#248 - Bulletproofing Your Dealership - BHPH Super Forum

Hey everybody, before we start the podcast this week, we got to make sure you are planning on getting your safeguards training. And Luke, good news.

Good news is good news. Announced by the federal government yesterday that they are delaying the implementation for six months. But let me tell you, this is something that you need to go ahead and get done. We, we actually set a, a requirement our dealership to have every, everything done before December 1st. It's time to go ahead and get it done. Don't delay. Hook up with Tiada. Get it done. It's dealer education portal dot com. Right, Jeff?

Yep, yep.

You know how much I love procrastination. So this time it paid off. But I'm going to get mine done anyways before the 9th of December and I'll wait till May 9th but get signed up. Great program through Tiada. And here's the episode.

You are listening to the independent dealer.

Podcast with hosts Luke Godwin and Jeff Watson.

All right, we're gonna get this thing started right on time because we have so much to cover in these sessions, guys. We're gonna have a lot of fun. You pick the right session if you want to be completely depressed and question your life decisions as to buy your pay, your deal. So I'm gonna straight up tell you this is the doom and gloom session. We're gonna have rain clouds in here because my goal is to scare the crap out of you guys. Scare you guys into knowing where the holes in your dealership are, where the bulletproof is not there, where you could get taken down. So who's been paying attention to the economy the last 48 hours? Anybody check their crypto investments? Anybody? Anybody paid attention to your Carvana stock? Anyone paid attention to your JD By Rider stores being closed? Okay, so who thinks that their buy here pay hair operation is going to get worse over the next 12 months? Anybody? You think delinquencies are going to go up, raise your hands. Nobody? 1, 2, 3, 4, 5, 6, 7, 8. Who thinks that they are going to be at this convention and be in business 12 months from now? Who thinks you're going to be in business 12 months from now? Who thinks you're not going to be in business 12 months from now? Who thinks the guy next to you is not going to be in business 12 months from now? Statistically proven, I think 1 out of 10 of us are going out of business in the next 24 months. So hopefully it's the guy next to you. What we're going to do today is we're going to talk about how to be health care guys. So we can't solve all your problems. We're not going to have solutions up here. We're not going to tell you how to not get stolen from. We're not going to tell you how not to get shut down. We don't have enough time to cover that. But what we are going to try to cover is all the ways that you could go out of business, all the ways that you could crash and burn, all the ways that you could get taken advantage of, stolen from and have your doors shut. So we're going to try to cover some of that stuff today or at least as much as we can. First off, I want to introduce the panel. These are great, great operators that have had some experience in these different areas that we're going to cover and they're going to share their expertise with us today. So as by way of quick introduction, I found the best photos of them I could. I'm going to have a minute each. Introduce themselves. Kendra, tell us where are you at real quickly, the size of your dealership? What's your business operation?

Sure. So, Kendra Brown, my husband and I, Charles, we have a just real quick.

Charles is very closely related to our President Biden. So that explains the sniffing picture. It's just genetic.

No. So we have a buy here, pay here lot, small operation in Houston, Texas, on the north side of town, off in North Shepherd. We've been in operation since 2013. I come from a background. I worked in the buy here pay industry in my dad's lot, which he ran for over 30 years. Passed it down to my brothers and then we decided to start our own. So I've worked in the industry. I've seen things just as an employee in a dealership. I hear pay here and then also as an owner myself, made a lot of decisions, bad and good along the way and I'm happy to share them with you today.

Awesome. Tony. Tony. Before Tony was a dealer, he was actually a hairstylist. So this is the picture of him when he was. He was trimming hair. But Tony, what do you do now?

Yeah, so hi everybody. Tony Caldwell. I'm a co founder, VP operations of U Drive Auto. We've got six locations. Four of them are in Texas, one's in Ohio and one's in Kentucky. I started my journey actually on the new car side. So I've seen both sides and I feel like that's given me a little edge as to what new car dealers do versus used car dealers. There's a lot of differences in compliance and Processes and things like that that have helped me excel. Now, obviously, I've made a shit ton of mistakes also. So my goal here is to tell you what I've went through and hope that that prepares you for what you guys might see, might go through. And I just want to help everybody, hopefully succeed.

Yep. Thank you. And this is. I grabbed this picture of Jonathan. It's him and his CFO looking over their delinquencies. Where are you at? What do you do?

My name is Jonathan Howdah. I'm in Fort Worth, Texas. We're a bit here pay your operation. Been in the by year Pay here since 2014 as an operator for the last three years. Focus 100% of the Hispanic market. And that picture actually represents what our year has been. So I'm in the perfect session. So I hope to share, you know.

Some of those fears with you.

That way you can avoid them.

The little ones just looking at their inheritance just like being destroyed. I mean, there's Gordy, so yeah, whatever. We skip right over that one. No, just kidding. Gordy, please.

