Turn Surplus Assets Into Tax Credits With Howard Pearl

Well, welcome everyone to another episode of the Insightful Podcast. We have a special guest today, Howard Pearl. Welcome to the show, Howard.

Thanks. Happy to be here. Yeah.

Let me give you guys a quick bio and then you'll see why I think listening to what Howard has to say is gonna be really important for probably why you're coming to our podcast. So Howard Pearl, he's the CEO of Cars, Which is charitable adult rides and services. While he doesn't look old enough for this to be true, he has 30 years of C-suite experience. He's grown CARS into one of the nation's most trusted vehicle donation programs, and, uh, they partner with more than 10,000 nonprofits, and they've returned over $600 million to charitable causes. And this next part's pretty unique. In the past 8 years, Kars has completed 6 strategic mergers and acquisitions to expand their capabilities and help more communities. So with that being said, Howard, one of the tax strategies that we have some of our clients do is what we call the nonprofit strategy, because sometimes it doesn't make sense for them. They don't get a lot of benefit out of contributing to a 401 Or an IRA, they might not get enough of a tax benefit or they like phase out of any benefit. And so sometimes them setting up some sort of nonprofit has allowed them to get, you know, additional donation dollars into their own nonprofit. And then most of these people, when we talk about the strategy, they're like, well, I have some philanthropic desires anyways. So I just want to let you know that that's a thing. When we talk about cars, You meant you work with 10,000 nonprofits. So I'd love to start with how does CARS help nonprofits turn donated vehicles into funding for their mission?

Well, sure. First off, not just cars. Last, you know, last month we did, I think, a little over 10,000 vehicles. But we also at the moment have 14 pieces of real estate in various states of transition. So we do real estate, we— stocks, bonds and manage those, you know, the liquidation of those sorts of things. We have a roundup program, which is really an interesting product because it works off of whatever credit card you currently have, if it's a MasterCard or a Visa. But it's called Minute to Give because it takes just a second to set it up. And it's so interactive, it's crazy. Just takes little tiny bits. Until it reaches the goal, then it stops. It doesn't just go on and on and on. So you don't have to manage it once it's set up. So how do we do this? Well, first off, nobody donates to us. We, we are a B2B. So most of your people here, I would imagine, are business people and not nonprofit people. So it's gonna make it easier for me to really explain this. Some of the nonprofit folks don't really, don't really get some of this stuff. They're smart and, and they're really good at what they do, but they don't really get the, the grind of what goes on to get stuff down to that lower right-hand corner. So being B2B, we leverage the equity in the brand of whoever we're working with. So Red Cross is one of ours. Kidney is one of ours. Sierra Club Foundation, one of ours. St. Jude, one of ours. Shriners and so on. But so people do want to give to those organizations as opposed to, you know, kind of no names. So what happens is this, they'll get onto the website. of whomever it is that they want to donate their assets to. And once they're on that website and they call us on the 800 number or they go online and make the donation on the form that's there, that all comes to us. Think of us as kind of the Disneyland of donations. All the machinery underneath that makes everything up top whirl and swirl, that's us. We're the— we make the whirls and the swirls go around.

Let's, I mean, let's walk through a A simple example. I donate a car to Shriners. What does Shriners then do? And how, like, how are you involved in that at that point?

