#45 - Part 2 - Variable Expenses

Hello and welcome to this episode of the Independent Dealer podcast. Today, Luke and I are going to run down our fixed expenses. We're going to talk about everything from rent to outside services to data processing. We go down a couple of rabbit holes, so bear with us. Ultimately, what we're trying to do is figure out where we're spending our money, where we can spend less, how to make our businesses more profitable. Enjoy.

Welcome to the Independent Dealer podcast, the.

Podcast for auto dealers to learn and grow together. Here are your hosts, Luke Godw and Jeff Watson. All right, continuing in our conversation about expenses, Dealership, our car lot level expenses, let's get into some more, some. Luke, tell us a little bit more. What kind of expenses do we need to be looking at as our. Tell us about fixed expenses? I mean, where do those come into play? Last week we covered a bit of the variable. You know, people need to look at what does it cost them to sell a car this week? Let's go a little bit further down that road.

Okay. Yeah. So your fixed expenses are things like your rent, your utilities, your telephone expense, things that don't really move around. And that's just a few of them. Depending on how big of an operation you have, you may just have, you may just have rent, you may have electricity, you may have telephone bill, and that's it. Right, okay. But for most of us, I think there's a little bigger, you know, a bigger picture here.

I mean, would you put things in there, like, would you put in your, like your software programs, you know, you're using for your dms, your, you know, CRM, things like that?

Yeah, I think, I think, you know, so let's, let's talk about those type things. So you have data processing, okay. And you have outside services, and you also have what I like to call advertising, expense, Internet based. So let's just talk about those things real quick. So data processing. And don't get me wrong, I may say something and somebody may say, no, that's not data processing, that's advertising, or it's outside services. You know, it, it might be. There's some, there's some overlap here. Yeah.

And to caveat that, Luke, I would say however you want to divide this sucker up, you figure that out. Luke's going to call it one thing, I might call it something completely different. But just decide and then stay consistent. I think that's the number one thing. Right. Stay consistent month after month, year after year. And I guess if you have something new comes to light or the service changes a little bit or you decide it's such a large category, you need to start dividing that category up, you know, tighter to see your expenses do that. But just stay consistent.

And the reason, and Jeff, you bring up such a great point there. The reason you have to stay consistent is you need to see if there's a fluctuation in that. So let's just talk about data processing for a second. Okay, so data processing, I would say it's your dms, which is. It should be a constant, right? Your CRM, which is going to stay pretty constant. Now you may get, it may go up a little bit, you know, every.

Year or so, but not a user.

That's right, yeah, yeah. All those things, if you have a shop, it'd be, you know, Identifix or you know, Mitchell1 or something like this Proto man, something that would process data. I also put my Carfax in there as a data processing because. Because I'm processing data for buying cars.

Right.

It could also be, you know, part. Now I've got two different spots with my Carfax. So Carfax, I've got the data processing part, which is when I pull a Carfax and I also have the advertising portion which you know, goes to their, their third party site. And you know, so there's a little bit of difference in how you break things down. But a website, let's talk about a website. A website to me is it. Data processing is an advertising so tool. So I put my website expense into Internet advertising. Right.

You could have a widget on your, you could have some sort of a credit pulling system within your website.

That's right.

You know, and what are you, where do you put that monthly fee?