Gordy Jermallen. Humble, lovable buyer, payer dealer from little town in Illinois called Freeport. We're small in scope. We sell 15amonth, give or take. Service about 200, about a $2 million portfolio right now. And you know, in that town, that's a good life and we enjoy it. Background Family's been in the car business since 1940. My dad was a Hudson dealer, a used car dealer, Chevrolet dealer. Managed a store for. For company. He and I went into partnership on a Chrysler store and ran that for 20 years. That's when I got in to buy here pay. And when the internal theft hit that I'm no doubt going to talk about later, I sold the franchise. He didn't want that icky little buy here pay her store. That thing makes exactly 70% more money than a franchise did. And so it's, it's a great life in. I serve out some boards, different things I can.

It makes a lot of money. It makes a lot of money. We're going to talk about that. I didn't introduce myself. I skipped the first one. My name is Jeff Watson. I have a small dealership in southern Utah. Buy here pay here for about 14 years. I also host a weekly podcast that me and another dealer buddy put on every week. So I am by no means an expert nor have any reason to be up here other than Janet was desperate for presenters and I said I'd do it. So luckily they're not paying me. So I don't know them anything. Small things have massive consequences. Guys, anybody around alive when the Challenger or the Columbia shuttle situation happened? Yeah. So you guys know the situation there, right? This is a picture of them leaving the atmosphere. And you can kind of see a little bit in this loop. A small piece of foam came off the fuselage. Piece of foam about the size of this desk, I think, 24 by 36. Something in that area came off during launch as they were going up into space, right? Nobody noticed it, Nobody saw it. A very, very small group of analysts thought something might be up. You know, they thought something might have gone on. And so they tried to sound the alarm. They tried to make people aware of, hey, you know, we think something happened during takeoff. But it didn't get anywhere, right? Nothing really came of it. Nobody ran it up the flagpole. Nobody said, hey, we need to stop this thing from moving forward. We got a real problem. This reentry thing is not going to go well when we have a heat shield that might be damaged. And sure enough, a small heat shield, size of a cell phone, something like that, was knocked off of that leaning left edge wing on this takeoff. So they're up in space doing their thing, and they're like, hey, let's get back into the atmosphere. It gets hot, right? It gets really hot. It gets intense. Things get crazy. Stuff's happening. We have that in our dealership. Cars are coming, sales are great. Volume's going fast. What happens when you get that pressure, when you get that heat? Little teeny weaknesses, little vulnerabilities become really bad. Six astronauts lost their life in a matter of a couple minutes. Re entering the atmosphere, right? First a little bit of shaking. First a little bit of drag. Something's up. Hey, guys, we see something on the sensor. Something's going on. And then obliteration. Tossed out in the atmosphere. Burned up, suffocated. Dead done. You know, and then the bankers come in, grab your inventory, take the option, sell it, liquidate your real estate. Your kids disown you. You live in a trailer down by the river. So we're going to try to stop that from happening today. Guys, everyone's sufficiently depressed at this point, right? You're like, why am I back here? Pay your dealer. Why am I doing this? That's what we want to do. As a side note, you're also coming to my final session. I have the closing remarks. I'm going to build you guys back up. So we're going to break you down here, question your things. The last one we're going to build you back up. So don't have one without the other. You're going to hate me.

Hey, everybody, real quick. Hope you're enjoying this podcast. We want to make sure you guys know it is tax time. Tax time is coming and our partners at Tax Max want to get you that money a little bit quicker than the guy down the street.

Yep.

Tax Max is the way to go. If you're not currently using a good tax provider to help you get things done. These are the people that do it. They understand the car business. They know what it takes to get deals done and to get some side notes paid and to get those payments caught up. Right, Jeff?

Yep.

Yep. So we're starting our fourth quarter program right now. We're sending mailers out to all of our customers saying, hey, file your tax return early. Use that deferred down to get into a car now and or get caught up on your car payment. You know, do some repairs, whatever it is. Everyone is struggling for money right now. A lot of people are upside down, negative equity. They need that extra down payment to do a trade in, to upgrade, get into something newer and nicer. So capture it way before tax time when they're going to have that money in their pocket and it's going to go to someone else. So get with the guys. Taxmax.com use the code that's on the screen or in the descriptions to get your discount. Tell them we sent you.

We're going to cover these three areas. I'm breaking it down to three basic areas of exposure that I feel can really put us out of business. So we're going to have our physical facilities, soft targets, and then our financials, which is what we want to spend most of our time on. But real quick, under physical facilities, guys, there are some areas of exposure in our physical facilities ranging from physical theft. Who here is getting stolen from right now as you sit in this room? Who is getting stolen from at their dealership right now? 1, 2, 3, 4, 5. You're getting stolen from. Right. And who thinks someone in the room is getting stolen from? We all think it's happening to the other guy. Oh, my guys are great. They wouldn't do that. Oh, I got controls. Oh, I checked the credit card statements. You're getting stolen from. Right. It's probably happening to some degree. 50 bucks. 500. 500,000. Based on your scale and operation lawsuits. How many people think the CFPB and the trialers want to put you out of business? Hooray. Yeah, right. Compliance, natural disasters, you Guys in Texas know all about that. Cyber attacks. I want to turn over to the panel. Tony, I'm going to put you on the spot first because I know you're a good guy and I can run faster. What lawsuits they put you under. Yeah, you have. You got an example?

