: 40,000, then I'm target 40,000

Eric Joern: or

Kent Bullard: 40 a month, I would say, I would even say add another 10 to 15% cushion on top of that so that you can have some kind of a plan to pay some of these debts down a little sooner.

Kent Bullard: Yeah.

Eric Joern: You

Kent Bullard: know, avalanche, snowball method, whatever that is. If we don't plan for it, then the money's not gonna be there for it.

Eric Joern: Start building some reserves

Kent Bullard: or build reserves. Yeah. Set aside 10 to 15% just into an account. And, uh, for me personally, I like to see six months of operating expense, but I had a client they're doing, they'll do about 5 million.

Kent Bullard: Right. And it's like, okay, well they're, they're, they're, how much do keep for, I mean, three months is gonna be, do you know what I mean? So it's

Eric Joern: like that better be in, in a income bearing account, not a, uh, checking account,

Kent Bullard: uh, money market account of some kind. Savings

Eric Joern: account, money market, high yield savings account.

Eric Joern: Those are starting to temper a lot. But I mean, we, we lived in a world where we're getting four or 5% and pretty accessible cash. Um, huge opportunity missed by a lot all the time. It's, it blows my mind. Uh, you, you, you open great business, great business owner, right? You've accumulated $400,000 of cash and you're earning in a traditional savings account, less than a percent of, of return on that money.

Eric Joern: You are probably, it is devaluing as it sits in that savings account.

Kent Bullard: So if I were.

Kent Bullard: To set these benchmarks. I've got 34,000 to hit my cash flow. I've got 40,000 to make sure I'm covering my debt service. Then after that, I can start thinking about what the net profitability is and what I can take home. Right. Exactly. In order to hit whatever that number is. So if I wanna make 200,000, uh, in net profit that I get to take home from my investment, I would have to do that after the fact, after that 34 and that 40,000.

Eric Joern: Yeah. Yeah.

Kent Bullard: Anything beyond that.

Eric Joern: 60, 58, $60,000 a month. And

Kent Bullard: I would say

Eric Joern: right in gross profit. Um, yeah, adding a little cushion. Right. I don't wanna factor a little cushion in there. Yep. And I love adding

Kent Bullard: a little cushion.

Eric Joern: It's smart though. It is smart. 'cause again, we are. We are people who, um, generally use what's available to us.

Eric Joern: And if we Right.

Kent Bullard: So if it's available, then we're gonna use it. Unless we've already set it aside and said, no, we're not gonna touch this, then I can't use it for something that I shouldn't be using it for.

Eric Joern: Yeah. And so if we set our goal at 55, and that's the exact number to hit it, right? We're gonna do as much as we need to to hit the 55.

Kent Bullard: Mm-hmm.

Eric Joern: But if we set it at 58 and we hit 58, and even though that's got a little bit of slack in it, that means. That

Kent Bullard: month has to make up for the month. We didn't hit 55.

Eric Joern: Exactly. Another great point.

Kent Bullard: This, this is something that, you know, just in, in, if we're talking about profitability and revenue and all that, one of the things I, I've seen, it's like, look, we, we are hitting this target for 55%.

Kent Bullard: Let's say it's, let's say it's parts margin. We're gonna hit 55% parts margin. Yeah. And what they'll do is they'll say, well, some of these things are underneath 55%. I can't charge that much. It's gonna be 48, it's gonna be 50, whatever that is. Yeah. And then they have one that might be up near 70. And they go, oh, that's way too much.

Kent Bullard: I'm gonna dial it down to 60. It's like, no, no, no, no. You needed that. You needed that buffer to, to make up the difference so that you hit that average again, it's an average, not like. The benchmark you, we wanna hit above it sometimes and, and below it. We can't help sometimes, but they have to even out to hit that, that number.

Kent Bullard: It's the same thing with our cash flow. You're gonna have months where you're gonna do 60,000, 65,000 revenue, but then you'll have months where you're gonna be a lot closer towards where you don't want to be, where you're starting to out kick your coverage. You're starting to be, dip into your cash reserves.

Kent Bullard: Right.

Eric Joern: What happens in January, February, right when our, our revenues naturally debt. Outta seasonality, uh, all of a sudden maintaining the same rate. Then as you do in June or July when things pick up, that generally doesn't work that well.