Well, that would be data processing. Okay, right. Because you're processing the data. I put my Equifax, all my Equifax goes into data processing. Okay. Because I'm, I'm sending my, it would be charged more to my finance company. We won't even get into the dividing all that up. But it is a form of data processing. 700 credit. It probably should be a form of data processing because, you know, that's what we're doing. The CRM, you're processing the data that comes into your website to figure out how the leads get distributed. All third party sites you should have under Internet advertising. And I'm gonna break something out real quick. When we're talking about advertising, you should be tracking two different, well probably three different ways. Your sales promotion expense, which is sales promotion when it comes to, let's say you're giving $100 to a baseball team, or you're giving $400 here, you're giving $500 there to community organizations. That's more of sales promotion, getting your name out in the community. If you go into a golf tournament, you're sponsoring a hole. Something like a portion of that should go to sales promotion expense. Okay? And I throw my referral, referral expense into that sales promotion as well. And divide it out, I can look and see what I'm, what I'm spending there. Internet expense. Internet advertising would be your website, would be any Facebook advertising you're doing, any Google adwords, any retargeting, all that stuff goes under, in my opinion, under the Internet expense. But you should also have a traditional line. Some of you may not be doing any traditional advertising. But for us, you know, if we decide that we've got a lot of inventory and we really want to push something hard, we may go to radio, we may go to TV spots and just hammer it for a week. And if you do that, then you're gonna have that line. So this year so far I haven't really had any traditional expense, but I've had a, you know, everything's kind of rolled into Internet. So at the end of the year I'm gonna look okay overall, did I save money in advertising? And if I did, where did I move the advertising? And then it, did it affect everything? And the reason we're tracking these expenses is to see consistency, like you talked about on what our costs are and also to see if something moves the needle right? If I know that all of a sudden I start spending a ton of money in print. Nobody does that. But let's just say I did. Let's say I started spending a bunch of money in print and my UPS started just to go crazy, then I would say, oh, okay, well, maybe something's working there. If I start spending more money on TV and all of a sudden my UPS go up. But let's say I cut it all out and I only spend it on Facebook and I see my UPS go down or up, then I'd be able to trace it. So that's the importance of making sure you're looking at your expenses. So we went down a rabbit hole there real quick. Data processing, I think that's pretty self explanatory. Now, outside services, which sometimes can get confused with your data processing, I do things like trash service would be my outside services.

Um.

If, if you've got an alarm company that you use or monitoring company that would be outside services. What else do you. Do you have outside services, Jeff?

You know, I don't keep much in it. No.

Yeah. I mean, our shredding. Our shredding company that comes in and shreds once a month. That's an outside service.

See, I tagged so much of that to office supplies.

Yeah. And you can. And that's. Right. There's so many different ways to do this. No. So if we go down the office supplies, you know, paper. I mean, that's pretty simple, right? Paper, pin, staple furniture. Well, that's right. Anything that costs under $2,500, I think you can expense right away anything over 2500. So if you bought a computer. Who in the world would buy a computer over $2,500? But if you did, you would have to depreciate it. So that's our outside services. Trying to get back my dashboard here. Let's talk about some other expenses, Jeff. You're gonna have repairs and maintenance to your building.

Mm.

And that's not gonna be a fixed, consistent thing. But, you know, you've got a plan for that, right? Yeah. Because you're gonna have light bulbs that go out. You're gonna have. You know, your building may need to be repainted.

Mm.

If you haven't. If you don't have a paved lot, maybe you want to pay your lot. So, I mean, some of those things.

Some of those would be capital expenses, though, right? I mean, those wouldn't go to your. Like you said, if it's over 2,500 bucks.

But luckily, you know, with. With the Trump. With the Trump tax reform. And again, Jeff and I are not CPAs. No, not at all. But you can. Some of those improvements to your real estate, if you own the real estate, can be depreciated all at once. I think it's a 179 section.179 expense. But if it doesn't add square footage to your building, then you can actually depreciate that at one time. So ask your tax professional about that. But there are. There are ways around that. Professional training. You know, Jeff and I go on the 20 group, and we go to 20 group. Everything you do from the time you leave your house, you get back as professional training, and it's expensed 100%. So even if you have dinner out while you're doing that, instead of the normal 50%, you get to get to take 100% of that professional training. And you need to look time over time. You may not be spending any money on professional Training. Hey, your pod. This podcast might be your professional training, right, Jeff?

Professional.

We're trying. We're trying. But so, you know, professional training. You should definitely have budgeted something in your, in your monthly and yearly budget for professional training. Because if you're not training this, you're losing. So telephone expense. We talked about it being a fixed expense.

Yep. You know something, what about outside legal services like your legal and accounting? That's where this would go as well. Right. It's a fixed.

Fixed. It should be somewhat fixed now. You're gonna get some variability throughout the year. I have a professional fees line and so anything with your cpa, it's gonna go in there. And you know, some people may only have one yearly cost of their cpa. I highly don't recommend that. But if that's the way it is, that's the way it is.

Well, it's definitely gonna jump up that time of the year. But you kind of want to look at it. You would look at that as a. You'd amortize that out over every month. Right. To kind of know what you're, you know, because you're going to have a thousand dollar bill come tax time to get your taxes in order, but you'd want to divide that over the whole year so you know what your kind of.

Your average is, you know, and it depends on the size of your operation. But, you know, I'm pretty much budgeting almost $1,000 a month for legal and professional fees per company.

