119 - From Repair Bays to Balance Sheets: Mastering Your Shop’s Financials

119 - From Repair Bays to Balance Sheets: Mastering Your Shop’s Financials

April 30th, 2025 - 00:58:20

 

Show Summary:

In this episode of the Institute's weekly webinar, Jimmy Lea hosts Eric Joern, CPA and partner at Kaizen CPAs, for a deep dive into mastering shop financials. They tackle the anxiety many shop owners feel around accounting and taxes, encouraging transparency and strategic planning. Eric emphasizes the importance of daily metrics, consistent financial reporting, and leveraging tools like point-of-sale systems and financial calculators. The duo walk through a powerful profitability calculator live, showcasing how small improvements in technician productivity or parts markup can generate significant gains. They also highlight the value of peer accountability groups and ongoing coaching to drive real growth. The episode closes with insights into practical budgeting, reading balance sheets, and long-term business health monitoring.

 

Host(s):

Jimmy Lea, VP of Business Development

 

Guest(s):

Eric Joern, CPA, CMAA, AAM at Kaizen CPAs + Advisors: Advisory & Accounting Services

 

Episode Highlights:

[00:05:59] - Eric reassures shop owners: the goal is not judgment, but helping clients become better, more compliant taxpayers.

[00:07:44] - New clients often start with a 3-year review of tax returns to identify areas for correction or a clean slate.

[00:09:11] - Digital access to financial records reduces stress and eliminates outdated systems like shoeboxes of receipts.

[00:13:33] - The most important report to review regularly is the end-of-day or monthly summary report from the shop management system.

[00:17:34] - Common profit leakage comes from untagged parts, missed markups on sublets, and lack of shop process rigor.

[00:30:15] - Using a real-time business calculator, Jimmy and Eric demonstrate how small adjustments in markup or productivity impact profit.

[00:36:45] - A real shop example: a family business jumps from 7% to 24.9% net profit within two years thanks to Institute coaching and mastermind groups.

[00:44:55] - Top overhead costs (like rent, service manager salary, and owner compensation) must be managed for healthy financials.

[00:50:06] - Eric explains how to track where profit goes using balance sheets, emphasizing shareholder distributions.

[00:51:56] - Eric offers his shop financial trend tool to webinar attendees and encourages shops to reach out for help without pressure.

 

In every business journey, there are defining moments or challenges that build resilience and milestones that fuel growth. We’d love to hear about yours! What lessons, breakthroughs, or pivotal experiences have shaped your path in the automotive industry? Share your story with us at info@wearetheinstitute.com, and you might be featured in an upcoming episode.

 

👉 Unlock the full experience - watch the full webinar on YouTube: https://www.youtube.com/watch?v=Iy_4KFidp3I

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Episode Transcript Disclaimer
This transcript was generated using artificial intelligence and may contain errors. If you notice any inaccuracies, please contact us at marketing@wearetheinstitute.com.

 

Episode Transcript:

Jimmy Lea: Good morning, good evening, good afternoon, or goodnight, depending on when and where you are joining us from today. It is a beautiful day outside. Glad we are here together. Those of you watching the recording, hit that like button, hit the share button.

Jimmy Lea: Make sure that you are a part of the institute and all the awesomeness that's happening over here as we continue to lock arms with you and elevate this industry. We don't wanna leave anybody behind, especially not you. So let's work together to make this awesome and amazing. In our webinar today, we are going to have a phenomenal discussion and I say discussion because I want you to participate.

Jimmy Lea: We are live streaming on YouTube. On Facebook and on Streamy Yard. So if you are here with us today, find that comment button, find that comment button, and put in there where it is you are joining us from today. Love to give you a shout out and say hello and recognize you for being here for this live event as we're talking today in our webinar.

Jimmy Lea: So in the comments section, go ahead and share with us where you are joining from today. Bobby joining in from Florida, Bobby Lambert. Bobby, thank you. Welcome. Glad you're here with us. Just got your advisor or manager signed up in the program. That's phenomenal. Thank you very much. Super excited for that.