I do. So we actually had this customer come in, he had an aide with him, and they purchased a vehicle. We didn't know that it was a setup. So we ended up, I think two months after we sold the vehicle, the. We get a letter in the mail saying that they're suing us. And we're like, what is going on? Like, why? It doesn't make any sense. And the guy's alleging that he was disabled, he's illiterate, and that's why his aide was with him to purchase the vehicle. And funny enough, an attorney picked up his case that specializes in targeting dealers. So after doing some research, I'm like, man, this is crazy. This had to have been a setup from the start. Like, the guy came in, bought a car, now we're getting sued, literally almost right after he bought it. And it resulted in us writing that customer a $15,000 check and giving him the car back for free. All because we didn't have consistency in documentation, closing of the contracts and things like that. So now, now we use secure close across all of our dealerships so that it's a consistent close. It's recorded video.

There's.

If this were to happen to me right now, I could just send that to them and be like, hey, I don't care if he's deaf or not. It was an avatar speaking to him. He can hear it.

He was explaining this.

And it's the same routine every single time, consistent all across the board. And that's just one instance there that I shared with you about. But it's. It's more than that. It's. It's about. Let's multiply that times. I mean, that's just one incident, right? Let's say that that were to go huge. I mean, we sell 400 cars a month. Let's say that that were to happen to 10% in that 15,000 instantly is upwards of 100, 200, $300,000 just from 1 simple mistake. So my advice to you is just educate yourselves, think about the little things and don't trust the consumer. I mean, we all want to believe that they're our friends and they're going to pay us and, you know, they are providing our. I mean, that's how we live right from Our customers, but they definitely do not have our best interest. So you have to make sure that you are protecting yourself from any liabilities while also serving the customer. So that's my.

Yeah. Anyone in the panel want to add to that?

You know, one of the things, when you close a contract, you take such a long time to try to close that customer on a deal. Then at the end of it, you're ready to go like this. So if you're not checking your secretaries the way they're closing the contract, or even you yourself going out there checking the customer's idea questions, or even have an after the sale process of calling and saying, this is when your payments are due. Do you understand this? You understand the other part? Then you're opening yourself, you know, for a situation like this. They don't care how small or big you are.

They're coming. Yeah. So what would have happened had Tony, this trial lawyer, had not been. Or this lawsuit attorney had not been satisfied with just one. What if he said, oh, wait a minute, you're saying Tony missed the signature on box A and box B of the retail installment contract? Times that by 100 deals a month. Times that by the last 10 years. I smell a class action, you know, I smell a lot of money and I see some deep pockets. You know what I'm saying? So we need to be looking at all of those. Those little areas of exposure in our compliance are our documents, rights. Are we continually auditing? Can we use a system like secure close to make sure that there's consistency guaranteed? Someone right now is having a deal close at their dealership, and that salesman is saying the wrong thing, Correct? Or the salesman saying, well, here's our finance price and here's our cash price. You know what I'm saying? I never taught you that. Where'd that come from? Natural disasters, guys. Remember, you talk to your insurance, talk to your open lot, talk to them about your flooring line. We all have more cars on our lot, a higher dollar amount than we did when we first wrote our policy. If you have a million dollars in cars and your coverage is 600,000. Oh, that's fine. What's the chance of all 100,000 getting wiped out? Only 600 gets wiped out. No, no, no. You're only 60% covered. It's not a dollar amount, it's a percentage. These kind of things, we need to know. I have a personal one on cyber attack. My old DMS in my dealership was housed on an internal server, right? Everyone just, like, cringe. And like you Kind of puckered a little bit. Like internal server. No, thank you. That's what we did back then. Luckily I'd switched over to a cloud based system. 12, 24 months later, I had a cyber attack, right? They somehow got into my little internal server where at the time we only had documents, shared documents, you know, word things. They ransomware, right? Locked it all up, gone, done not dealing with it. Had that been my actual DMS that I was internally hosting, wiped out, right? Completely. I would have been done for. I'd have no history. Who knows when I'd like to backed it up. So those types of things are out there. People are coming after us in our physical facilities. One thing I recommend, theft, right? Like take someone who doesn't know you. Take your friend, your neighbor, your cousin, that crazy buddy that you know from the bar. See if he can break into your dealership. Can he physically get in after hours? Pay him a thousand bucks. Hey, man, if you can get into my dealership without breaking a window or smashing something, you know, where are my exposures at? Because we become blind to them, right? We don't see them.

I did. That's critical. I don't know if you want to get into my little theft thing or not.

That's right.

Point in time.

How many of you do financials monthly and look at them, are they done by the 5th of the month so you can take action out. Can you read a balance sheet? I'm asking this because I lost $1.1 million that way when I was a Chrysler dealer. Went out over 20 month period. She moves money around and everything else. I thought I was paying attention, but.

Turned out I wasn't.

Really, really careful.

All right, everyone, pastime, great way to protect your assets on your lot and your assets on your balance sheet. We use it, Jeff uses it. And I tell you, Jeff, that's a way I sleep at night on those big units is to have two of those bad boys on there. I know not everybody thinks you should do that, but I'm telling you, it makes me sleep at night, buddy.