Okay. So the beauty of our program, frankly, is the ROI. It's so simple. You don't have to do anything. Vehicle's donated and it comes in and it comes into Shriners, for example. Depending on where it is, anywhere in the 50 states, including, you know, Hawaii and Alaska, we'll send a tow truck to pick up the vehicle and we'll take it to a local auction that we're doing business with. And yes, we have over 300 auctions across the country. We don't own them all, but we do own some. Goes to the auction. It'll be prepped. And it depends again whether it's a specialty vehicle, whether it's a collectible, or whether it's just an average, an average vehicle, 10 or 12 years old that somebody is donating. First off, we stopped asking for junk years ago. And guess what? We don't get a lot of junk anymore. We'll take the junk too, because that's— everything has, has a value. And chances are you'll get more out of that than you will out of a monthly donation from those folks anyway. But once we have it at the auction yard, we'll do a review. What's wrong with the article, with the vehicle? We publish that, and then it goes into an online auction, into an auction that, depending on where it is, there's 1 or 2 auctions a week in that particular city or that community. So you would, if you were a registered buyer, you would go online, make a bid on the vehicle. vehicle is sold. That's when the machinery really goes into action. The funds are collected by the auction yard. There's a thing called a release of liability. So we ask all the owners to go into their DMV site and register the thing as having been transitioned. It's been donated. So it releases you from liability. However, we also do that to make sure, because not all donors do that. So we, we, we redo the release of liability so that even if you get a, a ticket or a toll charge on that vehicle 2 years later, all you need to do is pick up the phone and call us, and we issue those numbers to you when we pick the vehicle up. We'll take care of it. You're not responsible. You have no liability. And on occasion, we will go to court to defend that. And therefore, once you've done that release of liability, no hits, no runs, no errors. All right, vehicle goes, it's sold. The auction has 15 days maximum to get that capital into us. We will keep that capital for a maximum of 5 days. Usually it gets turned sooner depending on when it hits, but we do 1.5 check runs a week so that we make sure that your money gets out or is in process to be out the door within 5 days of it coming in the door. Why do we do that? Well, part of our process is we're on an 80/20 split. So 80 cents on the dollar goes back to the nonprofit, but that's after we paid for the repairs and the towing. So We're on a net basis. We split what comes in the door, meaning we underwrite 20% of the cost of the repair and the tow. And the reason we do it net, and we're the only guys in the country that do it that way, is because if we have to pick up part of the cost, it ensures to you that we're looking for the least expensive way to get it into the yard and the least expensive way to get that thing into a repair situation where, where we can get it back.

Mm-hmm.

You know, on the road. And, and again, because we are also a nonprofit, we, we, we, we don't feel that we should be prospering on, you know, that category of, of, of issue. Again, we shouldn't be taking arbitrage on your money, so we try and get it out the door in 10 days. Now, there was another question in there that I didn't, I didn't finish answering. I've sort of got lost in my own, my own nonsense here. But the, the basic idea is We, we want to make this as seamless and as easy as possible for your donor. We, we have a great number of, of integrity awards. We've got a couple of integrity awards from the BBB. They're Torch Awards, which are really hard to, you know, hard to earn and keep. And, and we are 100% transparent. We have a thing called NAV, which if you are the nonprofit we're dealing with, you can go online and you will see the same information that I see about your nonprofit, where your vehicles are, where your money is, when it's being distributed. All of those questions are answered and it's alive 24 hours a day, 7 days a week. So we don't upload it at the end of every day where we manipulate. What happens, happens. You get to see it, the good, the bad, and the ugly. Does everything go 100%? 99% of the time. But, you know, there are issues that come up.

Sure.

And the reason we're, I think, do the large-scale organizations we do is If there's a problem, we're here to fix it. That's our job. That, and we stand behind that. We also send out the thank you letters and your tax receipts. So if you're a nonprofit, we're 100% turnkey operation, make it simple and easy for you. That's pretty much the anatomy of it. Once we picked it up from your driveway, you don't have to worry about it as a donor. The relationship we have with the nonprofits makes it easy for us to flow money to them on a regular on a regular basis. And we are one of the few organizations, I think, in the country that has been trusted tremendously. We talk to our partners, donors, all the time. We have almost 600,000 conversations with donors a year, um, without any, without any issues. And that's because for us, there are only 2 words that matter: gratitude and margin. We're in the business of saying thank you for your gracious gift. In other words, we are expressing gratitude on behalf of our partners. We better mean it and we better do it well. Urgent because you can't operate on alpha gas, can't make payroll on wishes, hopes, and dreams. So the reality is we, we manage a lot of the business side of this kind of a program for our nonprofits. They're not always really great with their backend, their business office.

Yeah. So a simple summary then of kind of how the card and probably any asset donation goes. If a nonprofit gets an asset, they then turn around to you and say, hey, can you help us with this? You sell it or facilitate the sale, you get the cash, you send 80%, net 80% back to the nonprofit.

That's correct. Generally, they, they might not even know they've had a donation until, you know, either they check NAV or, or they get the check.

Oh, that's interesting.

They're organizing. I just signed a check to one here, you know, for last month's proceedings for $278,000. I don't think they even know that, you know, that's been that busy.

That's great. Hence why you're winning great BBB awards there. All right. So I mentioned this in your bio. I think this will be interesting for people. Like, you've gone through 6 Mergers and acquisitions within the nonprofit. And we definitely have clients who potentially consider stuff like this. First off, like what was the benefit for like you to do that? Why 6? Like why go through that as a nonprofit? Because it's a little atypical.

Well, a little, well, it's not as atypical as you think. You know, we were just talking about Shriners. You realize that, do you eat lettuce?