Jimmy Lea: Chris Adams, spectra Auto, Frederick, Maryland. Oh, very cool, Chris. Glad you're here. Thank you. Crystal Taylor, easy Otto from Alaska. How about that? Alaska's in the house. We got the two extremes. Florida and Alaska both in here. Oh, that's awesome. Thank you Crystal for being here. Shout out to those of you who are putting your locations where you're joining us from in the comments.

Jimmy Lea: Love to know where you're joining us from. So, thank you for being here and those of you watching the recording, we do webinars every Wednesday, 10:00 AM Pacific, 1:00 PM Eastern every Wednesday. There's knowledge, information, insight to help you into the information you need, the inspiration you need, and.

Jimmy Lea: Now we turn it to you. It goes into the implementation that you will do inside of your shop to make things awesome. Amazing. Take it up to that next level. Last and final shout out to Shayla Costa. Does that mean Daniel's there with you too? Shayla, San Francisco, Marvin County, California. Oh, Marin. Marin.

Jimmy Lea: Marin County Small print. Is Daniel there with you? Good to have you with us. Glad we are here today and I am excited to welcome today. And Shayla says, yes. Daniel's there. Thank you. Welcome. Today, Eric Jorn from Kaizen, CPA. Eric is a CPA. He is an awesome member of the industry, an awesome member of the family, one of the certified vendors with the Institute for Automotive Business Excellence.

Jimmy Lea: So to you, Eric, good morning. Good afternoon. Thank you for joining us. Glad you are here today. 

Eric Joern: Hey, good. It's good afternoon for me and I think it might be good and morning for you. And it's, it feels like a normal Wednesday, seeing somebody from Alaska in Florida in the same day. I don't know if you can get more polar opposites.

Jimmy Lea: I, I love it. I love it. I, and you talk about traveling halfway across the world. I think of like Cindy Ries and Mike Somar and them traveling from Alaska all the way to Florida for the summit. 

Jimmy Lea: Yeah, you were at our summit conference. That was awesome, wasn't it? 

Eric Joern: Absolutely. It was a really great time.

Eric Joern: Beautiful resort. I'm looking forward to that again. 

Jimmy Lea: In 2027. Yes, 27. I had to do quick math there 'cause we go off years of STX, so we are the odd years. They're the even years. Yes. STX even years. So the in 26 STX will be in Washington, DC. Looking forward to it. We should see you all there too. Yeah, everybody needs to be there.

Jimmy Lea: So, yeah. We haven't decided a location for Summit yet, nor have we decided a date, but we have a pretty broad, wide field of options that we are looking into, so we're quite excited once that announcement happens, you'll probably hear it here first. Awesome. 

Eric Joern: We're very excited. 

Jimmy Lea: Yeah. Yes, Eric? So I've been working with my CPA taxes came around.

Jimmy Lea: We all had to do our personal taxes. We had to do our corporate taxes, you know, which were due in March and our personal due in April. There's a lot of fear trepidation. Anxiety about coming and talking to somebody like yourself, A CPA, who's, you know, you've gone to school for a long time, you've got all the certifications.

Jimmy Lea: There might be some things about my business I don't want to share, or I'm scared to share or embarrassed to share. Is there any sort of a guideline or anything that you provide to your clients that might be. Helping them on this journey of not being afraid to come and talk to a CPA. 

Eric Joern: Yeah.

Eric Joern: Yeah. So I mean, number one, right? Let's get past the fear of the sins of the past, right? Maybe some, something's a mess. At the end of the day, we're happy turning somebody into a better taxpayer. I. That's number one for us. If we can turn you into a better taxpayer, more compliant, get you on the straight and narrow, that's a win in our book.

Eric Joern: We're not gonna judge you for your, for something that's happened in the past, and we understand the reality of running a small business, right? We're busy every single day as a, one of the best things that happened to me is becoming an A partner in the firm so I can understand all the aspects of the day-to-day operations of a business and how demanding that is and how easy it is to.