Yeah, it's so funny. I've recently had a 20 group and we talked about GPS systems and everyone was kind of talking about, you know, I don't use the ignition interrupt anymore. And I'm like, yeah, well you probably shouldn't be shutting off their ignition and leaving the car there. It's just, just, you're just asking for tampering. But with the wireless gps, there's no tampering. No one's ever going to find it. Like you would literally have to tear the thing down to pieces to figure out where that wireless GPS is at. And that's the beauty of it is just you don't, you don't worry about tampering and you don't worry about after hours installs. You know, like if my mechanics aren't here, my tech's not here to put a GPS in. Right. My, you know, anybody can do it.

Yeah. And as a retail dealer, it's just a really easy way to protect your asset if you put it the same place every time and you know that next thing you know, you come in and three or four your cars got stolen overnight, you can go recover them pretty quickly and it really will help on your insurance costs. And these, these devices aren't, aren't expensive and they actually have a deal for us, Jeff. So.

Yeah.

Yeah, Pastime user buy five, get one free. So take advantage of that. Give those guys a call.

So the guys, the second one, soft targets. So I want you to think about things like key employees. Do you have an employee that if they called you today and said, hey, I met this really great guy on the Internet, I'm moving to Tahiti today, we're getting married. Peace out. See you later. Does all your information go with them? You know, does all your processes and procedures go with that person? Or even worse. Yeah, you're a jerk. You wouldn't give me away. Raise. Guess what? I'm bouncing out of here. I'm starting my own dealership. Oh. And I took your database, your customers, everything with me because I never signed a DNR or a donut compete. So I'm going to bounce out and start a dealership down the street. Right. Your reputation not going to take you down today, but we know plenty of dealers down the street from us who had a horrible reputation and it was a slow bleed, but they went out of business over it. Right. Your culture and more so your mentality. Jonathan, talk to us about mentality, our mental.

Absolutely. You know, and that's why it's called a soft market. It's one of the things that you never think about. But I don't think any of us can sit here and say, hey, there wasn't a point that we should have been out of business. You know, and if you haven't gotten to the point, then maybe you need to be up here telling us, you know, the secret to that. But the thing is, is you, you're the dealership. You know, if anything happens to you, then probably everything goes down the drain. Right? So Your mental health is one of the things that you have to take care of situation for us. You know, back in May, this was very recent May, you know, still dealing with some of those things. You know, you. You have. You have to have a lot of dogging you, because there's days that you're going to say, we're just going to close. I just got to tell people, I cannot cover payroll. Or you go through the point where you don't sleep, you know, and also, it takes a lot of faith. You know, you have to have a lot of faith in something bigger than what it is, whatever your association affiliation is, you know, you have to have a lot of faith. So he got us through a lot of the issues that we have. And another thing, you know, we as dealers, first thing we do, we end up eating well. Right. First worry that we have is, man, I'm having a heart attack and I'm going to die. You know, when stress hits. So, guys, make sure. Or ladies, and make sure you take care of your mental and your physical health, because you're going to need a lot of strength to get through some of the issues that your dealership is going to go through. And it's going to take a lot of faith, you know, that everything is going to work out. If you make the right decisions, you put your faith in the right. In the right process.

Yeah. I mean, going through Covid, how many people thought, like, I could probably cash out right now and be done, you know, I could probably be done. You know, we know a lot of dealers, even in the Facebook community that were like, I just don't want to pay that price for inventory. I just. I just. I just can't. I just can't pay that. I'm shutting down. Okay. You know, if you can't. If you can't mentally adjust your model to realize you're not buying a $3,000 car anymore, you know, it's not there. That's not possible. You're not going to be able to mark up two times plus a thousand. That's just not there. It's not. It's not happening anymore. You mentally adjust. You know, instead of throwing in the towel, you're mentally strong enough. Kendra, I'm going to put you on the spot because you mentioned something in your introduction that you guys went through an ownership transition or a phase in your dealership. How does that mentally play into saying, this is a long road to, oh, do I really want to hitch myself back to this wagon?

Yes. So we. Yeah, it was an interesting situation because my brother took the legacy dealership. So he had the customer base and then we were kind of starting from scratch. But I had the compliance background so I felt very confident with it. But I didn't have the accounting and the financial understanding of the business. But I think mental wise, I think it is very important. And I think we still, even now, especially in the past few years, have allowed our own stress to leak through and we've, we've lost a great salesman who was with us for years because of it. And now we're kind trying to, you know, get back on track with that. But in terms of going from working in a dealership, a family dealership, where things were already set up and moving and then getting it going ourselves, we, we had a lot of learning to do and a lot of credibility to build with lenders and floor plan providers. That, that was, that was very, very challenging to navigate that alone. And I kind of wish we had gotten into an association. I'm not trying to sell an, right now or anything like that. You're all here, you already sold. But I think that that's, we waited, it took us five years before we finally started to reach out and try to tap into a knowledge base.