A lot. So that makes.

Oh, man. And it's not that I get sued a lot. Most of that is honestly cpa. You can figure you shouldn't have a large attorney bill during the year because that's the reason we have liability insurance.

Right.

So if something does happen, then your liability insurance should kick in. And let's talk about another expense. Your liability insurance, your garage policy. Yeah, that's going to be a fixed expense pretty much for the year. Now, it's going to vary by year, but still it's something you've got to budget for depending on the size of your operation and your state. Honestly, because there's so many different laws per state, we budget, you know, probably around $1,800 a month right now for that policy. What do you budget for?

Plus they're auto owners.

You got auto owners.

I said, you must have auto owners at 1800 bucks a month.

No, I used to. And it was a lot cheaper back then. Now we got out of a. We're actually down from that. We're probably about 1500amonth. We. We got out of a lawsuit a few years ago that. That I had zero to do with. We got sucked into. So my. You know what's funny is my garage policy went from about 85 to 9 grand a year to $27,000 in a year. And it's gradually worked its way back down. But these are the things you need to budget for. That is a fixed expense. You're going to be in the car business. That is a fixed expense. Yeah, yeah.

Auto owners just hit me for a $10,000 audit adjustment, essentially wanting to almost double my annual premium. And I said, no, no, no, no, no, guys. So that's a battle right now. I'm sure I'll be switching within the neck within the month. But you got to account for that, right?

You got to. And I know these expenses are starting to add up, but, guys, it costs money to do business. You've got to have a line for licensing permits and taxes. That's gonna cost you some money, depending on how many cars you're selling a year.

What about your bank and credit card fees? I mean, those would go here, too, as well, right? I mean, even though they kind of fluctuate with how much you process and your philosophy on credit card processing.

I'm not sure that's. I'm not sure that's fixed. No, because it's gonna vary. It's gonna. It's gonna vary by. I mean, bank charges may be fixed to you, but, you know, depending on how much business you do, that. That merchant services fee is gonna change now. Now you can budget it for sure. And if we talk about budgeting compared to that. Yeah, it's. It's a fixed number that you know you're gonna have to pay, but I would put that in a variable expenses. But you gotta know how much it's costing you, right?

Oh, yeah.

And if you haven't, I think an interest expense might also. It's gonna vary, but, you know, it's a fixed expense that you're gonna have each month especially. Well, you know, it doesn't matter what line of business you're in. If you're in, buy here, pay here, or if you're in retail business, you're gonna get some. You're gonna. You're gonna have some interest expense. Whether it's expense home.

Yeah, that would be my question. Where would you put your interest? Say you had a flooring line. Where would you put that? Would you put that as a variable expense and tag that to the car costs, or would you Put that as just a fixed overall interest expense because of my flooring line.

So I would break it out as an interest. I would break it out as interest and floor plan expense. I would want to know when I'm paying my floor plan company, period. So if you start tagging in every car, you may not know. So I would say have it aligned on your expenses, on your P and L. This is how much every month I'm paying to floor to floor plan. And if you had a floor plan expense as well as a another interest expense, I would move. I would not have those together because you need to know, what am I paying my floor plan company? And it's going to probably shock every single one of you what I'm paying my floor plan company and what am I actually paying the bank for money I may be borrowing. So split that up the more you can. The more you can break out, the more you can see. I, you know, we don't typically use a floor plan, but every once in a while, you know, if, if I'm stacking up for, I'm just gonna go off on the side right here for a second. But if I, if I decide I'm gonna really stock up and I want easy cash, I may use a floor plan now. I haven't used a floor plan now in probably six or eight months because I look back at what it was costing me. Yeah, I didn't really think it was costing me that much money. Well, man, if you go back and you see, I mean, it's cost right now, you know, this is some of the. It's going to be nothing for some of y' all but $8,700 so far this year. And let me tell you, I didn't have anything on floor plan after February.

Wow.

Okay. So that's a huge expense that you've got to break out and look at.

So I've never had a floor plan. I don't really know how they work. Is it something like when you go to pay off that car, they've tacked on their fees and their interest and whatever else. So it just looks like your cost of goods is higher than it was before. You have to physically go in and break that out and say, well, I really paid five grand for this thing, but then I floored it. So my payoff is 5,500. That's $500 carrying cost that I had on that unit over the last six months. Is that how you. Or do they hit you with a one time bill every month and say.