Eric Joern: Get off track, deal with whatever you have to deal with. So when we start working with small businesses, our goal is to take the burden of all these obligations when it comes to generating a monthly financial statement, paying your sales tax, running payroll even filing a, even filing your tax return, and gathering all those documents.

Eric Joern: And we wanna take as much of that burden off your plate by creating great systems and processes to really make that make that. Not a interruption into your day-to-day of running your business. 

Jimmy Lea: Yeah. That's so true that helps. It reminds me of those tiktoks you hear where you see 'em and they're like, we listen and we don't judge.

Jimmy Lea: We listen and we don't judge. And so that, that's a lot of your position is listening to where they are talking to 'em about what they can do to. Be in a better position for upcoming years. Yeah. So when you bring on a new client, do you do a a three year review with them or do you just start fresh from today?

Eric Joern: Yeah. Yeah. So, all depending on the client's particular situation. So we all start with what we call a discovery call even before you become a client, to really kinda set the stage of where you're at. You know, maybe you're unsure about how things were done in the past. We usually ask for three years of tax returns.

Eric Joern: If you're able to provide it, only because that gives us a little bit of an insight of your journey. And if we think there's things that we can go back and fix, great. If not you know, we'll start from either the last filed tax return or, you know, wherever we even sit today. And then depending on the quality of your books, and where you kinda left off, we might make a decision of, Hey, we need to start fresh, or, Hey, we're gonna go fix what has happened in the past and kind of bring you along to up to current. One of the best things that's happened though is we've moved into this digital environment where a, you don't even have to drive over to.

Eric Joern: Your accountant's office and drop off paperwork and even paperwork is becoming a thing of the past. We're just getting online access to everything we can so you don't have to carry the burden of, I gotta go fit, make sure I have all 12 of my bank statements for the year, my credit card statements, here's my box of receipts, here's here's my printed out repair orders.

Eric Joern: It's a whole, so you don't 

Jimmy Lea: get shoe boxes of receipts anymore. 

Eric Joern: Oh no. Those days are long gone. Those tho, well, I shouldn't say long gone because we come across shops that don't even use shop management systems at this point still, which is close. 

Jimmy Lea: Wow. 

Eric Joern: I think there's things that they're trying to accomplish by not having it, but yeah, I mean, we see, we still see everything under the sun.

Eric Joern: But especially when we're working with shops that work with, associations like the institute I mean, they're already leg up ahead of what we see just out in the wild. Yeah. On a regular, recurring basis. 

Jimmy Lea: Yeah. There's a lot of point of sale systems that we work with, and it's interesting to hear their numbers when they say, you know, anywhere from 30 to 50% of our new customers coming in that are adopting our SaaS, 30 to 50% are coming from.

Jimmy Lea: Paper and pen or QuickBooks. So they're not using a point of sale system, which really does help them to optimize that the markups, the parts look up the matrix. It really does help with that. Many shops aren't doing that. They're still pen and paper or they have a QuickBooks or Quicken or something like that.

Jimmy Lea: So, absolutely. Yeah. I'm excited to hear that, that you meet the shop where they are. Yep. You're there to meet them where they are. You don't judge. Here's the situation, here's the facts, here's the numbers, here's the truth. 

Eric Joern: Absolutely. 

Jimmy Lea: And here's what we can do moving forward. We've got a couple of things we need to take care of and we're moving forward and here we go.

Jimmy Lea: That, that's wonderful. I and I hope that everyone. All my friends and family and everybody that's listening to this. And by the way, dad, no more shoebox with receipts. Okay. Eric, you heard it? Hear from Eric. He 

Eric Joern: doesn't want it anymore. My, my dad still tries to bring me his stuff in a plastic baggie, and I finally got online access to get everything.