Kent Bullard: I, I think oftentimes people forget, most of this is two things like we, like right now we're kind of talking about, a little bit about generating revenue, but it's, but most of this conversation is gonna be about expense controls, and the thing is, you can, you can only go down to zero as much as you can.

Kent Bullard: Right? Yeah. You're gonna hit, you're gonna hit that zero point and go, well, I, I can't go any lower because this is what it costs to rent my building. This is what it costs to, you know, pay these, these softwares and licenses or pay the employees and all that. And so then the question is, what are we doing to increase revenue?

Kent Bullard: Yeah. But let's talk more about our expense control. So one of 'em we talked about was marketing. The second we talked about was occupancy or your rent, or your lease, or your mortgage, whatever that is for the building you're in. What are other areas that we might wanna look at?

Eric Joern: Insurance

Kent Bullard: and how do we know that we're out of, out of whack with that?

Eric Joern: Yeah. Yeah. And it, it is where things get more difficult, right. While it, it's a lot easier to spend time concentrating on gross profit. Right. We, there's millions of benchmarks on what we need to pay for a technician, what we need to get for markup on a part. Um. And how to handle that. And, and it's impactful, right?

Eric Joern: But once we get past that, it starts getting more complex, right? Because insurance, how do you know how much you should pay in insurance? And now you have variabilities around, do we provide health insurance for our employees? Where are we located? Um, have ex location has a significant impact, right? If I'm in, if I have a shop in Florida, my insurance load is gonna be astronomical compared to South Dakota.

Kent Bullard: Yeah. And it's, it's important to have some grain of, you know, um, grain of salt there. You know, that's why we look at, in our gear performance groups, we're looking at comparative data. There. Peer groups are a great way to do it. Yeah. Where's that benchmark and where, how do I compare against that? But that doesn't necessarily mean that that's the end all be all.

Kent Bullard: You might have a benchmark that's gonna be a little higher, like. For instance, I had, I, uh, I had a client and they're kind of in a family situation where they sold the business. They're doing it where they're paying out an employee kind of a rate on that, and they're still kind of working in the business.

Kent Bullard: So it's like, okay, well if we, if we looked at all this, their margins are all where they need to be, okay, but they're not, they're hitting it, you know, five to 7% net profit. And it's because their employment expense is way too high because they have too many bodies for what that business is supposed to do.

Kent Bullard: Yeah. Right. And so it's like, okay, well if this is the situation, they're a C corp, how they're, how they're formulated and everything. So it's like, okay, if that's the situation, then our benchmark for net profit can't be 20%. It's gotta be 30%.

Eric Joern: Yep.

Kent Bullard: And then we work back the numbers from there, and that'll end up making sure that you drop the 20% that you're looking forward to at the end of the year.

Kent Bullard: Like you, it's, we use these benchmarks to make strategic decisions about how, how we control our expenses and how we, how we manage these things. So. Other than occupancy, what are we looking at?

Eric Joern: Yeah, so, so we're looking at, uh, we've looked at occupancy, we've talked about marketing, we've talked about insurance.

Eric Joern: And insurance. You can just go, right, you can go shop rates, um, you know. Uh, even us as a firm, right? We participate in a peer group similar to gear performance groups. Uh, and one of the things that we found was our IT spend was dramatically higher than the rest in our group. And we, we went out and we did some market evaluation.

Eric Joern: We found that, hey, you know what? We agree, uh, and we went and. Found a way to cut that expense pretty dramatically. Um, so as you go through your p and l, right, great exercise. It might not be a, Hey, here's a specific dollar I need to hit, but this might say I'm spending much, much more on this expense than anybody else that's in my peer group.

Eric Joern: I should probably go shop and talk to other providers that can provide this service. And it could be something as small as, you know, I've been using Cintas for uniforms and cleaning carpets and all that fun stuff and you know, maybe I have some. Extra people that are in my shop that have nothing going on, or not, not as much utilization.

Eric Joern: Maybe we buy a washer and dryer and clean our own uniforms. And, and I, I think that's probably a crazy idea. Um, but, you know, it's, it's using that thought and creative exercise to come up with concepts like that.