Yeah, so, so I had a similar situation last year at this time and I had a brother in law who was a business partner that I brought in. We've gotten to an impasse and I said, you or me, one of us have got to be out of here because we can't both be here. This just isn't working anymore. And we had built up some substantial real estate rentals and a management company at the time. And I just said, hey, I'm going to divide these into two buckets. One's the car lot, one's the real estate. Pick one, pick one. And we're going to divide this. I'm fine with either. So I had to get to the mental state of like, I might not be a car dealer anymore. You know, my identity as a car dealer could be gone. I might be a, you know, a student housing person. And I had to mentally get there so that I was okay with either bucket going either directions. And when he picked the real estate, which I kind of knew he was the whole time, now I'm like, oh, okay, now I own this dealership 100%. All my eggs are in one basket. This thing better freaking survive, right? That's one way to light a fire and get excited about what you're doing when you really are out on your own. And it is all 100% you. But that was a mentality shift that I had to have. And I want to touch on this one more thing. Reputation and culture is so crucial to our dealership. Right. And our mental health. Who enjoys going to work? You guys enjoy what you do. OK, good. I'm going to plug my final session, the 300 interview thing. We're going to build you up then. We are the scrappiest of scrappy entrepreneurs, guy. We are it. Right? We are it. So love what you do. I always joke in an interview, hey, we spend more time with each other than we do our own family.

So true.

Right? We spend more time with our employees and co our people in our dealership than we do with our own spouses. We've got to enjoy them. We've got to enjoy going to work. We've got to enjoy what we do. And we've got to see that what we do is nobody else does. What you give those guys a loan, you charge them 24.9% interest. Yeah. You want to refinance them? I'll send them to you. You're going to charge him less. Let me send you over there. You know, no one wants to do it. They don't want to do it. We do it. So just remember that.

Hey, everybody. Buckeye Dealership Consulting. Great sponsor of the podcast. They have been for months and months and months. Great guys. Obviously we all tell you every single week to get your reinsurance program going. One thing that really dawned on me was my CPI game is horrible. I am not good at getting my guys to sign my customers up for my CPI program. If you don't know what that is, go back and listen to some of the other episodes on reinsurance. But cpi, it's basically, I mean, it's, it's money that my customers are giving to other businesses that they should be giving to me.

And that's what I mean, that's what reinsurance is, is you're taking back the money you're giving to everyone else, Jeff, and it's doing it in a tax deferred way. Cpi, I tell you, I was a naysayer for years, Jeff, and I think I shared some information with you via text about how much money I think I left on the table. It's millions of dollars, people. And so I would hate for you to leave millions of dollars on the table because you're not using a reinsurance company. Buckeye is the place to go. And Jeff, we also got the, the big DPG event coming up in January. So yeah, Come on, let's do it.

Yeah.

Get talk to the guys at Buckeye, check out their website, click the link in the show notes and get signed.

Up and we'll see you in Florida with a couple minutes we have left. Guys, I want to get into financials. This is the biggest thing, right? We could get stolen from. We can get sued. Very rarely do we just get knocked out of existence by a hailstorm or a cyber attack. We can recover. We're scrappy. We have an employee leave. We'll figure it out, right? We have. We get down for a while, we go buy another yacht, take a vacation to the Caribbean. We come back, we're rejuvenated. If you lose your financial footing, there ain't nothing that can help you, right? That is not mental. That is very hard to recover from when you start losing your financials. Borde, will you get a little bit more into what you talked about and how that happened?

A lot of it. Jeff loops back into some of the other things we've talked about. By the way, you're being a real Debbie down here.

I just want.

I said I would be. I told you when you came in.

So let's go back to 2000, okay? And I'm a Chrysler dealer. I awarded the Time magazine quality of the year. I'm all just rocking. Everything's Great. We got 72 employees in three locations and we're doing everything right. Dad had a heart attack. I got an educational thing for the city that I'm working on. And I got 65 teams doing things. I just wasn't paying attention, as I should have. That's on me. So bank comes to me December 23rd. Great time to have a chat with your banker. Laid a demand letter, a 30 day demand letter on my desk for $763,000. And by the way, when you tally what's coming up, it's 1.1 and I'm a God guy. We're talking about mentality, okay? That'll let that go so that we can celebrate Christmas as a family. And as I did that, there was something in my personality that said, you know what? I got skills, faith and family. You could have the rest. That got me through this. But day in and day out, for darn near two years, I fought these people. I caught them trying to sell the franchise without permission. I used that against them. They got every nickel. When I finally got clear of the doggone thing, the guy didn't want my buy her pay here. So we came back and now it's a one man operation. There's not 72 of us. There's me, I'm running collection calls. My dad's answering the phone while I'm gone. And we built it back up and it was fun. But what I got out of that we isolated later on after the office manager was gone. We found cash reports where things were missing. Isolated to a 20 month period of time that she had taken this money out and it had gone out in a number of really, really gray areas. Receipt board with white out on it. Lunch for all the girls in the office. She had a relative that bought a car. We could never find where the money actually came in. Just a whole myriad of things. Hired a private investigator. Her husband was a on the road trucker. Bought a truck with no lien on it. Semi, okay. Had a heart attack in Monroe, Michigan. We flew her there. There's no lien on the medical bill she paid. She got a check for 40 grand. She'll probably know something up there. Used to like to go to a bar in her hometown of 1200 people and she'd buy drinks for everybody. The signs were there, but I wasn't paying attention as we rebuilt the operation. As a buyer payer, I kept my knowledge with regard to factory statements. And one thing franchise guys do, they do a pretty solid financial statement. And I would advise you, please, if you don't get anything else out of this, whether it's QuickBooks or you find a factory DMS or whatever, make sure that you learn enough to be able to read a balance sheet and check it out every doggone day of the week, pull an account. Okay, I want to know what's going on with cash or I want to know what's going on with service receivables, whatever, and take that entire account. If you can't get a spread on everything that's occurred in the last 30 days in that account, something's wrong. So you need to watch that stuff, the flip side and the horror story. And I would. I've run into a lot of dealers. They know I've been through this stuff and. Oh, you're pretty good at accounting. You want to come take a look at my books?