Jimmy Lea: Oh my gosh. Is it That's, so your dad and my dad, same cloth? And yeah. So Dad, no more shoe boxes. So, so here we are. And thank you. I feel just even this conversation with you right now, it, the anxiety has just dropped so much in being able to talk to you. I think you are amazing.

Jimmy Lea: I think you do a phenomenal job in the automotive industry especially working with my friends and my family and I consider the automotive industry my family. I know you're not working with my family, but you are working with my family Absolutely. In the greater whole. So you've got information we wanna share and talk about here today.

Jimmy Lea: Eric the time is yours. I'll interrupt you with questions, comments, concerns, as we have those questions coming in from our audience for the live, we'll ask those questions. Go ahead and put those in the comments if you've got questions for Eric. Anything CPA, anything accounting wise?

Jimmy Lea: Let's ask those questions of Eric and as we go along, Eric, I've got a pretty curious mind, so you're probably gonna say some things that just trigger a wild hair. Absolutely. 

Eric Joern: I'm looking forward to it. And please, from the crowd. Any questions that you have specifically is only gonna help not just you learn and probably solve an issue, but it will help everybody else.

Eric Joern: We learn better from example. And you can listen to me talk and ramble straight through this whole thing. But if you bring your actual real life situations and we solve them today on this call, that's gonna be a win for everybody involved. 

Jimmy Lea: Love it. Let's do it. Let's solve the world's problems right here.

Jimmy Lea: And anybody here live will be able to cure. All ills. It'll be a successful lunch hour for me if we do that. Yeah. Oh, absolutely. Absolutely. Oh, one more. Shout out to Andrew Knutson joining us from Long Island. Andrew, and his wife for having a baby in about 50 days. A little girl. Oh, congrats. His first, congratulations, Andrew.

Jimmy Lea: Okay, so you, are you gonna share your screen and 

Eric Joern: Nope. There we go. 

Jimmy Lea: There we 

Eric Joern: go. Nice. All right. Yeah, so what are we talking about today? It is Mastering Your Shop's financials. Right. And one of my goals for today is to kind of demystify the complications that everybody has around financials, right?

Eric Joern: We sometimes pull up p and ls or balance sheets and it. It's talking in foreign language. It's three miles long. We don't know where to start. So our goal is to simplify this and let's say, hey, if I need to look at my financials once a month, I'm a busy shop owner. I got five minutes to look at it, and I need to answer a handful of questions.

Eric Joern: I wanna be able to walk away from today and answer those questions. So what questions are we generally looking to answer? Well, let's start with just, Hey, what is the most important report that I should be looking at on a regular, recurring basis? How is my business performing? Is it performing the standard?

Eric Joern: How am I tracking my spending? Right? Do I need to have every vendor broken out? Do I need to analyze every little thing? Hey, I had some profit, but it's not in my bank account. Where's my money going? And then overall, is my business healthy or am I in a good spot? Am I in good shape? So we're, our goal today is to figure out how to answer those five fairly simple questions utilizing your financial statements.

Eric Joern: But I'm gonna start with number one thing that we are looking at and we should be looking at probably even on a daily basis. Depending on the shop management system you're using, everybody's got their own flavor of it. We work with a lot of shops that run on tech metric. Their end of day report.

Eric Joern: It's great. It's got a litany of information and the decisions that we make on a day-to-day basis are. Almost as important as the long-term decisions we're making. But the one report I should be looking at on a regular recurring basis, and I think it's most important, is indeed this end of day type of report.

Eric Joern: Some type of monthly summary or daily summary of everything that happened in my shop and what are we gonna focus on inside of those? A lot of these great metrics that we have now, this is a whole year for a shop as an example, but it gives you some snapshots, right? We have total ros, so that gives us our car count.

Eric Joern: We could take a 2171 total RO count, divide that by 12. Right? And we're touching about 200 cars a month, just a little under that. We have our average repair order, 5 64. I think Jimmy and I had a discussion and we think institute members have a much higher a RO number than that. One of the things I really like is how many hours did we sell?