No, it's broken out per car with them. Okay. So what happens a lot of times is if you have a curtailment or something like that, when you pay that car off, what will happen is, so they hit you with a fee when you bought it, then they hit you with a fee for shipping the title to you. Right. Then they hit you with a fee for the interest for having that car for however long you have to have it. So if you're curtailing it, all you're really paying down is a little bit of interest and a little bit of principal. So what you would do is you would lower your liabilities to them as a whole and you would take that interest fee and the interest fee, you could add it to a car, which I think that's. I'm not sure that'd be the way I would do it, but I would add that interest, expense and fee to a line item in my. On my balance sheet or my. On my property loss sheet that says, hey, this is how much I. I've spent this month in floor plan fees. Because it adds up quick, guys. I mean it, it is. If you can get off a floor plan, people out there listening, get off of it now. It's. It costs you a lot of money.

Or find some cheaper money somewhere. Huh?

Or cheaper money, you know, I mean.

Non floor plan line of credit or something.

Yeah. And if you, and if you, if you have a floor plan and you're in the buy here, pay here business, it might be a recipe for disaster.

But if you have a local bank that is giving you a floor plan either based on titles or based on some UCC one. Hold on to that, like your suitcase, because they are not giving those out much anymore.

Yeah.

And I would say if you found a local bank to floor your cars for you, it was just tragic stories left and right. Yeah.

And people calling loans.

Yeah.

All the time. Yeah. You know, anyway, that's a. That's a whole nother podcast. Probably.

Probably. Yeah, yeah. The whole cost of goods thing, that's where I tagged that. So now if you own your property, you're also going to have real estate tax. You got to account for that. That is a huge one that comes up and slaps you in the face every August or September whenever those notices get billed out.

And. Yeah, and you know, I think our. We have pretty high probably taxes in South Carolina. It's like, you know, I know every November, December, I've got a $12,000 expense that's got to be paid. So definitely be be aware of what You've got coming. Yeah, you. Let's see what else we've got that we can, we can go down here. You know, you're gonna, you're gonna have some meals that you can write off at a 50%. So, you know, break that out. That's a variable expense every month.

So maybe I'll ask you that question. And again, knowing you're not an accountant, I thought they did away with meals and entertainment.

No, they did not.

Double.

No, it is deductible. It's deductible at 50%.

Okay.

Yeah. So you could, in, in the past, you could designate whether something was 100% or 50%. So if you went out, let's say if you took, you brought food into the office, you could, you know, a couple years back, you could say that was 100% because I bought meals for everybody at the office because we kept working. So that would be a hundred percent. But they kind of just said, you know what, there's too much of this and that. So now we're just 50% across the board. So that's, that's where, you know, and don't be crazy with that, but that's kind of where it is. Also, when I buy cars and I'm on the road, you can expense that at 100%, but you need to make good records. Say I was buying cars down in Florida, spent a night in this hotel. I had to eat while I was out. So.

So help us newbies out a little bit. Luke, maybe from. What do you see as best practices for that type of thing? When you say, when you say make good records, what are you doing? Because, you know, I'll admit a dirty little secret of mine. I'm not a receipt keeper. I'm horrible at that. And I hope that if, knock on wood, that audit comes. When it comes, are we good enough with just our credit card invoice and to say, hey, this was spent here, this was spent here, or in those situations, do we really need to be getting the receipt writing down on it? Who was there, what we talked about, I mean, is that best practices, that's best practice.

That's best practices. But I think it's unrealistic. So what I would do, I have all my American Express comes into my QuickBooks is downloaded nightly or, you know, whenever, whenever they push it through. And what I do, if I have something that is a hundred percent, I will note it. Hey, in the Memo line in QuickBooks, this is what I was doing. So I do not keep, do not keep receipts. It's just. I don't see how you can keep up with that many receipts. So I just make sure when it downloads, memo is, hey, this is what we did. And I would think that's a very good practice to be in the habit of it, especially if you're on a professional training. You can usually look and see where you are and what time of the year. As long as I think if you could document these credit card expenses are for this time of. I was flying here, Las Vegas. I was in Niada. You can look, you can see exactly where I was. I don't think you'd have any issues, but who knows? You may catch the person that. That makes you have issues. Yeah.

