Knowing your Financials can MAKE or BREAK Your Business

Hey everyone, my name is Mike Andes, but today I'm gonna be doctor Diagnosis because we're gonna be looking at Express Elite Chauffeur's profit and loss statement. They are a chauffeuring business out of Columbus, Ohio.

When I first started this, I didn't know where it was gonna work out. And it was bruised, it was brutal work. It was, it was really hard work.

I focused on upscale one on one. This is a very high end service for people that are going to concerts and venues and.

Well, we got, I mean we did NASA when he came in here this weekend actually.

So yeah, the number one thing when you look at a profit and loss statement is it is a story. Cool thing about here, we actually get to See all of 2022 and 23 profit and loss statement. And so when you look at a snapshot in time, usually you're looking at your balance sheet. That's going to look all your bank statements, your debts, basically your assets and your liabilities. When it comes to a profit and loss statement though, it's over the course of a time frame. In this case we actually have annually over the course of two years. So if I look at 2022, when he first got started the business, they had $47,000 in income or revenue. Their profit, net profit was 12,000. So approximately 2025% profit margin. 25% profit margin. Now when I look at 2023, all of a sudden we go all the way up to 300,000 plus in annual revenue. This is more, more than a 6x. So 6 times more revenue in 2023 compared to 2022. Awesome. Now let's look what happens to our profit or our net income. We go from just $12,000 all up to $188,000. And if you look at the math of this, it's almost something like around 60% profit. So when I see this profit margin, I believe that usually there's something wrong with the financials, something is missing or something has simply been moved from the profit and loss statement over to the balance sheet. What that means is balance sheet items are going to be things like debts and loans. I can't see those payments coming out in a profit and loss statement. So when I look at this, I don't actually see one thing that's very important and that is any sort of contract labor whatsoever. So when I look through the P and L, the first thing I'm looking for in any service business, how much am I spending on wages? I don't see wages anywhere. Besides Right here and it's blank. And you can see back in 2022, this cost was around 25% payroll expenses. But then all of a sudden in 2023, there's nothing here, just a black void when it comes to payroll expenses. So in my opinion, if we just take the math of this being about 25% beforehand, this is, I'm going to guess, supposed to be more on $80,000. And in terms of payroll expenses, the reason I don't think it's actually being accounted for here is I bet he moved to a contractor model where he paid his employees some sort of a percentage of revenue. And because of that, I think that he for some reason moved it off the P and L. So when I go into this turnaround, the first thing I'm asking how are we accounting for wages? Because I'm not seeing on the profit and loss statement. This is why it's so important when you look at a P and L, not to just look at the top line and the bottom line revenue, but then ask yourself, like if we are going to 6x revenue, it doesn't make sense that we're going to somehow triple our profit margin. Probably not. Is it likely that we're also. Check this out. Our vehicle, gas and fuel less than doubled. So even though i6x my revenue, the thing that I actually provide, which is driving vehicles around, only doubled in terms of my cost. So these are the type of holes I'm looking for in a profit and loss statement when I get this, because I don't think that's going to make a lot of sense. The only way this makes sense, alternatively is the fact that he might have hired employees or contractors that had their own vehicles. If he did that, what that means is he didn't have to pay for the gas, he didn't pay for the fuel. And if I guess, yeah, look at this, insurance also less than a 2x. So what I think happened here, without having to talk to the owner, I think what happened here is in this chauffeuring business, he started to subcontract to other people to do the driving. But they probably had their own vehicles, paid for their own fuel and paid for their own insurance. Because those variable expenses of fuel, insurance and then also labor are his biggest cost drivers and they didn't scale with his revenue of 6x. And in most home services and any service business, typically your variable expense of labor and your materials and in this case your fuel and insurance is like a big piece of, of what the materials go into driving People around, if those don't scale with revenue, I'm looking for a hole in the profit and loss of it. And I believe that what he's doing, he is contracting this out. And I believe that instead of it being about 25% of his revenue going towards wages, I actually think more like 40 to 45% of his revenue. So in this case it'd be something along the lines like 120, $130,000 is actually what he's spending, spending on labor or paying employees or contractors. But right now we have this black hole of nothingness happening there. So If I take $120,000 out of what is saying here of the $188,000 in profit, now all of a sudden I'm coming up with something that I think is probably more realistic, which is a $68,000 of actual profit for the business. If I take $68,000 and out of the top line revenue of $311,000, I'm coming up with approximately 20 to 25% profit margins. So in my opinion, the hole that is going to be in this profit and loss statement is the fact that he has now contracted this out to people that have their own vehicles, pay for their own insurance and pay for their own fuel. And there's not, it's not being accounted for the P and L. I believe that number to be somewhere around 120,000. And his actual profit being around 68,000, leading to him an actual net profit margin around 20 to 25%. This is good. My concern is this. When he has these equipment right now, he has it right now as equipment rental. Check this out. Equipment rental went from $1,000 $2,000 to $17,000. I believe that he's leasing a couple of these vehicles also. And that's not being taken account for in this profit and loss or maybe a debt payment. For example, when you take debt on a vehicle, you're going to only account for the interest expense on the P and L. Again, I don't see interest expense on this either. So I think that's another hole. Because if he has debt, what's going to happen is the debt payments on the principal are not going to be accounted for on this P and L. Only thing that goes on a P and L when it comes to debt is interest expense. The actual principal pay down is going to be on the balance sheet, which means you're taking cash and turning it into reduction of your liability. That's why assets equal liabilities on a balance sheet. In order for that to work, you pay cash and you reduce the liability or the loan on that truck, equipment, whatever you're paying down. That cash expense though is not going to be seen out of this profit right here. So out of the 6 to 8,000 I believe that we're actually getting another 20 to 30k. That's going out the door to just debt service and that's not going to be accounted for on a profit and loss statement. This is why someone that looks profitable on a P and L can actually be having massive cash problems because they're in debt and the principal pay down on that debt is not accounted for. And if you have 0% interest on a piece of equipment now all of a sudden you actually have no interest. And that's actually could be happening here. He might actually have 0% interest on these debt payments and we are not even seeing it on our profit and loss statement because there's no interest expense. That does not mean that you still don't have to make payments every single month. It's just, it's not being seen on a profit and loss statement. And this is why I never want to look at a profit and loss statement in and of itself. I need to see the balance sheet because this business could be absolutely in a massive cash crunch and due to the fact they have debt and I don't know if they do, I don't see interest, but it could be zero percent. So this is why you must have doctor diagnosis on the case to get these sort of problems in your business. If you want to actually see the full turnaround of when I went to Express Elite chauffeurs and dug into their business, check this video here, I think you'll like it.