Eric Joern: How many hours did we sell in the month? Because there's important metrics that we should be thinking about, right? What is my actual cost per labor hour sold so I can price my labor correctly? That's super important. The send a day report or these summary reports give you those information, right?

Eric Joern: In a snapshot, what's my effective labor rate? How different is that from my door rate? How many, how, what's my gross profit per hour? What are my sales per hour for operating in operating my business and per hour sold? All these metrics are deep dives that you can get into to really move the needle.

Eric Joern: I. Another section we have here is a profit summary. We can load our shop management system if we are able, if we have good financials, we can come back to our shop management system and get really good data on a day-to-day job to job basis. And what happens, what, where can we make the most immediate impact?

Eric Joern: If we understand what our numbers should be while we're writing our new repair order. So we're gonna look at things like, Hey, what are my labor sales? What kind of discounts am I providing? What's my cost, my labor cost? Do I have the right cost in there? It. And again, we wa we talked about that.

Eric Joern: Take your total labor for the year for your production team, technicians and anybody else that's assisting in generating those labor hours. Divide it by those total hours sold. That should actually be your cost. Not the 35, 40, $50 an hour you might be paying as a wage to that technician. Parts costs.

Eric Joern: Our number one the money. One of the number one opportunities we find with shops is parts leakage. We're not tagging parts on repair orders. It's generally not even that the parts are stolen, broken, misused, comebacks, warranties. It's actually just we're making an administrative mistake of not tagging a part on a repair order, and not only do you eat the cost of the part, we lose the opportunity for that markup and margin that it comes with that part.

Eric Joern: Same thing with sublets. We might add a sublet on a ticket if we don't make sure, hey, we knew that vehicle got towed in. We gotta charge that client for that tow, including my markup. It's the same thing with missing parts on repair orders. And are those at and are those all happening? I. At the right margins.

Eric Joern: Right. I see on this example here, we're at a 46% parts gross profit margin. And that's gonna be all the way on the right, the second second line down 46% gross profit on parts. I know I would not be happy as a shop, right? We're looking at 50, 55% as our goal rate. Well, that tells me I have real time data.

Eric Joern: Hey, I'm gonna tinker with my parts pricing matrix. I'm gonna go in there and adjust some rates, and then I wanna see those immediate results. If we wait for the financial statements to make some of these immediate impact decisions. We actually we're, we're leaving profit on the table from that for that entire month from the date you make the decision till the date you close your books.

Eric Joern: So a lot of times that could be a whole month of. Extra gross profit. Say it's 5% that you can make that difference and you're doing a hundred thousand dollars a month in parts sales, right? That's five grand that you're missing out on because we're not doing a daily analysis. And this is where we would want to spend our time to do these day-to-day analysis.

Eric Joern: This is kind of just a special shout out. This is a nuance that we see. We coach a lot of shops on using some functions within their shop management system, and for us it is, Hey, how do I handle these weird transactions where I might not just get paid by a credit card check? Where it might be, Hey, I do have an internal, vehicle that I serviced, I wrote up an ro. How do I do it? Do I just not write up a repair order? Do I ignore some of the formalities of it? And we say, no, we wanna see all that data tracked, and we do another payment type to, to move that onto the p and l in the appropriate spot. So we do track the appropriate costs.

Eric Joern: So we use these other payment items. A big coaching area that we do with new shops when they start working with us is we want to direct the items from your shop management system to the right home on the p and l. Super important, but now we want to ask, we want to ask and answer the question. We know the report.

Eric Joern: We want to focus on the shop management system. It's the lifeblood of the financial statements for your shop. We're pulling as much data as we can from your shop management system to do accounting for your shop because it is gonna give us the most real time, accurate data possible. Now we gotta answer the question, is my business even performing?

Eric Joern: How do I look at my actual p and l and my balance sheet and know that, hey, my business is operating in the way it should. We're looking at five numbers. We're gonna keep it simple, right? Because we gotta start somewhere. Let's keep it simple. We're gonna look at five numbers. We're gonna look at our total sales.