And this is not by any means sound advice, but a lot of that reason is that's why I take a lot of pictures. You know, I try to take pictures when I go to these things. You know, if I'm having a dinner with a couple of work buddies, we'll snap a quick photo. And it serves two purposes. I get to get a picture with us, and it's fun to post that or see it or reflect on it later. But also I can go back and they say, well, yeah, this meal. What's going on? And I say, oh, here's a picture. Me and three work buddies, we were all at dinner.

So I think if you're not excessive with it, you probably wouldn't have much of an issue. You know, if they're coming in to. If they're coming in to do an audit, you know, you better have a good CPA and be able to really identify what you did if they hit you. If they. If they come in and spend 10 days with you, I'd be willing to bet you your CPA bill is gonna be higher than the. Than the bill they're gonna hit you with if you have a good cpa. So, you know, just. Just make sure you're doing what you're supposed to be doing.

Yeah.

Yeah.

Well, yeah, there's probably two different philosophies there. You know, there's a lot of people that are super scared of the irs and they want to be super, super conservative. And there's other people that say, I'll. I'll do it as long as I can, and if I get challenged, you know, I'll pay my fees and, you know, move forward.

I think you're very true about that. I'm one that would be on the. On the conservative side that I'm. It's not that I'm super afraid of the irs. I just don't want to have the hassle, you know, if, if, if I'm going to save a little bit of money, I'm not going to worry about it. Now if it's a lot of money, I'm gonna make sure I cover my bases with my cpa. Hey, let's run through this a couple times. What's your opinion? I've got a buddy that's a cpa. I'd run through it with him a couple times. What's your opinion? And hopefully they, they would line up. If it's a huge, huge number, I would get multiple CPAs to talk to me about what we're doing before I would make that, that, that qualify because you're, you know, it depends on who you get. So, you know, make sure you're doing, make sure you run things by your CPA before you just go willy nilly.

Doing something for sure start going crazy. Now would depreciation on the building and your, maybe your asset. If you had a lease portfolio like we talked about a couple weeks ago, or if you had machinery and assets that you could depreciate, that is technically a fixed expense, right?

Sure.

Where does that come in?

Yeah, that's a fixed expense. Now I don't do that every month. I'll let my CPA do all our depreciations once a year. It's not money out of my pocket, so I don't really look at it as an expense. It's a tax saving benefit and not an expense. Now if you've got a lot of big equipment, it needs to be somewhat of expense because you got to know in the back of your mind, hey, at some point I'm going to have to replace that AC machine or I'm going to have to replace that alignment rack or I'm gonna have to do this, that, that stuff can get expensive. So for sure you need to have in mind that you, you've got to depreciate some, you know, every once while you got to depreciate something. Okay. Or replace something after it's been depreciated.

Any other fixed expenses we're missing?

I'm sure, you know, we could talk about rent, but you know, you've got to have rent, you've got to, you've got a budget for that. Your rent may go up. Look at your lease, make sure you know what's coming next year. You may be, you may be five years into a 10 year lease and all of a sudden you're, you're starting to get to the part where it's going to start ramping up. You know, it could be as much as, you know, name the number a month that you're, that you negotiated up front that starts to move. So look at your lease. Know, hey, I was at, I was at two grand a month for the first five years. But for the next couple years, I'm going to 2,500 and 3,000 and 3,500. So that might be something where you need to go sit down with the person you're leasing from. Hey, can I buy this property? Can I do this? Always be thinking about a way to get out of a lease by purchasing the property is what I would recommend. If you're not, if you don't own your property. Now.

Is there a situation where not owning the property is the smarter move in your opinion?

I don't think so. I really think owning your property is.

Vital.

For one, I'm not sure why you'd want to pay someone else. I don't understand it. I'm sure that it could come in at some point where it makes sense, but maybe if you're just getting out started, maybe you need to rent a little bit to get your credit. Right. But I just don't see it. I don't see it. You, Jeff, you got an opinion?

I mean, I guess for me, I leased for the first, I don't know, eight to 10 years of my car lot and then built this facility about three years ago, which I own. But I don't. I guess I would think the only situation where a lease would be beneficial is maybe it's not a place you want to be long term. You know, maybe it isn't right. Maybe it's a marketing strategy. Maybe it's the size again. Maybe you get your feet off the ground, you like to write off the whole lease payment. Maybe it's a second location that you're testing the area. I think part of the benefit of running a car lot is not only you got to look at, you know, obviously what you're taking home every month, but I also look at the back of my brain and I say, well, I'm paying down. I'm paying on this property that will someday be an asset to me.

