#353 - At Least I Won't Owe Taxes

This is the Independent Dealer Podcast, Education by Dealers for Dealers. Now here are your hosts, Luke Godwin and Jeff Watson. Hello and welcome to the Independent Dealer Podcast, brought to you by Buckeye Dealership Consulting. Luke, the end of the year is coming near, my friend. The end of the year. One thing that just really gives me a lot of anxiety at the end of the year is income tax burden.

Yeah, income tax man, I tell you, I think I pay. I pay more in income taxes than I pay myself. Well, I don't think that I know that. And so it has been. It's always a burden. And you know what? I, I look at it quarter to quarter because it's such a burden. So today we're actually going to talk about how can we get ahead of that. And we have two people here that really know their stuff, JP and Chad. Guys, welcome back to the show. I think it's your third time on. And let's talk about fractional CFOs and, and taxes and all that good stuff. Thanks for having us back.

That's awesome. I question your judgment, having us back a third time, but it's a lot of episodes.

You were so bad the first two. They always say third time's a charm.

So there you go. Nice, Nice.

You know, it's funny because I look at this and I. And it's the worst time of the year for us, at least for me, from a cash flow standpoint. Right. Because I'm trying to stock inventory. You know, you're paying, you're paying, you know, end of year bonuses to people and then you've got your income, you know, tax burden that's coming due and a million other things. You're trying to, you know, stuff as much as you can into your reinsurance company. So from a cash flow standpoint, it's just a really, really, really difficult time of year. But, but before we get into some of those strategies and what you guys would give us recommendations on, give us the pulse. I just want to know you guys talk to a lot of retail and buy here pay here dealers specifically. What. What's the vibe? Can any of you guys speak to, like, is everyone doom and gloom like me or are there actually retail and buy her pay here dealers making money in 2024.

I'll start if that's all right. I think that you are in the majority, Jeff, and the minority is the other side. Looks like Luke that are pumping their fists and packing the wallet. No, but you know, in all seriousness, I think that we went into 24 with some optimism. A little bit of optimism that, you know, some of the things we saw in 23, that increased charge off from that fake stimming money as well as, you know, sales volume were going to kind of come back. And you know, it's been slow. Everybody can get volume right, but good volume, right, has been slow to come back. And so you kind of, you couple that with, you know, we were bracketing the, the pandemic, that three year kind of bracket with 20, inflation.

Right.

And so that all hit our bottom line. Our, our people, our overhead, things of that nature. You know, we've had trouble with cost containment. I think really in 2024 is when, is when folks started to react to that and, and get a little more lean and scrappy, you know, all the while, you know, one more thing, triple, quadruple whammy is, is the cost of capital that we've really only got a little bit of break lately on. You know, starting in September, the feds gave us a little bit of relief. So maybe my summary is if, you know, for instance, you made $2 million in, in 2022, you know, that was chopped in more than half in, in 23. You know, that same dealer may have made five or 600 grand in 23 and possibly a little bit of upside experience from that number in 24. That's been kind of my take.

I think the dealers who didn't pivot and waited till 24 to pivot from a cost perspective or finally trying to hone in on what's working and what's not, I think may have missed the boat a little bit. And I think really, I mean, for going into 25, I think we're going to see a lot of the same that we've experienced here for 24 is what I'm going to guess. But I think dealers need to really take the time now to, to, to look at their expenses. What else can they cut? Take some of that modeling that they did for 23 or now for 24 and really, you know, take a deep dive into it for 25 and make sure that they're taking into account, yes, interest rates are, are improving a little bit, but every other cost feels like it continues to go up and that's not getting any better. And Jeff, you mentioned about bonuses and you know, every year we think we talk about bonuses. Is that bonus the same? Does it, does it warrant the same as last year versus this year? I think our employees and people get used to that stuff. But, and we, we almost feel like we have to, even if the company didn't perform. But maybe there is a time where everyone has to share in the hurt. And I hate to say that, but I think it's easier. It's easier said than done. Well, yeah, and everything else. But sometimes, you know, having a company survive versus giving out the bonus and then it crumble come May, that's just a hard decision, but one that might need to be made.

That's so true. And I, most people that listens, know, know that I went away from a bonus structure for that very reason years ago. For one, people expect it and you can't get out of expecting it. And try giving them when their bonus last year was, let's say, two grand. Try giving them a thousand this year and see what happens. It will totally wreck you. Two things, two other things that you brought up that are super important. Forecasting. Jeff. We talk about this every year, Tom, around this time. You need to be forecasting next year. It's so important. It's so important to know where you're going to be, what you need to do where, where you can expect to be at the end of the year. Second is expense cutting. I walked into 20 Group in December or January, January of this year. My expenses were so out of whack. And one of the reasons we've had a good year, I came back and immediately cut almost $200,000 in an overhead like within 30 days. And if you don't think that made a difference to the bottom line, it made a huge difference to the bottom line.