I eat lettuce.

Yeah. Yeah. Well, probably you're making contributions to Shriners and don't even know it. They operate the largest lettuce farms in the country. They provide more lettuce in this country than any other Okay, that's cool. So, you know, there are businesses that operate nonprofits or social enterprises, right? Or nonprofits operate for-profit businesses, again, as social enterprises to help fund them. So why would we buy one? Well, we're no different than any other business. I mean, I came here, you know, run a couple of fairly decent-sized public operations and, you know, various different businesses across Canada and the US and Asia. Our business isn't a lot different than, than, than any other. Just happens to be that our, our profits, you know, go to support, uh, transportation for seniors and, uh, and support our nonprofit, uh, social service agency here in San Diego, which is one of the largest in the country. Um, you know, we feed, we house, we advocate, we operate safe parking programs for people living in their cars at night. Uh, you know, 8, 8, 8 of those across, uh, you know, across the city. So why would we do it? Well, for example, um, We're in our vehicle donation business. We need regional auctions. So we have some communities where, you know, we get a lot of vehicles, way more than we do in other places. Sacramento, for example, Northern California is a very generous area. We run a large auction. We, you know, we bought that and sort of actually we start— that was a startup for us. But, you know, it falls into the category of an acquisition for me. And so it just helps us to add a little margin. You know, to the car donation if we're, if we're picking up those auction fees as well. And so we do have some auctions where 90, 95% of our transactions are vehicles that are donated to any one of our 10,000, 11,000 nonprofits. So there was also another program, a competitive program out there. Some of them, you know, have issues with integrity and we needed to clean up the industry. So, you know, we either chased them away or bought them out. And cleaned up the program, right? We got the bad operators away. I'm not saying that the people or any of the people that we bought were bad actors. I'm just saying one of the ways to, you know, to, to get them out is to pick, pick up the business units around them so that they, their business shrinks and therefore they either let it go or sell it for a nickel or—

Yeah, that makes sense. So like, for example, a towing service might be something worth acquiring.

Well, yes, in theory, but in practice, a towing service would be, they'd have to be extraordinary for me to buy a towing service. The reason I would say that is to me, owning a fleet of tow trucks across the country, that's kind of like owning a chain of restaurants. You got labor, you can't hire enough people. They drive those vehicles like they don't own them because they don't. And so on and so on. I'd rather have somebody else to put the pressure on, right? Yeah. Go pick up my vehicle. If you can't pick it up on time, service goes to somebody else. That's part of the equation that I want to outsource because I want to have more ability to manage it. Look, our business practices mirror those of a commercial operation because we, you know, other than the fact that all of our surplus, all of our proceeds go to support nonprofits, we're atypical in that our nonprofit earns its capital by raising capital for other nonprofits. So it just so happens that we have this atypical opportunity to do really well by doing good.

Yeah, but this is important to note for people though, like, You're using commercial principles, which is one of the reasons why your nonprofit's so successful. I've met other nonprofits and they don't approach it with the same principles. They somehow forgot that cash does keep the doors open, even if you are a nonprofit.

Yeah.

Some people don't realize hospitals are nonprofits and they're some of the most profitable organizations out there. Being a nonprofit doesn't mean you can't have proceeds. And you're kind of saying It's not only can't have, you need it if you really want to further your mission.

Yeah, because our profit isn't, well, we first off, we don't call it profit in nonprofit. We call it, you know, we call it surplus, right? It's everything that's left over after we've reinvested in our business, after we've, you know, paid our staff competitive wages because they have to live. You know, nonprofits are rarely at the top end of the pay scale because part of the reason people work for organizations like ours is that they have a passion for the work that we do. They see the impact it has on the community. And, you know, part of their sort of social obligation or part of who they are is to be of service. You know, we define these people as having a servant's heart. Some people are cynical about that sort of stuff, but it does take an unusual individual to say, I want to, you know, I'm committing to work in an organization that does good.

Yeah.

And, you know, we have very little turnover here. My senior staff's been with me for over 10 years.

Wow. And I would say the other principle for people to pull out of that— so my tow truck example is a bad example, but if you're in business and you have costs, like, just like you've done, you're trying to increase your margin to help further the mission of not only your nonprofit but the other nonprofits you support, right? If you're in a for-profit business, you can take the same approach and say, well, where are all my costs? How can I maybe acquire a company if I have a lot of expense in this area? Maybe I can acquire a company that does that for me as opposed to continuing to outsource it. I can increase my margins that way or pick up revenue on the back end because I own that other part of my operation.