And I.

A lot of them really had some issues, but one really dear friend in particular, he's got a buyer payer store, he's twice my size, but he just wasn't sure and he can't read financials. One practice, just one practice having the wrong cpa. Okay, this guy is coming back from the auction, buying parts at carquest. Comes back to the store, okay, they take those parts and they hang them on a car. Where should that bill go? It should be hung on the stock card for the car, right? But no, CBA had him taking those parts and putting them on a personal account like he owed the store. So when he wrote that off, guess who had. It was 100 grand. Guess who had to pay personal income taxes. 100 grand. And guess how much profit was overstated and had taxes paid on it for all those cars that had those parts because the cost was artificially low. That's a simple thing. But he had a CPA that didn't do any taxes since he was 18 years old. And he trusted that guy. Get an automotive cpa. Ask your friends at this convention. Talk to the guys in your 20 group. Get someone who understands automotive accounting and can help school you on that if you're not certain of yourself. And track every nickel in my store. Now, the statement is done by noon on the 1st. That includes every single receivable account down to the penny, which I think is probably a regulatory issue, too, because I can assure a customer that, no, this computer and that one both say you owe me $4,278.37. It's just a security thing. I would strongly advise you to do that. Get the education. Make sure that you know exactly where you're at. You can weather these things. You can find lines of credit. You could do a lot of things if you're on that, like, smell on trash. Without it, you're in trouble.

It's so hard. Guys, as car dealers, we know the ins and outs of vehicles, right? We can tell if this car was manufactured in the Alabama plant or if it was manufactured in New York just based on the color of the bumper and the fade in the headlights, right? We know those things. Unfortunately, we got to be financial guys, too, right? We've got to know enough to know when the guy who's supposed to be the expert is telling us we're good, that we ain't good. Right? Or know enough to ask the questions so that we can find out if we really are good. Right? So P and L balance sheet statement of cash flows, Right? I mean, Ken Shilson said it in their earlier session, cash is all that matters, right? We can funny duddy, you know, selling our notes into our RFC and discounts. And this, that, or the other cash collection is really what matters. Kendra, you have an experience with an rfc, right?

Correct. So, and this is the part where when we entered the business, we had a huge knowledge gap on the financial side. So we started off saying, well, hey, I'll do the bookkeeping. I'll find the accountant so that I can figure it out. And knowing your numbers is the most important part of your business, Right? So we started off doing that. We started with, you know, an accountant who was not a cpa, much less anybody who really knew anything about automotive. So we quickly tried to find an actual cpa. We went through a CPA every year until, I think our second year, or no, we had the same CPA for two years until we got a call on April 15, and you owe $30,000 today. It's like, really? I did not see that coming. We had no liability planning, and thankfully, it was early on. We had cash, we paid it, got it off, you know, is done. And then I was like, okay, it's time to find a new cpa. So we went, you know, shopping around to try to find somebody, and everyone kept telling us, well, you're doing your accounting wrong. You need to switch to approval. I was like, well, if I do it that way, then I know a lot more money if I switch to, you know, accounting for all of my revenue up front rather than what I actually take in. So then I just kept reading and learning. I read all of the accountants, like, I think SGC had some articles. And I read up and I call them and ask them questions. I call the free accounting people at the association and get as much information as I could until I finally landed with a CPA company who, you know, supposedly specialized in my industry and setting up RFCs. And so I was like, okay. And they laid it out for me, and they gave me the initial sell of all your receivables. Okay, so you've been in business for three years, which at that time, not being on the accrual basis, was allowed because you have three years to evaluate if you have to move over to an rfc. Well, we did. So we were compliant. We were compliant. We're going to make our rfc. We went through the whole thing. There was really. The tax liability was nothing to make the switch. And I knew what I. What they told you is, okay, so whatever you did those previous three years that you didn't account for that are in your receivables, you're gonna. Oh, we're gonna tack those on to your personal income for the next four years. So even if I show. If I lose money and I show a loss, they're gonna tack on the extra. It was a million dollars at that time, so I was gonna add on an additional $250,000 for the next four years. Well, the first year was fine. The second year was okay. I think it was like the third year. No, it was the second year where now we owe $75,000. And it was like, what? And we had the cash. Like, we could pay it off within the time frame. And our big mistake there was not getting better advice on how to. Different ways we could parse out that $75,000 over time. And so that cash is king. Don't let your cash, cash go. We did. We paid it all in a year. We paid, but then we had no more cash. So it was. Yeah, we still had two more years attacking on the additional $250,000. And so. But, I mean, we made it through. We're still here. That was. I think we're out of it now. We're in our second year of being past that. So we're in a rebuilding phase. Like, how are we going to capitalize things? Where are we going now? Because we've never really had to use. We've never had to leverage our portfolio. We've always just had a simple floor plan and a simple line of credit unsecured, and we've been just fine with that. So. So word to the wise.