Aside from your, aside from your auction houses and, you know, banks, take the top 20 vendors that you do business with and sit around with your management team and, and deep dive into, you know, how much you're spending, why you're spending it. Is there another vendor that can do the same thing for us for. Even if it's 5 or 10% cheaper? Right. It may, it may be worth the headache. But if you do that over the top 20 or 30 vendors that you do business with from during the year and go through that process, you're going to find savings and a way to.

Cut cost, just not your fractional cfo.

Darn skippy.

So let me push back on that a little bit. So, Luke, where did you find $200,000 in savings in 30 days?

The biggest cut initially was two staff members, maybe three staff members. Two or three staff members that we just got bloated. And I think that happened from 21. Well, let me rephrase it. It happened in 22 because. Or maybe early 23, because employees were so hard to hire. Then all of a sudden, sudden you could hire and you started hiring people. Right. And so a majority of that was. Was employees. That was the original cut, right? Yeah, three employees. And then it was like two or three vendors that we just weren't using, and. And they were a couple grand a month. And so that's where it came from pretty quickly.

Yeah. I mean, I would say when I look at the biggest expenses, for me that move the dial and I think for all dealers is obviously an employee. So are you right sized? That's really, really hard to judge sometimes because employees do a great job of filling the eight hours and looking busy for the most part. And you worry like, okay, if I cut this guy and I redistribute those responsibilities, are they even going to get done? Or now are we just going to be neglected? Everyone's going to be running around like a chicken with their head cut off. They're going to be stressed out of their minds and they're going to quit. Right. So I struggle with that a lot. I think I've got way too many employees for the amount of cars I sell and the size of my portfolio. But I also like to think, like, hey, if you need a day off, there's coverage. You know, hey, if you need to leave, you know, we're not going to fall apart. If one guy decides to call in sick. Because I'm at the size where I don't have multiple layers, right. I have one layer of employees. There is no redundancy in my organization. It's very hard for someone to step in and pick that up. If a collector's out sick, she is the collector. Like, there is no backup collector. So I know I'm kind of stuck in that no man's land. The other spot would be the. I like vendors. I get it. If I cut $500 or $1,000 because I drop a vendor, that maybe I don't think I utilize that much. Eh, I'm gonna save some money now. If I tighten my belt a little bit in the recon facility, like, I'm gonna pick up 500 every single day in my recon. Right. So I look at that and I think, wow, that's probably a place where if. And I don't want to say I'm dropping the standard of my reconditioning because I don't know that I can go much lower. But. But that's an area where I really think efficiencies can be picked up. So what I'm Saying with all of this, guys, is the old phrase of, you know, don't step over dollars to pick up pennies. You know, we look at some of these and we're like, ah, this is so great. I feel so great about cutting this guy out and that guy out. And you're like, well, now you just tied your employees hands and he actually did use that tool and he was saving you $3,000 a month by having that 500 software subscription.

Well, and that's where it's important to get your management team sitting on the table to discuss those and not just make the decision yourself.

Yeah.

But if you, if you have figured out that everyone on your team is valuable, they, they add value.

I never said that.

And, and they're paid correctly, then something and, and you're not profitable, then something else with the model isn't.

Right.

A deal structure, maybe the collection on the back end. I'm not saying you specifically, but if you've gone through all those exercises, you're still not satisfied with, you know, getting an A minus or an A on the test, then. Then there's something else wrong with the, with the structure of the business.

No, I definitely think so.

We do come across dealers though, who ramped up during that 21, 22 time frame.

Yep.

With employees and everyone's good. And we're just riding along and nothing changed from 23 and now 24. And we've gone from a thousand accounts back down to 600. And we're carrying the same staff. You know, there's probably a time to evaluate, you know, employees or the number of people you have in those kind of scenarios. And we, we quickly don't let people go as our portfolio deteriorates. Well, it's easier to add. We quickly add as we grow. Well, they usually don't fall off as fast.

Yeah, yeah, that's for sure. And I'm in the process of kind of looking at how to, to strategically dial things down. And that is an interesting thing. And I've, I've poured over expenses like crazy in the last two weeks and it's, it's interesting.