Kent Bullard: I like looking for the gap. So like if I've got a goal set, okay. And we can use that. Same example, you're talking about 34, 40,000.

Kent Bullard: Let's say our goal is 60,000. We have that gap of 20,000 we gotta make. Yep. Right? And so what I, what I often fear is that people go, okay, well. I'm looking for the one thing that's gonna get the $20,000. I was like, no, no, no. It's, it's a combination of things. So what can I reduce in my, my IT expense? By the way, we did this last year and we cut it, uh, down to a seventh of what it was annually.

Eric Joern: Wow.

Kent Bullard: And that was one of those things where it's like, okay, well we saved that much money. Okay. Uh, now we can look at what do we do to increase our revenue. It might be looking at your average repair order, increasing your inspection process, or, uh, building a better sales presentation or adding, adding more value, or even your marketing can curate the types of people that you're bringing in who are gonna value your business more than those you're currently bringing in.

Kent Bullard: So it's, it's all of those different strategies combined to make the difference of that $20,000 gap. Absolutely. You know, it can't just be, I'm looking for the one thing, it's, I'm gonna have things that are gonna add to it. I'm gonna have things that, that I can take away to make that gap happen.

Eric Joern: Right.

Eric Joern: Yeah. It's,

Kent Bullard: and if we do

Eric Joern: that, that 5,000 cuts right? Is, is the principle of it. I mean, think about your personal spending, right? Amazon has probably created a lot more debt in this in the world. In consumer world, it's possible because it's easy. They made it so easy to buy and you know, Hey, it's $10, it's $15, it's $10, it's $15.

Kent Bullard: Yeah.

Eric Joern: And then you look at the month and you spend $800 on Amazon. Oh gosh. And you're like, what did I buy? How often are we doing that Inside of our shops too, right? Hey,

Kent Bullard: my, my wife a little upset with me recently 'cause we, we ended up, uh, deleting DoorDash.

Eric Joern: Mm-hmm. Oh,

Kent Bullard: that's

Eric Joern: a big

Kent Bullard: one.

Eric Joern: Yeah.

Kent Bullard: But it's like those little things.

Kent Bullard: They, they, you know, raindrops make oceans, man. So we covered marketing, occupancy insurance, it spend, let's do one more. What's one other big area that people tend to miss in their expense controls that are not allowing them to get the net profit they're looking for?

Eric Joern: I mean, so, so we, labor is always a, a sensitive category, right?

Eric Joern: And we oftentimes, when we're talking about chops and we focus on gross profit, we're talking about technician labor, but then there's an all sorts of other labor that falls below the line. Meaning we might be paying our service advisors, so right. Are we paying our service advisors correctly and are they right for the amount of volume that our shop has?

Eric Joern: But maybe we have multiple, uh, maybe we are paying an office manager, we're paying a third party bookkeeper and we're paying a CPA.

Kent Bullard: Maybe we're a little top heavy when it comes to our, you know.

Eric Joern: Financial backend.

Kent Bullard: Exactly. Our management suite or whatever that looks like, right?

Eric Joern: Yeah. Or maybe we have duplicate subscription.

Eric Joern: The subscriptions really is, is where we find it's never big dollars. Right? It's, you know, the a hundred bucks, 200 bucks a month. I can't tell you how many shops we've gone through the GL with them. They say, I thought I canceled that. Or, or, oh, we haven't used that in quite a while. And, you know, maybe it was a one time use, you know, it was a labor guide I needed specific access to, to figure out how to execute a certain repair.

Eric Joern: And it's on an autorenew and, oh yeah, I can, on that subscription.

Kent Bullard: I, well, like we even made a switch recently. Um, well. Mid last year, but we went from Slack to moving to just using Google Chat. We had it. We had the company. We're like, oh, I don't know why we didn't do this before, but I mean, when Slack is 500 bucks a month, 600 bucks a month, 700 bucks a month, depending on how many users you have, that adds up.

Kent Bullard: So what are your software subscriptions that you guys are paying for that you're not actually using?

Eric Joern: And it doesn't have to be, you have to cut the whole software, but sometimes you need to cut user seats. We did the same, we did a similar thing with Adobe.

Kent Bullard: Mm-hmm.

Eric Joern: Um, where we had Adobe it, it bloomed because we thought everybody needed it.