Absolutely. One, you can reduce your own overhead. Well, you're gonna increase your overhead, but you're gonna increase your revenue as well. And as an adjunct, in addition to covering at a smaller cost and hopefully becoming more efficient because you'll integrate with the rest of your systems. You know, one of the values is if you've got extra capacity, you can sell that capacity and turn what was an overhead actually into a breakeven or even a profit center. Yeah, I love that. You know, that's, that's, you know, the sort of thing I like to do. I mean, I've been doing, I think during my career I've done over 20 M&As. One year we did 11 acquisitions in 13 months.

That was busy.

It was crazy. We had a couple going at a time, but, you know, we were building a public entity and, you know, there's, you know, there's only a couple of ways you can build an organization, right? Organically, which takes time, you know, or acquisition. And one of the real reasons for acquisitions isn't just the added revenue, not just the added technology if they've got something different than what you're doing, but it's to acquire talent.

Yeah, I purchased an accounting firm just to have their team members.

Yeah, exactly. Yeah.

And then one of the things we did, uh, because we've hired a lot of people, um, I mean, in the last 12 months we've had like 15,000 applicants, uh, instead of paying a recruiting company, we just created our own. Would they now have the service they offered other small businesses? Uh, same concept. You can maybe require it We were small enough with what we needed. We had the resources. We're like, why don't we turn this expense into a profit center?

Or an opportunity? Well, that's— but isn't that what you're, you know, part of what your job is as a chief executive or small business owner is to be innovative, to find better ways to do the things that you do for less money and create greater quality. Takes the pressure off and you've got time to think. You got time to create new products and opportunities that you wanna offer your customers or go building your business even on a broader base.

Yeah. Now on this next one, did you create this or was this partial acquisition? You started On The Go Rides. Tell me about that one.

I want to sort of clarify. There's 2 sort of interesting issues here. I did not start the CARS organization. It was started by JFS San Diego. I came in, the business had, you know, was about 17 years old, and it was operating just, you know, doing vehicles that were donated to NPR and a couple of other small, uh, organizations. It was, uh, we, we've grown it considerably, obviously. Um, I think they had about 45, 50 clients at the time, and they were all in public broadcast. One of the things, you know, the, the reason we're in the nonprofit business at all Is it was started in order to fund the On-the-Go program regionally, which was providing transportation for seniors to, you know, to and from and to help to, you know, facilitate dignified living as we get older and surrender our driver's licenses. But we wanted it to be safe and secure and to be, you know, involved with the community as opposed to, you know, when we started this, there were taxis, you know, rideshare was, you know, was just a dream. You know, hadn't been hadn't been created yet, and you know there's questions about the safety of rideshare. You know, here and there along the way, I think not so much for seniors. But so we we we started to add other cities other than our own to provide this category of transportation, and it you know it grew. It grew to the point where it was 300 cities and and ongoing. So we Uh, while we continue to fund the program, and again, that's the reason why we exist, um, we transitioned the operation of it back to the nonprofit so that they can deal with other nonprofits of their size, you know, sort of intuitively. And it's doing very, very well. Same staff, we just, and it's still in our building downstairs, one floor, a call center. Uh, but we also employ people all over the country, um, you know, domestically. To, uh, to deal with it. And why did we do it? Well, there's a need and it can be profitable. People need to transition these things. So we, we, we, uh, you know, we're granted programs by municipalities, by small hospitals, by a number, um, you know, even in Hawaii, uh, because, you know, you have senior populations everywhere and they need to be transported safely.

So is it like, is it an app they use or is it through Another organization they create, like that you created the relationship with where they can get the rides?

No, it's, uh, it's, it's an app, but it's also a call center. So depending on what they want to use, depending on the senior, depending on how comfortable they are using the current technology here in San Diego, we have vehicles, our own vehicles outside the county. Uh, you know, we do use a number of different rideshare programs. Some are commercial operators, uh, some are Uber, Lyft, and, and all the other various organizations depending on whether you need a vehicle for Uh, somebody that isn't ambulatory or, you know, that has, you know, one of those 14-ton electric, uh, you know, wheelchairs that, uh, you know, they have to drive up into the van.

Yeah.

Uh, but, but those, uh, those, those people are all sort of employed in dispatching and they do a very good job of it. Um, we wrote a lot of that software ourselves, or our teams did, uh, so we can communicate, for example, with an Uber or a Lyft right in the vehicle. We can talk right to the driver. Wow.