Yeah. What I worry about sometimes is when I have a. Employees who are maybe overburdened and then they're just going to take the path of least resistance. Right. So if my shop manager is, is, is working, is overburdened now, he's just going to the same parts warehouse because he doesn't have the quote unquote, time to shop around for the best price. Right. If my collector is overworked now she doesn't really have the time or the energy to really save that repo or work that deal that, that account the way it was supposed to be worked because she's just trying to get through her queue as quick as possible right before the end of the day. So there's a lot of that stuff that I struggle with. Like, well, if, if I brought on one more employee as a customer service, you know, intervention manager, it's going to cost me three grand a month. And the old adage is, well, what if they save you one repo a month? They pay for themselves. Right. So we look at those expenses, but sometimes we don't tie them to maybe a non cash expense, like a balance sheet. Right. Especially from, from a collector standpoint.

I mean, I mean this business can be like a cruise ship. You can't turn around like a speedboat.

Right.

So you're going to see 12 months from now if it worked, right? If you're half of the portfolio worked. So I mean, ideally you, you learn sooner.

But yeah, I'm finding that with changing over collectors, it's not overnight. And she gets frustrated. She's like, oh, why aren't my numbers better than the last one? I know I'm working harder. It's like, well, you're retraining our entire customer base to pay on time. Like that's going to be painful because they've learned that they could give excuses. So yeah, yeah, you're turning around the Titanic right now. It's going to take a couple months.

And this, this probably isn't going to be a popular statement, but I think it's also a time that owners and dealers need to know all aspects of their business, you know, and be willing to step in and fill the gap during, you know, when you're downsizing and you maybe don't need a full time additional collector, but you need a part time. Maybe you're the part time unfortunately for a short period or to get you through that. I know it's, that might be scary.

For some, but it, no, I'm, I.

Was, I was thinking, well, that's funny, Jeff. I was thinking back to when we first started really ramping up buy your pay here portfolio. And I did collections every day. I sold 80 of the cars. Right. I bought 80 of the cars. I helped recon. And the further we get away from that, the hard it is to get back to it. I, you know, I think that I'm gonna probably do be doing some collections over the next couple years and, and some repo and things like this. And I, and I tell you, it.

Is a, is it exciting or is it depressing?

You know, I can stand on my head, I can stand on my head for two years. So, you know, it's, it's different. I think that one of those, I think, I think Chad is exactly right though. There is times when you're going to have to, if you're, if you're dropping accounts quickly or, or you're dropping sales in the, in the retail side that if you don't shed expenses quick enough, you can be out of business sooner than later. And so you have to step in, you have to be willing, you have to know as an owner, you need to know how to do everybody's job, every portion of everybody's job. And you asked me right this second, can I do everybody's job right now? Now technicians, that, that's a different story. Yeah, I can do a lot of their job. I'm not going to do a lot of their job, but I could because, but you can sub that work out. And if you say could Luke Godwin, could you do everybody's job? I can do everybody's job. There's no doubt in my mind I can still do it.

That that's how you historically won in this business. It's not owners and big management teams sitting in, you know, polished offices, taking in huge salaries.

It's.

I'm gonna roll this, roll up my sleeves, figure out areas of the business, delegate it down and wait to pay myself down the road. I'm, I'm reinvesting in this business. And maybe the same can be said in either a, you know, wind down or a pivot.

Right.

I, hey, I'm, I'm back in. I'm, I'm not, you know, taking afternoons off on the golf course. I'm back in and I'm, I'm learning it, doing it and, and wherever I'm needed.

Right.

Yeah.

Hey, everybody, real quick, I know we're talking about year end accounting and changes and looking to cut those expenses. One way I have cut almost $30,000 out of a straight, straight up expense is by switching my credit card processing company. So yeah, it, it has made a big difference. When I look at my year over year credit card processing expense, it's literally down 30 grand this year. So it was huge for me. What about you?

Yeah. Blitzpay, just a great company. And you know, I went to the fee model before we switched to Blitzpay, but they could implement it super quickly. And I was saving 60,000amonth, I mean 60,000 a year, something like that I think is what we ended up saving. So it's the only way to go. People are used to paying fees. Get Blitzpay to help you do that and actually get more money in the bank to their collection. Helping software is great. Give a ring.

Yeah. And of course I don't think that, you know, I'm always kind of a stay on the offense type of guy. You know, even during COVID when things got tough and it was like oh, we need to cut expenses and cut advertising and batting down the hatches. You know, I kind of look at it like, well actually while you guys all cut expenses and batten down the hatches, I'm going to put my foot on the pedal and I'm going to take market share from you in those times. So I do think there's a breed of dealer out there that is all gas and no break. Right. They are all hey man, we're going full speed. I don't know what interest rates are doing, I don't know what Trump's going to do with this, that or the other. But I am just pedal to the metal, let's go no matter what. And, and I get, I, I wish I had that mentality fully. I mean some of those guys, you look at them and you're like wow, good for you man. Like you have no self preservation button at all. Like you are going, going to the stars. And at the same time when we see these economic tides turn, those are the kind of the, the cautionary tales of some of these big dealer groups or medium sized dealer groups that just get obliterated by their large overhead. They have so many mid level managers because they have 10 locations, 12 locations and that non producing overhead just eats you alive.