Eric Joern: And then we looked at this, you know, next thing you know, we spent $20,000 in Adobe licenses and we said, oh, something's wrong here. So we went and interviewed the staff and turned out about 10% of the staff used it more than. You know, weekly and we said, Hmm, there's gotta be a better, cheaper alternative.

Eric Joern: And maybe these power users need seats, right? Or, you know, we, we operate on a chat GPT team subscription, and while we could just go and say, everybody needs chat GPT. Now that's great. That costs our firm, I think it's like around another $20,000 a year of every single. Employee got that subscription. Yeah.

Eric Joern: But instead we are asking our team to request it. The why, how often are you gonna use it? Are you using a free version with nonsensitive data first? And you're using that on a regular recurring basis because we want ROI out of that product again. Right. Okay. You're using it regularly. Now how can I measure the noticeable improvement in efficiency?

Eric Joern: And now I can calculate an ROI. Does it make sense for me to spend the money on that? Because, you know, it's

Kent Bullard: something that, just a simple calculation of what's my ROI on this is, it could save a lot of of dollars. Um, one we have a, oh, go ahead Eric.

Eric Joern: No, we, yeah, yeah. One interesting. Oh, and we got a good question here.

Kent Bullard: Yeah, we had a, a question. Sorry. What's, what's the question? Is Todd Ainsworth? So what do you think is a good target percentage for social media presence?

Eric Joern: Wow. That's an, that's a, I wish that was an easy question to answer.

Kent Bullard: That's a really nuanced question. 'cause you're talking about marketing in general.

Kent Bullard: Marketing could be anywhere from five to 10 to 12%, depending on if you're maintaining or growing, at least what we've seen. But for me, it depends on your return. So if you're, if you're getting a five to one return on your dollar spend for social media, then yeah, do keep going. But if you're only, if you're getting a one-to-one, that's something to consider.

Kent Bullard: Maybe, you know, another marketing, uh, campaign or another marketing area, uh, like your Google Ads is getting a much higher, uh. Dollar to dollar ratio. So take the expense from that and put it towards there.

Eric Joern: Yeah, I, I, I avoid generalized p and l percentages when it comes to marketing spend. I, I think you have to dig deeper, right?

Eric Joern: Yeah. So, so what is my cost per acquisition, my lifetime value for that customer? So you need to know your gross profit. My lifetime value. So here's how much revenue I have through the lifetime of that customer. So say my average customer visits me 20 times in their lifetime, whatever it may be, and they spend X amount is my a RO, and here's my X amount gross profit percentage, and here's what I had to pay to acquire that customer.

Eric Joern: Whether it's a social media presence, whether it's a mailer, whether it's whatever it may be. Right, and that that will answer your question individually on that. On that decision

Kent Bullard: I was doing, I was doing the maths. If, if they brought, you know, if our clients came in 20 times in their lifetime, it's $750 average pay order, it's around $15,000.

Kent Bullard: And let's say my cost per acquisition is 50. I dunno, I've seen, I've seen a wide range, some, depending on where people are at, they might have population density, they might have to invest more, but, you know, earn from 50 to 150 for your, your cost per acquisition.

Eric Joern: Mm-hmm.

Kent Bullard: Right.

Eric Joern: That's a pretty good ROI.

Kent Bullard: That's a healthy ROI, it's 500, or like, I had somebody who was doing radio ads and they only got three people in, but it was $1,600

Eric Joern: Yeah,

Kent Bullard: a month for radio ads. That's

Eric Joern: not a good ROI Your lifetime value is, you know, $2,200. Right? And then your gross profit is 50% and then it costs you $500 to acquire a new customer.

Eric Joern: So really lifetime value, you get outta that customer is like, I think that was six 12 or something around that. Uh. That's not gonna pay bills long term for your shop. You're not, you're not gonna be able to have that growth. Um, and, and actually when it comes to percentage, I think what something that's real, something that's really important to pair with your marketing cost is your how much cost to be in my building, right?

Eric Joern: Because if I'm on a, if I'm on an interstate, or I'm in a high dense populated area where, you know, people are Googling, uh, looking for an automotive repair shop, uh. It's gonna be a lot cheaper to bring them in the door than if I am off the beaten path in a more rural area. The cost for me to get somebody in the door might be significantly higher.