Eric Joern: We're gonna look at our cost of goods sold. We're gonna look at our gross profit. We're gonna look at operating expenses and we're gonna look at net operating income. These are five numbers we want to track every single month to see if we're getting where we want to be.

Eric Joern: And there's a simple formula to that. You know, we get a lot of questions around, Hey, what is, what's, what should we be doing? And there's two ways you can answer this question. What does the industry do and what do we want to do? The industry normally says, Hey, if I'm running a loaded, which means I'm including things like benefits and payroll taxes onto my labor costs.

Eric Joern: Probably service advisor up in cost of goods sold as well. I'm shooting for a global 50% gross profit, 30% in operating expenses, and 20% net income, right? So this is our three goal criteria. If I'm doing unloaded, meaning I'm only focusing on. Tech wages without attaching benefits or payroll taxes.

Eric Joern: Then we're shooting for a 60% with 40% overhead and a 20% net income. Now these are, this is just a formula to get to a 20% net. Jimmy and I were talking about this earlier, that, hey, what happens if I have a different goal, right? Maybe it's 40%, or maybe it's just 10% and I wanna have a modest living. Maybe I want to take a higher paycheck.

Eric Joern: How do we, and then how do we get there? What steps can we take to make this formula work the way we want it to work? The cool things is the institute's developed a tool that we can actually back into the gross sales and all the various other input factors to get to this formula. Jimmy, did you want to jump in and, 

Jimmy Lea: Go through that?

Jimmy Lea: Yes, Eric, we do. We have a great calculator. I'd love to throw my screen up there so I can share with you this business calculator and those of you who are here that are in the audience, if you want to volunteer your numbers, happy to put them in here. For you, it could be your dream numbers, it could be your actual numbers.

Jimmy Lea: It could be, oh, these are the numbers of a friend. Oh, I have a friend who has. This. So the idea here is, and we'll go through this, Eric, I was grabbing some numbers that you were saying in your little sheet that you were talking about. Perfect. But let's say what's the salary that somebody wants to pull?

Jimmy Lea: What is your salary? Let's say it's 

Eric Joern: $140,000. Yeah. Well first if you're pulling, if you're, most shops are gonna be an S corporation. We're pulling $140,000 salary. We're gonna have a talk about if this is, if that's the most tax efficient way to pay yourself. Bingo. Yes. And I think you guys had a guest on there that, that hit on that topic.

Eric Joern: But hey, let's control our reasonable comp and maximize profits as an scorp. Okay. Just had to do my tax plug only because that's the whole other side of the brain that we operate 

Jimmy Lea: on. Hey, and I love it. I love that you said that. So do we want to adjust this 140? Should we make it different? Yeah, let, 

Eric Joern: let's bring it down to even $80,000.

Eric Joern: And I'll just say there's never been an IRS court case that said. Anything under eight or anything over $80,000 has not been a reasonable salary. 

Jimmy Lea: Yeah. And to replace an owner in a business to do everything that an owner does, it's probably gonna cost $80,000 a year to do that. So that's a great number, and I love that net profit.

Jimmy Lea: What do we want to profit out of the business? What do we want the business to profit 

Eric Joern: $200,000. I think 200,000 is fair. $280,000. It's pretty good. Take home. You know that from a, 

Jimmy Lea: yeah, 

Eric Joern: And on a million dollar 

Jimmy Lea: business, if they're doing a million a year, 200,000, that's our 20%. It's 20%. Three weeks vacation.

Jimmy Lea: We'll keep that. We're a five day work week. Anybody want to change that? Let us know. Put it in the comments by a five day work week. That means you're open for approximately 250. Days per year, and then there's a couple of holidays to consider. Yes, those have to be taken out dah. Yeah. We got you.

Jimmy Lea: Service manager pay 120,000. We can change this. What? What's a good service pay? Eric, what do you see out there in the industry? And comments? Comments. Anybody wanna put in? Usually we're trying to.