I think the blowing and going like that. Usually people throw, throw bodies versus process towards the, you know, towards filling in the gaps and you end up, you know, obviously bodies cost more than process most of the time. And so if, if you have a plan in place and you thought through it methodically to grow quickly like that or keep the pedal to the, to the floor, then great, as long as you're making sure that you're staying on budget. But most of the time those guys don't have that, that plan in place to, to, to reference back to.

And that's the reason you have to, to forecast and that's where you have to stay on top every every month. And that's one of those things like why, you know what's one of the there's so many values to be in a 20 group. And one of the most important values, in my opinion, Jeff is probably not going to agree with this, is actually the owner entering in their composite numbers monthly. I think it's so important, and the reason is so important because you get to see every freaking number and you get to see the comparison every month to that number. And so you can find out within 30 days. Most of the time if your numbers are totally messed up and if you see it trending, then you can do something about it. But so many owners don't. Number one, aren't in 20 groups, and number two, don't look at their numbers like that.

Guys, tell me this. Let's transition. What. What more should we be doing come the end of the year? We talked about looking at expenses and making sure we're right, sizing. And you know, that brings up another one. Look at all your vendor contracts and make sure you don't have any auto renewal clauses for next year that you need to be sending out notices for, because you may go try to cancel that vendor and find out you can't. So that's a whole nother episode. But what else should we be doing with this last 45 days that we have in the year to be sure that we're set up for the end of the year and to launch ourselves into 2025?

Yeah, I mean, tax planning, right, Is top of mind for a lot of us. If we can get into that, I guess, for a minute, I think the title of this is at least I won't owe taxes. Well, I think it's level of taxes. Most folks are still performing well enough to owe some level of taxes. And so what? We're 45 days out. We still have time to, you know, take certain action to defer tax, you know, to do more nuanced stuff like shift basis between companies to take advantage of losses. You know, car company generates a lot of loss, finance company makes money. You know, let's. Let's do the right thing to make sure we can take advantage of that at a high level. You know, one thing that I think about is we work with some dealers that have still have their personal 1040 tax return locally.

Right.

I'm loyal to this guy or gal, their. Their sons on my base, my son's baseball team, and. But they've at least found the buy here, pay here tax expert. But those two don't talk. It's ineffective tax planning.

Right.

If you do anything other than buyer pay here, real estate or anything else in the picture then you know, if those left hand's not speaking to the right hand, that can be a problem. So getting those two together or moving the work to your buy here, pay here, you know, tax folks.

That's, that's funny you say that because I, I did just interview a new local CPA to do my personal taxes and some of my home based, my personal LLCs and he had mentioned something about assault tax that I can prepay my Utah, my federal taxes and it become maybe was prepay my state taxes and it becomes deductible on the federal level.

Yeah, been doing it anyways.

That sounds like something. And I was like well that would mean that you know, my, my dealership account would need to talk to my personal accountant and like you guys. Yeah, you don't know each other so yeah.

Don't really want that.

He's gonna not know it's deductible and I'm gonna have a problem. So. You're right, that, that's a really, really good point.

Yeah.

I mean that and, and just there's a lot of little levers you can pull if you are facing a big tax. First of all, do you know if you're going to be a taxpayer, right. I mean that's step one, recent financials connecting with your buy here, pay your tax consultant tax, cpa and then there's a lot of little levers you can pull, you know that revolve around kind of some expense acceleration, you know, capex expenditures, company cars or you know, shop equipment, whatever it may be. There's still pretty favorable bonus depreciation that gets you a good deduction, you know, before year end and, and of course practice.

Sorry JP Are we still writing down our inventory at year end? Like, like writing it. If we have some aged units, are we still kind of marking those to market? Is that still a thing?

Yeah, I mean depending on you know, what your tax return looks like. Like what basis you know you're, you're filing under. Yes. You know, that slow moving obsolete stuff or under market stuff that's.

I mean that's almost a 200000 a year deduction I take. So I mean I would, yeah, I would highly recommend people out there do that.

Yeah, Luke's likes to sit on cars for a long, long time until they depreciate.

No, let me tell you what I like to do. I like to save as much in taxes as I can. I said man, I spent the last two weeks in December just doing everything I can do to figure this Out.

Do you rebook every single car in inventory or you just pick your top like 90 days and over?