Kent Bullard: Well, and I. Frankly, marketing is something I really love because I want to challenge those out there. If you've got a marketing budget, be really creative with it. Mm-hmm. In, in, um, embrace those restrictions. Right. So some, somebody I was working with a little while ago, they had like a, you know, $50 off. Uh, if you spend, you know, X number of dollars with us as a promotion.

Kent Bullard: Okay, well I could be really creative with. $25. Yeah. And have fresh baked cookies that I could be giving to my new customers that come in, or, you know, be more creative with that and donate it to a local, you know, community center that is, you know, really embedded in the, in the community and does good things.

Kent Bullard: And it's like you could be so much more impactful with your dollars than you think. And it doesn't necessarily have to be like a transactional thing. It could be very. Cultural, it could be, you know, a lot of the, the value elements there and reinforce the type of people that you were trying to bring in.

Eric Joern: Yeah. You can host an event to help to show somebody how to do a pre road trip inspection of their vehicle. Something like that, right? Gets 'em in the door, makes 'em think about how important the safety and reliability of that vehicle is long term. So, and who's gonna show up to that, to that event?

Eric Joern: Probably your ICP, your ideal fit customer. That's another whole, whole marketing concept you can go to down a rabbit hole of is who is, who is my ideal fit customer. 'cause I see these questions on the Facebook groups, on the forums, you know? Oh, uh. They don't, they won't like that labor rate or they won't like that part markup.

Eric Joern: And, and my question was put a lot of our own biases on that, I feel our own bias is your, is your ideal fit customer? The person that understands what a labor rate would be for, to go somewhere else for a shop or they looking at, Hey, how much will it cost to get my car operating safely back on the road?

Eric Joern: And what am I willing to pay for it? That's generally your, your ideal fit customer and do they value good service fixing, fixing it right the first time and probably time, right?

Kent Bullard: So, so one of the things I want to touch on right now, Todd, by the way, thank you so much for the question. Those of you out there who have any more questions, me and Eric are watching the chat.

Kent Bullard: We want to answer them live while we have you here. Um, one thing I want to touch on is we can talk about these expense controls all we want, but a lot of shops out there I know are likely struggling with one of the biggest hurdles is visibility. You're telling me, you know, you know, why am I not profitable?

Kent Bullard: I could see this, the numbers in the shop management system, but my p and l's not great.

Eric Joern: Yeah.

Kent Bullard: Here's where I'm gonna recommend, you know, we've been working with Eric and frankly, you guys and your team have done the majority of the work, but put together a kind of a, a chart of accounts program build. So if you guys are really struggling to just get it organized and get it clean so you can see what's going on.

Kent Bullard: Um, Eric now has a service that, uh, we're offering through the institute. Do you wanna talk a little bit about that?

Eric Joern: Yeah. Yeah, a hundred percent. And I'll, I'll talk, I'll open up with something we've, we found, we just finished going through this exercise with somebody, and one of the things we found was through their prior accounting process, they had bought some equipment on lease.

Eric Joern: Well, I said I, I guess I contradict myself. They bought equipment on lease, so when people see a lease, they think I'm paying a monthly, I have a monthly expense that I'm incurring for that. But there's a difference between what's called operating lease and a capital lease. So he had a dollar buyout at the end of the lease, which that means effectively we bought that equipment on a loan.

Eric Joern: Called it a lease, so that's called a capital lease. Well, guess what? In the prior year, if we would've treated it correctly as a capital lease, we could have accelerated all the depreciation, taking it in one year, versus spreading that cost, spreading that out over the lifetime of the payments. There's.

Eric Joern: There's cost benefits, that's a whole nother decision matrix. But our goal is something as simple as that is, Hey, hey, we need to educate you around. That's how you handle this. So you have the opportunity to make that decision, right? If you, if you don't do it right, you no longer have the opportunity to make the decision on how I take that as a deduction, and is it an accurate reflection?

Eric Joern: You know, if I own that at the end of the, at, at the end of the day, I don't think I want that in my lease expense account, right? I, I really want. To know, Hey, I now have an asset that my business owns exactly, and I'm going to look at that much differently than I look at something that I have an ongoing expense for.