Yeah.

Free and clear. Or if I move off of here and I can lease this space to someone else and cars are no longer useful and everyone's doing a self driving Uber everywhere, my car lot now becomes a recharging station or a parking ride or whatever. Yeah, or parking garage for all these Uber Cars, they're gonna be sitting overnight.

And that's, that's important that you just went over. I look at my property, the rent that my dealership pays me and my dad for our property, that's just, that's more income for me. That, that reduces the bottom line of my dealership and increases my bottom line. And hopefully, you know, hopefully our business goes on forever. But at some point when we decide that we're retiring, then that's going to be another source of revenue for me. You know, hopefully I can get $8,000 a month coming in from my property.

So.

And it'll be paid off by then. So I think, yeah, there might be some instances where you want to rent, but I think your main goal if you're a business owner and you're running a good dealership is to purchase your property.

Yeah. And you can also, the nice thing is that property can become collateral if you need to. If you want to get off your flooring line and you say, oh, I've got 400, $500,000 of equity in my property, I'm going to either refi and take that money out and maybe a lower rate than I would be paying through my floor plan or get a second mortgage on it and use that to floor my cars. Because I'm only paying 4, 6%, 5 and a half percent to the bank as opposed to my effective rate of 20% to my flooring.

That's exactly, that's so smart. And that's what we did. It's really hard to get and buy here. People know this out there. It's really hard to get a wholesale line on your book of business unless you are really big, you know, 10 million net or plus probably before you can really get the rates that. I'm not talking about a Spartan rate. I'm talking about a Texas capital or First Tennessee, you know, these really good, you know, good term type loans for these, these big lines. We went to the bank and we, our property was paid for and we said, hey, what can you do for us? And you know, they didn't want a loan on our business, but they want a loan on our property.

Definitely want a loan on your property.

That's right. So it's a way to get really cheap money, you know, 4%, 5%, you know, to run your business. And it's helpful. You know, every once in a while I got to hit that line of credit. And that's one thing I wasn't doing. I wasn't being smart. You know, AFC came to me, said hey, here's. Here's a four plane music. I don't have a floor plan. I don't want a floor plan. What I should have done was just said, hey, I've got this line of credit sitting there. Why am I using this floor plan? So don't be enticed by the easy money. Look at what makes the best sense for your business. So always look at that. So I think gaining equity in your property is a way to do that. That's long and short of it.

And again, it takes us back to the basis of our conversation. You don't know what. What that floor plan is really costing you. And you can't compare apples to apples. You just look at it like, oh, well, they only charge me $50 a car a month or $100 a car per month to floor it with them. And you got to sit down, add those up, and do the math on what is your effective interest rate based on the dollars you're borrowing for that inventory as opposed to other avenues. And you may go out and get unsecured line of credit at 12%. Might still be smarter than.

It will be cheaper. Yeah.

Go into your floor plan. And again, it's your own thing. And I don't know if it is or isn't, but you got to know. And if you don't know, you can't make those kind of decisions. You're just. You're just going down the path of least resistance. And I think we're very good at that as dealers, as humans in general. Oh, well, it's so easy because Cox or mafs or whoever these guys are, they're just gonna let me, you know, for this sucker. And. Yeah, you're just. You're. You're. You're bleeding, you know, and you don't even know it.

Yep. Let's talk about two really big policy. Really big expenses that are variable expenses that people need to. People need to budget for as well, and that's delivery expenses and policy expenses. Now, Jeff, you may say, what's the difference?

Right. Well, explain to me what those are.

Okay, A delivery expense is. Let's say I sell a car today and I have a wheel, okay, for a set of mats or two tires or an extra key or something like this. Well, I've already booked it, and it comes back. So anything. Joe Lascoda used to explain it this way. Anything you do to the car you sold for the first 30 days is a delivery expense. Okay, let's say the customer drives off and they pop a tire, you know, they run over something, they come back in and they're raising cane. Well, is it worth, you know, $120 for a new tire on that car to make that customer happy? To me, yes. Okay. This helps prevent heat customers. So yes, I'm gonna do that. So that's a delivery expense and you need to budget per car. What that, what it's gonna cost you a month.