I know I, I rebook every car and depending on the. A lot of times I, you know, I stack up cars for tax time. So I start buying them in, you know, mid October. So by the time you get to December 31st, those books are just taking a nosedive and you know what they're going to do at the first of the year, so. And buy here, pay here cards. You can, you know, they're. The book is sometimes garbage on them anyway. So you can take a huge deduction. And I, I have an expense line in my DMS that I hit and it all, you know, comes to the, to the P. L? Yeah. I mean that's, I do it every year. Do you.

And the. This is getting a little technical and personal for me. But would, would you reassess that car with the included recon or does that recon kind of stay out of that number? So say that they over recon something and now I'm in a ten grand.

So I write it down to the actual number, but that recon for some reason doesn't come in right.

J.P. or I would take your, your total all in number and compare it to market.

That's. I think that's what you do. Yeah, but yeah, yeah, there's some type of little fidget in there.

Yeah, I've got some cars that, yeah. I had to put like three transmissions in them. Right. So it's like, oh, I'm, I'm way over. I gotta, I gotta bring my basis on this down because my salesmen don't even want to look at it.

Well, that, that's, that's part of it too. A lot of retail dealers and retail dealers, if I'm wrong, you can always send me a text. The couple of y' all that listen. And if, if you don't mark it down and a lot of retail dealers will do it every month because just what you're talking about, Jeff. If you don't, if you don't write it down and get it to where a customer, where a salesperson wants to sell it, it won't get sold. So there's. There's two ways to think about this. Is it saving you taxes? Yes. It also is right price in your inventory back to where you can sell it, make money. And, and it's super important. It's important on the buyer pay your side as well. I think a lot of people argued against that to me, but you know, we, we Went through Friday and I hadn't written the cars down yet, but we went through and probably marked down 15 buy here, pay here units that were, that were too high. And guess what? We sold four of the next, you know, within the next couple of days here.

Because throughout the year process.

Right, yeah, probably should be. They all just sit here until December and then I write them down and they all get sold in January. Do you, Luke, I was going to say, do you change the retail price in that situation too? Now that your basis is down, you also adjust the retail price so you're just looking for an excuse to mark it down.

Well, that's what I saw my last, last Friday, me and my sales manager, we sat there, we said, okay, what's old? And we always look at the old units. We try to do it every 30 days, but we, we probably do it every 75 days, probably is the problem. And we, we move the prices. Sometimes, you know, we've gone up on stuff, we've gone down on stuff too. But typically, you know, if you cut thousand, $2,000 off your price, that seems to move the needle pretty quickly. We had, we had one unit, this is just a quick anecdote. We had one unit that was priced well and it was moving and it was a nice 2018 Ford Explorer Limited. I mean the right one. And it just been sitting. Look at the price. And I said, you know what, let's just blow it out, cut it two grand. Somebody bought it Monday morning. We did it Friday at 5 o' clock and somebody was there Monday morning to buy the car because they've been watching it and as soon as it dropped, they knew somebody was going to buy it.

You avoided that next curtailment fee that, you know, this and that and all that storage costs. So.

Storage, what else should we be doing? Any other tips for us?

So I, I think the, a couple of the obvious that I know some folks would probably be disappointed if we didn't say, but you know, setting up that rfc, if you're a new guy, there's still time probably to do that to move some accounts over if you're not profitable, it's really not worth the extra cost right now, this year to set that RFC up. But if you're looking at a tax bill, then it's probably worth exploring. And then obviously there's still the reinsurance play and being able to move some monies over again, even if you're not set up yet, you know, that's still an option to, to backdate sometimes some of those products and move a chunk over.

Is that the, is that the biggest thing a company can do to save on taxes is rfc? I know, RFC reinsurance.

So it's funny you mentioned that. I feel like with a handful of dealers that I work with that have been at this forever and reinsure everything, it's like a Trump tax return. Like, you know, they're profitable, wildly profitable, but all the profits over on reinsurance, and that's great. It's a deferral and it's a slightly lower tax rate. So it's, it's a win.

Right.

By far the biggest. I mean, RFC is a huge factor as well, but by, by far the, the kind of the next in line.

So we're going to throw in a quick Buckeye ad. Jeff, since we're talking about reassurance, call the, call the folks over at Buckeye, get signed up. That is, it's the biggest one out there. JP Just said it, so we'll stand by it. Call Buckeye. They'll do it. Chad, a question came up the other day about, about an rfc. And, and you said something important. There's really no reason to do your RFC if you're not profitable yet. Where, where is the right number for most Buy here, pay here, stores right number of accounts to set up that rfc?