Yeah.

So two things there, guys. Who's been surprised on April 15? Anybody. Your accountants, like, slides the paper over and you're like, no, no, no, no, no. Take that back. That can't be right. I didn't make that. Look at my bank account. The money's not there. How can I owe that when the money is not in the bank account? What's in your receivables, what's in your inventory? And it's like, well, I can't. I can't do anything about that. Like, you know, so be prepared, plan ahead, have an accountant that's going to have that conversation with you in Q3. Here's your. Here's your tax burden, bro, if you keep on this trajectory. Are you ready for that? Well, of course I'm not ready for it. It's tax time. All my money's in cars out back waiting to get into the shop. My shop's backed up like crazy. Right. I don't have it. Don't be ready for that. The other thing you said was having the availability to tap into something. Does anyone have financial statements that they could say, oh, yeah, hey, I'm good. I'm going to shoot those right over to you, Mr. Lender. You know, you know, right now, take a look at it. You Guys all have lines of credit right now, everyone that raised their hand, right? You got tight books, those of us that don't have lines of credit that might need one. Is our stuff tight enough, right, or are we running our dealership in a situation where it's like, well, yeah, I've got all my kids and my aunt, my uncle are all on payroll, and I fund my reinsurance company to the nth degree, and I'm trying not to show any profit at the end of the year. And then it comes back to bite you when you need to try to explain to that lender why you're not making any money. Right, Jason?

Absolutely. You know, I wanted to touch base on the. On the overhead if I could. You know, there's a lot of your cash is not only tied up in inventory and things like that, but it can be in the overhead. I mean, it's nice to have somebody to get the paper to give it to the other guy, and the other guy staples it, right? It's nice not to have to get involved as an owner, as an operator. But the truth of the matter, it goes back. You're the dealer, right? You'll get to that point. And, you know, we learned this. We had 15 employees, and right now we're down to five. We have lost. We have lost any sales. We haven't lost any traffic. We honed in on what we were good at and what we were not good at, that we moved on. The typical thing is, you know, I.

Don'T want to fire somebody. I don't want to pay.

It's going to be a lot cheaper. Trust me. If you let go of that employee pay, the unemployment, if you have to, than to hold on to somebody that's complacent, somebody that's not doing their job. And it could be just the little things. Look at your vendors. Look at a lot of different things, because right now is the time, you know, to look at those, because you have money coming out the back pocket quickly. I mean, it'll. It'll fly real quick. Make sure you're the final signature on that paycheck or on that. Any check that you write. I mean, there's just a lot of different things that you can do.

But.

But money goes like this, guys.

You have to look at that every.

Dog on months, too.

You know, when Covid hit, we still had a little bit of a line of credit. We've paid it off now on capitalization for our I buy a portfolio. But I called up everybody that I would money to say hey, you know, these are going to be tough times. I think somebody needs to take a haircut here. You know, three out of four of them bid and I knocked rates down from seven and a half to five and different things like that. They're selling money. They just want to get their return. They're more than happy to sell it for a little bit less, long as they know they're going to get it. Your business structure again, knowing your financials, right? We take a look at our income and our expenses. Less bad debt write off. All right, so I've got, I've got a departmental gross profit coming out of service and parts and I've got the interest income. I combine those two against my, my uncovered overhead and I've got a one car break even. It's because I structured it that way. So I sell one car, I'm gonna make money. Okay. If I sell 15 cars now, I've got room to take a loss if I have to put that thing back in inventory and turn it. But you structure for that. You can't let that thing get out of hand.

Something to kind of tap onto that too is how many of you guys actually know what your daily operating cost is now. I do. So I mean, without that, how do you know if you show? I mean really, like, how can you plan, hey, should I open on this holiday? Even though historically I haven't sold any cars, if you don't know the answers to those questions, you can't, you can't make a decision. So you're kind of just flying by.

Kind of, exactly.

Yeah. Or even knowing your profit load per deal, how many cars you have to sell, you know how much you have.

To make on that car in order.

To cover your, your operating expense. I mean, simple things are extremely, extremely important.

And as buy here pay here dealers, we have this funny little cure, all right, we have this funny little fix it switch called cash flow, right? It's called payments coming in, right, Covid. All those silly, all those silly retail dealers shut their doors because they weren't moving any cars. And we were just stayed wide open. We kept taking those payments. We knew things were fine because we had that cash flow coming in from our buy here pay your operations, right? That can, that can hide issues, you know. And next thing you know, you're like, oh, I've been eating away at my portfolio this whole time. You know, I've been fine. But that's only because I haven't been originating new loans. And I've been using that return principle to pay for my overhead expenses. Because we've all been sitting here fat and happy, right? Payrolls up. Way more in payroll right now than I was a year ago, two years ago, right?