So if I understand what you said, CARS as a nonprofit existed to fund On The Go.

Well, well, CARS is an acronym for Charitable Adult Rides and Services, Inc. Yeah. The initial vision of this was to cover the cost of providing this transportation, these transportation systems. And today that's still its primary function. But yeah, we provide funding, you know, to, again, our purpose is to provide funding to our nonprofit, which is JFS San Diego, which is one of the largest, right? So. I'm sure that some of that funding not only covers the transportation, but does cover, you know, part of the food pantry program and the safe parking programs and part of the programs that provide diapers, you know, to new mothers that can't afford it and training for new mothers and the food pantry, which, you know, where we deliver food to people that are shut in and the Holocaust survivor program and, and, and, and, and, and.

Yeah, it's interesting. I think If you're a small business owner listening to this, many of you have something, some passion, some purpose you wanna support. And if you can make one vehicle of like your business, so not an actual car vehicle, but like your business as a vehicle profitable, that gives you a better chance to fund what you want to do.

You can also donate your assets. Construction companies, you know, will donate, you know, when the contract is finished and they've got surplus equipment. which they've been— which has already been paid for in the contract. You know, if they don't have a place to store the darn things, donate them. You know, we'll sell a D9 the same way we'll sell, you know, a Volkswagen Jetta.

Yeah.

Airplanes, business jets, helicopters, down to e-bikes. You know, it's crazy. Collectibles, car collectibles. I think the most we ever got for a vehicle was $300,000. It was a donated NASCAR. But we do a lot of collectibles, right? Muscle cars from the '70s. I think we've got a 1926 Dodge Brothers that just went not that long ago. And I know that we've got a, it's a Model T, but I forget the year of Ford. And it's all, and they, and they run, we make 'em run and they go to collectors. You can donate your old, you got a delivery van, donate it. You'll get, you know, you'll get some tax credit.

Yeah, this is all great. So we're getting to the end of our time here. Any like words of encouragement of how people can help support your nonprofit and then any words of wisdom to Small business owners?

Uh, yeah, well, um, the way you can contribute is, you know, you, you got an extra vehicle in the driveway, you know, kids gone off to university and the thing's going to sit there for 4 years and just rust, uh, donate it. You know, got surplus land, a second home, 4 kids all fighting over it, donate it. We'll get you a very hefty tax, uh, you know, credit for when you start cashing in those 401s and IRAs. And you can even keep a portion of it. We have a fella, 4 kids donated, you know, a cottage that they bought for $30,000 years ago. But, you know, over the 30 years, it got winterized and then it grew and then the city encroached and then all of a sudden they're on city water and oh my gosh, this thing's now worth $1.2 million. You know, we rapidly sold it in a couple of weeks for $800,000. He took $200,000. He divided it up $25,000 each to the kids and said, stop fighting over the house. This is all you're getting. It's gone. Have a nice day. And that's really because he wanted to keep his family intact. $600,000 went to the nonprofit. And of course, they're very happy. They don't, you know, think the guy takes $200,000 and have a nice day. So, you know, just about anything you have can be used to create a tax credit for you. In terms of, you know, what you do with your own product, if you're not familiar with DAFs, you know, talk to your tax attorney or talk to your tax accountant. you know, or talk to the guy right there on the screen, John Briggs, who'll tell you all about DAFs. You know, these are self-directed tax things. You can put money into this and not decide what to do with it for a while until you find a project that's worthy and it becomes a tax-deductible event for you to prevent, you know, giving all that money away. You're going to— the money's going to go one way or another. You might as well use it at least for some purpose that is appealing to you, you know, which is great. As, as for, you know, best advice I think I can ever give anybody: never give up. Never, ever, ever, ever, ever, ever, ever give up. As you think, so you become. It's that simple, you know. Have a clear vision. Make sure that you can articulate it to your staff and to your clients and to your suppliers, and make sure that everybody's on the same page. What is your objective? Making money is, you know, not a bad aspiration, but what are you trying to achieve culturally with your organization? You create a great culture, you'll have less turnover, more productivity, and a longer-term relationship with your clients. Culture beats talent any day of the week. From my perspective, it's worked.

Yeah, well, I love it, Howard. Thank you so much for being here, you guys. We'll have all the links for his organization so you can You can find ways to support him, uh, in the show notes. And remember, profit is a choice. Have the courage and wisdom to choose it.