I, I don't know if I necessarily have a specific number. I, I look at probably more the profitability side, but I think once you're starting to get to, you know, I'm going to guess 200 to 300 accounts, it probably starts to make sense to look at that for sure by 500. You know, if you don't have an RFC, I think you're, you're paying a lot more tax up front than you, you know, you need to. And which usually ends up being at the end of year two to have that.

Yeah.

RFC in place. If you're, you know, selling 10 to 20 cars a month by the end of year one, you've probably got 150 or so in your portfolio. If you started January 1st and then, you know, so year two, by the end of that, you're probably looking at wanting to make sure you've got some deferrals in place for that.

I, I wish I would have never set up a reinsurance. Not a reinsurance, sorry. Rfc.

Right.

I, I'm gonna explain this now. We waited, we waited for years to do it right. We were in business for 20 years before we set up an RFC. It's a layer now, don't get me wrong. It it saved us a bunch in taxes for. It saved my dad a bunch of taxes because I wasn't even an owner at that point. Saved a bunch of in taxes when I became the owner. And we did it at the same time. But it creates more freaking hassle tax wise for me than if I'd have just paid the 4 or 500,000 in taxes that it saved me right then. Because at some point you're going to have to pay it. It doesn't matter when you're going to pay it. So what's the cost? Well, it's. It's a whole other tax return. So yeah, that's going to cost you probably 15 grand. 15 grand a year, let's say.

No, you're not paying 15 grand to run a separate RFC and tax return.

Maybe all. I mean, all in. I'd be willing to bet you, you all.

And there's no.

You're doing quarterly. You're doing quarterly reconciliations on your RFC through your accountant, and you're doing an annual tax return. It's maybe costing you. Okay, maybe, maybe 10 grand max.

10 grand. Let's call it 10 grand. But I do, I do all my reconciliations and all that. So that, that's done.

You're like five.

No, it's ten grand. It's ten grand, period. Then, then it's just the aggravation of having to sell all the accounts every year. I do it at the end of the year, so that's pain in the butt.

It's all done automatically in your, in your, your dms.

No, it's not. I have to do it because. Because I can't do a flat because my gross are so low. I can't do a flat number. So I have to. I have to figure all this out.

Sounds like a personal problem.

It's such a pain in the butt. I just wish I'd have never done it. And then, then it's like, then you're reporting two companies, and then at the first year when we sell the accounts, all the customers go, why'd you close my account? Equifax. And we got to figure that out.

Wait, you're reporting your dealership reports to credit?

For the first 12 months my dealership does. And then when it, then when it shuts down, then my finance company.

Oh, okay. Well, that's wild.

So this like all these extra layers of crap that I have to deal with, I wish I would have never done it.

Not to mention you have. You have double, Oscar, you have double.

You have double everything.

Well, that sounds like, you just need to fix your processes. But. So let me give the other side of it before people listen to Luke and think that that's a gospel or.

The way now, one, you got to have the cash to, to pay your taxes. And if you don't, the RFC is the only way to go. So.

And again, guys, this is a timing difference, right? This isn't necessarily. You're never going to pay the tax. This is deferring tax this year to maybe pay it over the next three.

Yes.

And so guys that come to us, I, I received a call and there was a guy, he had an art. He didn't have an RFC. He had 600 accounts. He's been doing this for like eight years. He's like, well, now all of a sudden, I want to pay, set up the rfc. And I was kind of like, you know, he's, he's not making huge profits right now, but, you know, setting up the RFC was just going to cause a headache.

Yeah.

To defer. He's already paid the tax, he's already paid the paper on that stuff. So it didn't make sense if he wasn't going to grow or be aggressive in that, to set up the rfc. Now.

Yeah, that's what. And to me, it's. So I started as an rfc. I didn't even have a dealership. I started with that first, just the finance company. But it only makes sense if you're growing, in my opinion, because once you meet, once you hit that terminal velocity.

So that's where we were, Jeff. That's what I'm explaining.

You're paying as much. The RFC is paying as much as the dealership would be paying anyways. But here's the other caveat I would say, and what I did wrong is I named my RFC too, similar to my dealership. They're one in the same. You can't really tell the difference. The dealers that are really, really smart, they name their RFC something completely different. It's a standalone entity. So if the day ever comes where they want to shut that entity down or they want to shut the dealership down and just collect out the notes, the customers, it's more obvious that there's a difference. Right. If my dealership closed tomorrow, my customers would still be paying the RFC. You know, Jeff's financial institution at some other mailing P.O. box, like. So if you're gonna set them up, make sure you the cut the front facing, the customer facing side is a completely separate finance.

I don't ever think Jeff has good ideas, but It's a pretty good idea.