Way more.

Those things can hurt you. Flooring lines, guys with flooring lines, curtailments coming. I can be honest. I don't understand how flooring lines work. I think there's a thing that you owe more than what the car's worth. The flooring line comes to you and says, get that thing back down. You know, get that back down to what that car's worth. Interest rate creeps up. So you're gonna hit me with a higher interest rate. Then you're gonna hit me with a curtailment on my inventory. Now what happens, right? How do I make that curtailment payment? Lines of credit, right? Oh, now I'm out of Covenant, right? Because I was eating away at my receivables to keep the doors open during some soft times, right? Because I didn't understand what my daily carrying cost was. What's my fixed expense? Every day or every month, just have the lights on. Forget. If I. If I empty the place and I lock the doors, right? I still have my payment on my real estate, my rent, my mortgage, my, you know, insurance on the land. I still have some of those carrying costs. Fixed expenses are going to be there regardless. And then I've got all my variables. If I want to have the lights on and I want to sell cars and pay my employees.

One thing you got to understand, lines of credits, they're not cash flow, you know, you got to pay that back. Oh, I'll just pull a little bit more, you know, on this car. I'll load it a little bit more on this one. And you can do that. Use it for what it is, you know, make sure that you know what the covenant is, because it'll stop like this, you know, and if it stops like that and you're living on that, then, you know, goodbye, you go. So, yeah, be careful with that. I think another thing to point out, too, is if you're. If you just got a line of credit, it's really important to be super strict with that because you can think, oh, yeah, these guys just gave me 1, 2, 3 million dollars. I'm rich. That goes away real fast, and they still want the money back. So you need to really pay attention and buckle down, because if you come out of Covenant, like he said, they're gonna just come take your entire dealership.

Do not get comfortable having that money.

No.

Yeah.

Guess what?

They Have a UCC one on the whole thing, not just on the couple that they're out. They're not just like, oh, we're just gonna take a little bit of that paper from you to get us back in line. No, no, no, they're gonna take the whole sucker, liquidate it, make themselves whole, and then you get the scraps. Right? I had that experience in 2008. You know, my portfolio was secured by real estate. You know what happened to real estate, right. In my area went from $100,000 an acre down to like $20,000 an acre, right? So when that thing takes an 80% dive, guess what? My line of credit gets hit by 80%. At the same time, the bank goes under. Probably not new to me because I was a little fish. So then the bank ends up in receivership with the fdic. Good luck getting holding anyone at the FDIC to try to buy out your loan, right? Or try to make some sort of a deal. So you sit there, you wait, they sell the land out from underneath you, they come to you with a deficiency of what you still owe and you cut a deal with the government. And now what? Yeah, I made it through and I still have, you know, I don't have the land, which is now back to $150,000 an acre, which would have been great to hold on to that, but, you know, I didn't have any other options. I didn't plan ahead. I didn't even think that I should have a relationship with another bank, right? That I could go over there and be like, hey, Mr. Bank, you know, we, you know, we have a good relationship. You like me. Can I move my line of credit over to you, you know, or can I open one up or what can I do to get this relationship going, to get some cash flow happening? Yeah, sorry.

That's one of the things we're doing right now. We just started with a reinsurance company. This is our first year to do cpi. And so we're going to start a new relationship with a bank who's really dealer friendly right now by putting all of our reinsurance over there and have separate banks. So thinking about, you know, when you put your money somewhere, just think about banks that are, you know, they might be potential relationships for you to have.

Yep.

Yeah. So real quick, just want to. So this is the last thing I'll say about that is you got to make sure that you vet your bank banks because they're for sure vetting you. Like, that's like the ones. It's not always the ones that just want to hurry up and give you the money and charge you the most money for that money. You got to understand that they're only worried about themselves. You got to find a real partner that's going to help you grow and want to grow with you. So vet your banks as well.

Exactly.

And they're.

They're security freaks.

When I walk in the extra hall, they all say they want to be my partner. Jonathan, you had a partner?

Oh, absolutely.

Talk to him about that later. I'm so glad that this slide paid off. Sorry, Gordy, you talked too much. No time for questions. Guys, two seconds left. They got the red light. This is when Janet pulls the plug out of the wall and kicks me off the stage. Just be aware, we've tried to cover as many bases as possible. I hope you guys took notes of all the things. You're going to go back to your dealership and look into and insert, and you're going to talk to other dealers. You're going to talk to these guys. You're going to talk to the expo hall. You're going to find solutions for the holes. You're going to find reasons why the phone is coming off your fuselage, hitting the wing of your plane. You don't even know it until you get stress tested. And then power, the whole thing blows up. You're dead. You're out on the street. You're living in a trailer your wife left you and your kids will call you back. We don't want that. I know I've been doom and gloom, guys, again. Come to my final session. We're going to build you back up. But thank you so much for being here.

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