Eric Joern: Yeah I'll let the comment, we'll give it another five seconds for somebody to put something in the comments and then I'll give you my opinion. 

Jimmy Lea: Gimme your opinion. They're not writing anything. 4, 

Eric Joern: 3, 2, 1. All right. We're gonna go with what would be 10% of revenue. So, so a hundred thousand dollars, which cover your service advisor and or service manager cost.

Eric Joern: If you have a full blown service manager and they're not writing service, maybe it might be a little more, but we'll go with that. 

Jimmy Lea: All other operating fixed expenses we're in the 350,000 range. This includes putting minus your salary, what's minus your service manager. So this is your rents and your utilities and your licenses and everything else.

Eric Joern: Yeah. So that means we're gonna include all that ex 180,000 would be inside of our, that would all be inside of our overhead bucket. This is our overhead bucket. We talked about trying to achieve a 40 40% overhead bucket with all those included. So we might actually, that might only be another 220,000.

Eric Joern: Two 20. 

Jimmy Lea: Happy. So total expenses were right around $600,000. 

Eric Joern: Yep. 

Jimmy Lea: Okay, gross profit. On your sheet that you were shown, you showed a 46%, so I just grabbed a hold of that and threw it in here at 46. In that scenario, in that shop that you were looking at, I know it's all fictitious numbers, but what was the car count?

Jimmy Lea: Do you remember as you were looking at that? 

Eric Joern: So, let's see. We'll go with daily car count. Daily car count, and how many days were open. 5 5, 2 50. Two 50 divided by 52. We're open. 4.8 days on average. You ask an account, you ask an accountant to, to come up with a number, right? You know, I'm gonna want a pre precise number here.

Eric Joern: Come 

Jimmy Lea: up with a number. Doesn't mean have your calculator 30, say 

Eric Joern: 36 days. 36 days or 36 cars. 36 cars a day. 

Jimmy Lea: Okay. All right. So effective labor rate from your scenario that you're running. I, I. The font was a little bit small on my screen, so I couldn't see it. Yeah. Let's, but you talked about an effective labor rate.

Jimmy Lea: I did grab the average repair order, $584. 

Eric Joern: Perfect. We have that. And then our how many 

Jimmy Lea: texts is this? 36 car count. You must have six texts. Let's go with six. I was gonna say six or seven. Yeah. Oh, but you could do it with five. Oh my gosh, look at that. You could do it with four. All right, but we'll keep it at five.

Jimmy Lea: Tech productivity is at 71% do with that scenario. What did you have? Because 36 cars a day with five techs, you're looking at six and a half cars per tech. That's a lot of, that's a lot of cars. That's what I'm thinking. Comments. I need somebody to pipe up here, Andrew. Shayla, Tommy, Daniel, Chris, Bobby.

Jimmy Lea: 36 cars per day. Five texts. Too much. Too little. Let's 

Eric Joern: bring that down to the 36. Let's do the car count. Let's bring it down. Yeah, let's bring that down to nine per. Nine total. Nine per day. Nine per day. All right. If I do, nine times two 50 gets me my 2250 of cars for a year. Yeah, that sounds a little bit closer.

Eric Joern: Our effective labor rate was 1 24 15, so, or 1 24 

Jimmy Lea: current ro a ro. Average hours. Okay. Number of techs. We've got five techs. 

Eric Joern: Yeah, and I think we're gonna bring that number even down to probably three if we're doing nine cars a day. Okay. 

Jimmy Lea: 71% productivity. I'm at most shops that I'm talking to. We discover that they are somewhere between the 50 and 60 range for this exercise.

Jimmy Lea: We'll keep it at 71 and then we'll show you some really cool things that we can change here. Thank you to Daniel, Shayla, Chris, they said too little texts or too many cars. Yeah, and I agree. So I'm glad we changed that. What's your highest paid technician hourly rate? I'd love to hear that in the comments, but I know that you work with.