Eric Joern: And a bank looks at that differently too.

Kent Bullard: So, so frankly, a lot of you out there might be struggling with, well, I don't know what decision to make because we just don't have the visibility. Yeah. I would urge you, I mean, it's, it's worth the time and the effort to get this done. The, the, the money to spend is, is totally worth it.

Kent Bullard: The return on investment. Think about being able to make a. All the strategic decisions that we've been talking about with good numbers so that you can do the math and actually see what the ROI for, you know, the, the expense controls would gain you in an annual year or even for the lifetime of your business over the years.

Kent Bullard: It, it will save you so much money and earn you even more. Um, and I highly advise, reach out to Eric and Kaizen and, and get that service done for you if you don't have clean books.

Eric Joern: Yeah. Yeah. And I'll walk you through the process really quick of how that, what that looks and feels like because this e.

Eric Joern: Even if you, you don't go this route. Think, just even think this through, right? So we start off and we do a call, we, we have a questionnaire, and then we have a call where we talk through the questionnaire and that questionnaire identifies items in your accounting process that we might feel this becomes gaps.

Eric Joern: Then we're gonna address maybe even some operational things that you're doing inside of the shop that aren't even just on the p and l itself. And then we're gonna make sure that that institute GPG Ready reporting, uh, chart of accounts, is loaded into your QuickBooks file. We're gonna make sure we build a system that.

Eric Joern: Matches your shop management system, back to your books. And obviously we're also gonna coach you around your shop management system on making sure you handle transactions correctly, um, in there so you have accurate reporting, and then we're gonna create you a roadmap on exactly how to replicate that every month.

Eric Joern: And you walk away with essentially a, a built accounting system, um, that you can hand off to your bookkeeper. Uh, or you can, if you're executing it yourself, you can execute it yourself or, um, you know, I, I've, I have a feeling in many cases we're going to, you know, provide enough lift for our, our client to, or our, uh, that person that we're working with that they say, Hey, I don't want to deal with this.

Eric Joern: This is much more complex than I thought. And you guys just keep doing it.

Kent Bullard: And I highly recommend getting it done. You know, whenever we start with a new client. That's, you know, we address things like the urgent needs in care and then the immediate next step is how do we gain visibility? 'cause we can't make good decisions that have lasting, impactful, positive results if we don't know what's going on.

Kent Bullard: And that visibility is massively important. Alright. Um, we're kind of in the, the final minutes here with this, uh. A MA. Anyone out there watching now, if you have any questions about, you know, why you're not as profitable as you think you should be, this is the time to ask them. Uh, you know, I was thinking about this.

Kent Bullard: I was in a manager performance group meeting, um, a little while back, and we were, they were doing an exercise on proficiency. Now proficiency is really just how are we optimizing and utilizing the available hours that we have? And this is in conflict with efficiency. 'cause they're like, my guys are my, my technicians are productive.

Kent Bullard: It's like, no, no, no. Your technicians are efficient. So when they're on the vehicles, they are getting the work done in a very timely and efficient manner. However, you're not utilizing all of the available time that you have in the shop. And that comes down to the shop's workflow, right? Mm-hmm. And we were doing some math in between, you know, uh, the groups here, we found $5 million of, of.

Kent Bullard: Unutilized potential.

Eric Joern: Wow.

Kent Bullard: And it's like, it's like, look, and, and, you know, everyone kind of was like hanging their heads. It's like, oh my gosh, we, we missed a fight. It's like, no, no, no. Look, look at this. This is a good thing. Look at all this opportunity we just found. We just found $5 million. Okay. Then it comes down to just improving your workflow.

Kent Bullard: How do we schedule out? Are we, are we maximizing the technician, um, uh, utilization their time? Are we, are we, uh, setting their day up for success? Are we communicating effectively? Are we managing our parts, ordering effectively, or, you know, all those things that come operationally that if you've got the numbers dialed in, and this is where I'm like, this is a frustration of mine.

Kent Bullard: You're working with somebody and they're like, I need more cards. I need more of this. And it's like, if you. Have a system that is fundamentally broken and you want to dial that engine up to, you know, two, 300% of what it's doing. All you're doing is exacerbating those core fundamental issues that are there in preexisting.