Thank you, buddy.

Thank you. The other great thing about the year end, Jeff, is Tex Max, right?

Yeah, man.

It's tax time and tax max. They have the year end program that's going on right now, Jeff, and then, then the tax program at the first of the year. So if you haven't done tax max, make sure you, you hop on, give them a ring or go visit their website and they will get you more deals done for sure.

Yeah, right. We're doing right now is we're reaching out to all of our low balance customers and we're letting them know, hey, you can upgrade now. Upgrade your car. We're going to do an estimated tax refund. We're going to let you get a new car today and then come back in January with your W2s. That's when we'll officially file your taxes and, and do that because these are customers that we have relationships with, right. They're going to upgrade their car somewhere. And honestly, a lot of them I would probably let upgrade with no down payment because they were great payers. But if I can get a promise for the future where they're willing to commit two or three grand out of their future tax return and I'll do that as a balloon payment in April, dude, it's a win win. They can get into something nicer, newer, which we all know is hard right now. A lot of times people come in and I'm like, hey, trade in. And they're like, well, you don't have anything on the lot that's better for the same payment that I'm paying now. And I'm like, well, yeah, welcome to inflation. So getting that tax money is a way to make those upgrades a little more doable for your customer for sure.

Give Tax Max call and it's podcast 2024.

Yeah, yeah, I believe it's podcast 2024. You get 40% off the VIP package, which is really the Cadillac package. They do it all. The customer files directly with them. You don't have to worry about it all. You just get a little notification that says, hey, somebody filed their taxes. Get, get them a car. So pretty cool deal. Call the guys at Tax Mex. It would be really hard because right now if I decided to close my dealership, my finance company is called Four Seasons. So they're like, well, wait, the Four Seasons dealership shut down. That means my bank's gone, I'm out of here. You know, I'm hitting the road, I got a free car.

So yeah, mine's got one Motors and Goblin Finance. I was, I was really, really, really original.

Yeah, that's a problem. Okay, guys, Sorry. What else? Give us, give us one more closing nugget of wisdom that we need to be looking at in these last couple days.

You know, everybody's looking for capital right now or maintaining it, searching for it. I think that, you know, one thing that comes to mind is as you're getting the game plan together for next year, that's a projection or that's, you know, scrubbing your P. L and saying, here's how I'm going to improve. I think bringing your, your bank in the fold, letting them in cautiously on the game plan, don't show them your best, you know, your, your home run swing, show them your single or double is, is pretty prudent, right? Because maybe you're courting that local bank that at some point you're, you've. They trust you enough, they're going to give you a shot. But I, I kind of like being overly transparent when I can with the bank to just develop that relationship. They're, they're your lifeblood for many dealers. You don't have your financing, you're collecting out.

So.

I know, I know Luke loves scrubbing his P and L. So that's. I know he got excited when he said you could do that. Do you find that, do you find that banks are being more generous? Well, since the election, the word I hear and, and just the, you know, the Twitter chat is that there are lenders that are, that are ready to lend again, that, that both from a finance, a consumer standpoint that they're kind of calling dealerships and saying, hey, you know, so and so financial, we got money. Like we're looking to get aggressive and get back on lending. Do you see that from the commercial side as well? Are any banks, have you guys had any callbacks for dealers or banks saying, hey, like, what's going on? You got any, you got any deals for us?

I would say no.

No, no. All right.

I think dealer banks that are in this space and know the space well right now have seen, you know, some of this struggle, I think through 2024, right. Delinquencies and different things that are still forefront. And I, I think banks are not necessarily gun ho on lending unless you can truly prove yourself and you check all of those boxes that, that fit within their framework. And it used to be that you could get away with one or two of those not falling inside the box. But if you're not, if you don't check all five boxes at this point, you're just not getting a loan. And, and, or they're not extending additional capital to you. They might maintain the existing relationship, but they're not giving you more. Is, is what I've seen here more recently.

That's interesting. And you know, when we go to these conferences, every single dealer we were down in New Orleans last weekend or last week, it was, how can I get, how can I get capital? Or, or how can I get cheaper capital? And I made this argument in a room and you know, I'm, I'm typically going against the rest of the people when I say something. But, but I said this for those, for those companies out there that are charging 12 to 15% interest, there's Fortune 500 companies out there that are borrowing at 14, 12 to 15% interest daily. This happens every day. And I said, if you can expect that a bank is going to lend super risky business like ours money at a really cheap rate. Some do, but I sure wouldn't, I wouldn't do it. I wouldn't lend, I wouldn't lend Jeff money at probably 10%.

Give me a 20.