Would you also call that goodwill?

That's goodwill. So delivery expense, delivery is goodwill.

Okay, that's where I call it, is goodwill. Like what are the things I'm doing that either, you know, maybe I promised at the time of sell, or I'm just doing out of the goodness of my own heart because I want to keep a good reputation and I feel responsible.

Yeah. And my delivery expense runs a lot of money because it could be two reasons. Maybe we think we're getting the cars ready like we think we're getting them ready, but maybe we aren't. Right. But you know, if you're selling older car stuff breaks, you know, and, and you're making it good for the customer. You've got two choices. Either you make it good for the customer and the customer is happy, or you can not make it good for the customer, the customer is mad, and they'll never buy a car from you again. So you've got a budget, a per car expense that you're gonna, that you're gonna have each month that's going to go to that. Now a policy, policy expense is a little different. A policy expense to something that happens, let's say after the, after the 30 days up to however long you want to go, that maybe you didn't sell that customer warranty or maybe the customer's warranty didn't cover it for some reason. Let's say the transmission goes out eight months later, you sold the customer warranty. The warranty company says, hey, we're not covering it. Well, you're going to have to do something probably. So you're going to have a policy expense. That policy expense is my policy to make that customer happy. And so you got a budget for that as well.

So it seems like a really fine line between what is goodwill and delivery. And then where does it become policy or what I call a guarantee. We put an in house guarantee on every car. Yeah.

And Angelo Scoda told us this in CMD. He said it's 30 days. And actually for 20 grand, he said it's 30 days, everything. 30 days and less is a delivery expense because you just delivered the car.

Basically accidents or crap you should have had fixed.

Right. Something you missed during UPS or whatever. And then everything after that is a policy expense because you're just making good for the customer.

Yeah.

But it's something you got a budget for because it's going to cost you something every month if you're doing business the right way.

Yeah. If you're not, just roll it over the curb and let it go. Kind of dealer, which I imagine if you're listening to this, you're probably not. Probably not.

Yeah.

Which is, again, another rabbit hole. Maybe we don't need to go down, but very, very, very rarely do you ever hear consumers complain that they paid $500 more than they should have for the car or even $1,000 more than they should have for the car if they get taken care of. And it comes down to. It's the same thing. Friends and family thing, Man, I. I have a hard time selling friends and family because I want to give them my cost on the car or this killer deal, and I'm just selling to you for what I'm into it. And then the thing breaks in a week or two weeks or five or 10 or 20 weeks, and I feel obligated to step in and fix it, even though I sold it to break even.

That's why you can't do that. And this is a rabbit hole. But you've got to know what your policy expense is averaging over year over year, because you've got to build that into the profit that you sell your car for. And so in my opinion, this is reason the V auto model does not work and things like this doesn't work because there's not enough money made on the car to take their tear your customer in the long run, and that's a whole nother show. But I would get me fired up, probably. It might be a rant, but that's the reason you had the budget for it. That's the reason it's a line item on your expense report.

Okay. Yep. You need to be taking care of.

Them, plan for it, and without it, you're just not gonna. Gonna be successful. I think we've run through about everything. Jeff, you got any other expenses that we should talk about?

I mean, that's. That's. I think we got most of the bases covered between this week and last week. Where does that leave us, Luke? I mean. I mean, tell us.

The bottom line is this, guys and gals. You've got your income coming in. We talked about that last week. You got your cost of goods, which you should know pretty quickly. These expenses is where you can make money. Everybody will say you make money on the buy. You make money on the buy. Well, in today's car business, yeah, you make money on the buy and you know, but you also got to control these expenses. If you don't control these expenses, you're going to be out of business. If you're spending too much on rent because you had to be in the exact right spot, or if you're paying too much in advertising because you think you should be on Cargurus, Auto Trader, Carfax, all this, maybe you don't need to be on all that. You've got to look at it. If you're, you know, if your floor plan expense is too high because you're carrying way too many cars, it's going to be an issue. So look at these expenses. Know your expenses. Know where it all goes. Look, year over year, look month over month. Make your fine tuning to your business happen in these expenses. Because as soon as you cut these expenses down, your net profit goes up. And that's what we're looking at, not gross profit. We want to see net profit.

Net profit go up. So many, so many other questions that brings up in my brain. But I know we're out of time, so we're going to save it for next week.

Sounds good, buddy.

Sa.