Kent Bullard: And so I wanna optimize before I. Increase personally, that's my, that's my statement.

Eric Joern: The worst thing you could do is have to hire another technician because you've increased car count because we're not efficient or we're not optimizing. We're efficient on the car. We

Kent Bullard: might have in our process. You're stretch, you're stretching the work for three technicians across five technicians, and then you've got those additional to, uh, annual salaries weighing down your expense controls.

Kent Bullard: And so again, there, where's my profitability going while I'm paying? Probably far too much for labor 'cause we just didn't optimize the system. Not that any of those five technicians are doing the wrong things. But if you're gonna have five technicians, let's make sure they can produce the work of five technicians.

Eric Joern: And then the knee jerk reaction is, I got a bad technician. Right? Is the first thing that they think of is, oh, they're a 50% productivity, they're a bad technician. No, always start with you and your process and your system and, and. Are there cases I made the wrong hire or the wrong person's in the wrong C?

Eric Joern: Sure that can exist. I'm just gonna

Kent Bullard: assume that people are doing their best first.

Eric Joern: Exactly. Until you rule out that my systems, processes and procedures are not failing them. You can't put it on the employee.

Kent Bullard: Yeah. So we covered marketing, occupancy insurance, IT spend, I love the IT and software. That one is such a time sink labor, right?

Kent Bullard: Um, and then subscriptions. Anything else? Yeah.

Eric Joern: Now, now I have to think through a, a whole p and l. I mean, we never talk, we never do. You don't have

Kent Bullard: them lay

Eric Joern: laid down in your

Kent Bullard: head. Man,

Eric Joern: we, we, uh, we never really talk about parts. Um, and we talk about parts. Gross profit, which is largely managed the shop management system.

Eric Joern: Um. Parts Leakage to me is probably one of the largest expenses that we see that are, that are outside of, I guess, the initial gross profit measurement.

Kent Bullard: So, so let's talk about parts leakage for a second.

Eric Joern: Yep.

Kent Bullard: What is parts leakage?

Eric Joern: What is parts leakage? So, so normally people think about it as, Hey, um, people are stealing from me.

Eric Joern: Usually not the case, but sometimes the case. Uh, but maybe we're not charging for parts, right? Or, Hey, this is too much work for me to tag this on an ro. Um. And, you know, let's talk about a, a, a drain plug gasket, right? Let's say we do 300 oil changes and drain plug gasket costs us 25 cents and we forex it on our, uh, pricing matrix.

Eric Joern: That's a dollar per car. Um. Times 400 cars. It's $400 a month. It's five grand a year right there. And that's just, and I, trust me, I hear, uh, it's not worth me doing that. And I think it's

Kent Bullard: 5,000 bucks.

Eric Joern: That's $5,000. And then you $5. Five grand. I mean, that's a nice, that's a pretty decent vacation. Um, you know, you have those personal goals, Hey, $5,000.

Eric Joern: If you, uh, you know, let's just say your cost of customer acquisition is 20%, right? That's, that is now. A hundred thousand dollars in new revenue if my math, maths,

Kent Bullard: yeah. If we're, if we're not, if we're not ordering the correct part or a, you know, maybe a cheaper part, we're gonna end up paying warranty on that.

Kent Bullard: Or we're able to eat the cost there. Are we not managing our core properly? Right.

Eric Joern: Core return process? Are we not doing a statement reconciliation? Are we not comparing our parts usage report back to all the parts that are tagged on a repair order? I mean, uh, it

Kent Bullard: just, that can save you, that can save you so much money in the long run because you've got all this, this, um.

Kent Bullard: Inventory that essentially isn't being leveraged the way that it should be. Same with the labor inventory. We're not, we're not utilizing it as best as we can.

Eric Joern: Yeah. It's, and again, it's leaking, right? It, it's not, we're not mis generally, we're not mispricing, we're not, we're just, we're just letting stuff drift, right?

Eric Joern: We're, we, we, we haven't sharpened our processes, systems, and procedures to account for all these things. I mean, I'm working, we're working with the three location CHOP group, and we did, uh. If, I don't wanna call it an audit 'cause we didn't do an official audit, uh, but we did an analysis of, of their parts spend versus their parts usage inside of their shop management system.