That's just me. I might lend it to him at 18%. But, but my point is this, if, if you can't make it work with higher money, then you've got to trim, you got to trim your expenses, you got to up your margins. There's, there's not an interest problem, there is a margin problem and there's a business running problem. And until people can understand that and understand they're going to have to pay market rate interest for the risky business you're doing, then you're going to continue to ask the same question. Pontificate on that. JP or Chad.

Well, I think one of the things that we've run into is, is we've got, we got spoiled after 2008. We got spoiled as an industry when rates bottomed out at 0%. At 0%. So all of the guys that were loaning out at 14, 16 are now loaning out at 11, 10, 11. Right. And then as rates have come back up, then so has, you know, so Everybody prior to 2008 that was in this business I think is just saying we're just back to normal. You know, we're back. And you know, this is just like before that. I don't think that was sustainable being at zero long term as a country. But, you know, I think we're just, but everyone got used to that and now we always reference that because majority of the Guys are in this business started somewhere between 2008 and now. Right. There's a few old timers still around, but majority of the business I think has come in and that's just what they've known. And they built a expense structure around 0% interest and now they don't know what to do or how to approach that as rates have come back up and they, and that's why we see guys falling out like we are.

Yeah, we, we've got folks borrowing at those rates that you're referring to. Some are doing well, some aren't. But the ones that aren't the rate isn't the problem.

Yes.

Other problems in the business.

100 agree.

Well, we have a 20 group member, Luke, who's talked about it. I mean, he's talked to us about his interest rate and it's like, dude, you are just, you are making the finance company rich. You are doing a lot of work and you're making that, that bank rich.

But yes, but that dealer is taking steps and he. To fix that problem. And, and he's doing well at. Right.

Always taking steps to get away from the lender. That is the only option.

That's right.

But he's a different business model.

But he's cut costs as well in that, in that time frame. And still that lender and that lender helped him figure all this out. But it's too easy to get that money to start with and get your expense structure all messed up. And then when that happens, you got to dig your way out.

So, so one other, one other tip to add that I just thought of would be when you're doing that budget and that forecast, make sure you're referencing back to your bank covenants and everything else that you're having to adhere to. I see a lot of budgets put into place that are going to break all of their covenants. All right, so why are you shooting for something that isn't going to give you the best end result Right when the bank's going to call your note? Because, so you've got to have that plan. You got to know how all those pieces work together. And just make sure you're, you're, you're thinking through all of that. And again, that's where JP mentioned, you know, bring your bank along, giving them, you know, when we do forecasts, I feel like I'm more on the conservative side of doing stuff. But stress test that to say what happens if my sales bottom out or what happens if grosses go to all the different pieces. But you May not give the, the pie in the sky best budget to your bank. Right. So make sure that whatever you're giving them is, is achievable. Don't give them that stretch budget that you're trying to give to your salesman or your manager to say this is what your bonus is off of. Give them something that you know can be achieved and that hopefully you're under promising and over delivering.

Oh that's great. I mean that's really good, that's really good knowledge right there guys.

Hey, thank you for your time. Appreciate you keeping us on the straight and narrow here. What, how can people get a hold of you? What, what Obviously your website, let's talk about that. And then maybe some of the like core services that if anyone listening wants to get into this stuff. What can you guys do for them?

Go ahead jp.

Oh yeah, we've got a website under construction but it's mbac-accounting.com ac and you know, our bread and butter, I mean we kind of can run the gamut of accounting services. Of course, you know, we can provide outsourced bookkeeping, controlling services that focus around, you know, transaction journalizing and production of financial statements monthly basis. But really what is keeping us busy and hopefully valuable these days is, is you know, those banking relationships, courting and maintaining finance. It's you know, you know, budgeting and projecting, it's deep diving analytics, you know and, and dealing with audits and reviews. That's our background. So really kind of finance and accounting. If it, if, if it touches those areas in, in bhph, lhph retail then you know, that's, that's where we hope we can come into play.

That's what I tell people that are talking about like oh well what's this, you know, what's this service? What's this? I said I go out and sit down in front of a banker. I don't talk banker and banker doesn't talk buy here pay here. Right. We don't, they don't understand each other. So what I call, you know, what I call a, you know, whatever loss on note or what I call this is to them that's like toxic. That's a toxic word. You just need to change the label of that account before you give it to your banker. So that's where the guys like Chad and JP come in and say no, no, no, no, that's a reserve for bad debt. Like that's a softer word we're going to call it, they like that word. So anyways that's why you get guys like Chad and JP on your side because they're going to help intermediate between you and the banks and make sure that you guys are speaking the same language. So, guys, appreciate your time.

Thanks for having us.

Thanks, guys. Pleasure.

Thank you all.

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