Eric Joern: And we found a hundred thousand dollars gap across three stores in a 12 month period. Um, you know, and then we've narrowed it down to, hey, what we've pur my parts purchase is logged in. My shop management system accounts for 50% of that, and then the other percent just is not accounted for at all.

Kent Bullard: This is what drives me a little nuts is like, it's not like you're, a lot of the stuff that we're talking about, it's money that's already there.

Kent Bullard: It's, this is stuff that's already in the shop. It's not doing any access, it's just being a little more, um, judicious with what we're doing. Right. I'd love to take a moment here, just those of you who've been watching the live. Just to talk about some of these categories. I'd love to know in the comments where you feel, uh, or where you think you could probably do a bit of expense control.

Kent Bullard: So those categories are marketing, occupancy, insurance. I'm gonna, I'm gonna put it, spend and subscriptions together. That makes sense. Uh, labor. And I don't mean tech wages, I mean, you know, payroll,

Eric Joern: overhead,

Kent Bullard: overhead,

Eric Joern: labor.

Kent Bullard: And uh, and the last would be. Uh, parts leakage. Where do you guys feel that you could save some dollars there?

Kent Bullard: Lemme know in the comments.

Eric Joern: Oh, yep.

Kent Bullard: Sorry. Go ahead.

Eric Joern: I, I, I might, while people are, are punching that in the comments, um, another overhead expense and, and again, doesn't move the needle, but everybody can do it and it's a very easy thing to go shop your card. Credit card processing fees.

Kent Bullard: Oh my gosh, yes.

Eric Joern: And you know, I, I know there's a whole dynamic now around, uh, should I pass that onto my customer at this point or not?

Eric Joern: What, what's your take on that?

Kent Bullard: I, you know. He, here's the, here's the thick of it. If, if I wanna make the 20% for fair profit, my, my consumer's gonna pay for all of that. Yeah. Regardless, either it's gonna be loaded here or loaded there. It's gonna be in my, in my labor, in my parts. It's gonna be, it's gonna be somewhere.

Kent Bullard: I think if you're talking about eating the, the credit card processing fees, just, just make sure you're, you're compensating it somewhere else. And frankly, I'd rather have a consistent experience for all of my customers, so I just eat that. But, but make sure it's calculated somewhere else. It's a better customer experience, right?

Kent Bullard: Mm-hmm. If it, if it's negligible where it is, then look at the customer experience.

Eric Joern: Yeah.

Kent Bullard: Okay. And then the last bit of that is. Um, I mean, think about the savings. If you're processing a million dollars in a year and you can save a half a percent on, on credit card fees, how much is that?

Eric Joern: There's your, there's your, there's your $5,000 vacation again.

Kent Bullard: Yeah, it's a lot of money. It adds up. Um, so we're at, we're just at the end here. I did wanna say, um, you know, we're doing the institute's doing a, a launch live stream on, uh, Monday. That's gonna be 1:00 PM Mountain Time, 2:00 PM Central. We'd love for you guys to tune in. We're giving away, uh, some fun prizes and we're doing the launch of the Odd Academy, going into some details, there's some training, and we'd love for all of you to be a part of that.

Kent Bullard: Um. Eric, this has been fantastic. Uh, those of you out there who, who are curious about our financial intensive will post, you know, in the follow up here, some information there as well as the chart of accounts services or, I, I don't know what we're exactly calling that, but getting your books cleaned up.

Kent Bullard: Um, you guys do a fantastic job. So check out, uh, Kaizen CPAs for that. Any final comments on this?

Eric Joern: Uh, hey. Everybody should walk away from this, this meeting right now. Go, go look at your general ledger, start looking at those expenses that you're paying for. What don't I need, right? Am I in too big of a QuickBooks subscription?

Eric Joern: Am I using, did I pay for HR services in my payroll processor that I'm not using? All these things you, if you spend some time going through it, I bet you'll find probably that $5,000 vacation today.

Kent Bullard: Awesome. Eric, thank you so much for joining me. Those of you out there, uh. We're, are we hanging out for a little bit?

Kent Bullard: No. Uh, follow up. We'll post the recording of this later. Uh, thank you all for being here, and we'll see you on the next one.

Eric Joern: Thanks everyone.