Jimmy Lea: A lot of shops, Eric. Yep. What's the hourly rate and 

Eric Joern: Yeah, before loading and adjusting for productivity. $50 an hour, seems about right. 

Jimmy Lea: Okay, cool. We'll keep that right there then. And we'll also keep our parts labor and we'll keep this right there where it is at 48. Perfect.

Jimmy Lea: So what we're saying is, if you want to do this. You want to be selling in this range, you can do what you're doing with 3.3 technicians. So either you need to increase the productivity a little bit or you need to increase your profit margin just a little bit. So if we let's play with a couple of numbers here really quickly, because you were talking about getting to a 58, even a 60.

Jimmy Lea: Totally agree with that. If we adjust this just to a 52 notice here that you don't need. An additional technician, you're able to do everything inhouse just by adjusting the profit margin, adjusting your parts markup, your parts matrix. You're able to hit all these numbers. 

Eric Joern: Absolutely. And that's a very simple, I love it.

Eric Joern: Very achievable. 

Jimmy Lea: Yeah. Just like you were talking about that $5,000 that you're missing out on one simple, slight little adjustment. Okay. Let's look at a couple of other things here too. What if we were to, and this is something that we talk about at the institute, and I'm going to use the average. So we have two averages.

Jimmy Lea: Which one should I use? In our a, in our advisor group, our a PG, the average of average repair order in our a PG group and our advisors group, the average repair order is $1,100. Within our coaching and our group member groups, it's anywhere from eight 50 to nine 50. So let's go conservative.

Jimmy Lea: We'll go with the eight 50 range. So anybody that comes in with the institute, you should be operating at this level. That's the average of what is operating at the institute right now. Eight 50. Phenomenal. Look at that. It brought down the number of technicians even a little bit more now. What if, what else should we adjust?

Jimmy Lea: Oh, let's adjust the productivity. Let's make our technicians a little bit more productive. 80% productive. What do you think, Eric? I think that's reasonable. Oh, it's totally reasonable. I. Look at that. Look at that. Brought down the number of additional technicians that would we'll need. We're down to 2.6. We gotta find a way to get a 0.6 technician.

Jimmy Lea: So here's what's interesting, Eric. By being 80, only 80% effective, we're still losing $101,000 per year. 

Eric Joern: That is a whole lot more money than anything that I can find in the operating expenses. Yeah. On this p and l right? We have 220,000 of other expenses. Yeah. Or we can focus on driving productivity and find a hundred, $1,000.

Jimmy Lea: 101. So let's adjust this to, let's adjust this to a 90% efficien productivity. Look at that. We just picked up $55,000. Huge. Huge. Now now this will blow your mind here. When Cecil owned his three shops, when he was managing the shop in mountain View California, his technicians were operating over a hundred percent.

Jimmy Lea: They were over 120%. In fact, I think it was 121. So let's just look at, so the reason I say that is a hundred percent efficient is possible. Absolutely. So let's look first at a hundred percent efficient. You could totally even lose a technician and be just fine. Alright let's operate at the the 115.

Jimmy Lea: You just picked up another $52,000. Oh, 

Eric Joern: we just found $150,000. Just finding moving one 

Jimmy Lea: needle. One. One. Yeah. J just our technician proficiency. So our technicians need training. Our technicians need to know what they're doing. We need to look at our shop process procedures in-house. I've seen shops where the filters are way over on the other side of the building, and your quick lube bay is way over on this side of the building.

Jimmy Lea: The tech has to go back and forth. Dude's walking five miles a day. 

Eric Joern: Absolutely. 

Jimmy Lea: No, let's bring it all over. 

Eric Joern: So look at your in-house. Yeah, I mean, think about right, are what? What is everybody's number one fear right now? Where am I gonna find my next technician? How am I gonna develop my next technician?

Eric Joern: Yeah. Look at everything that technician has to do. And can that be done by somebody else in the shop too? What? At what? Point in time, do I not need a technician to perform a function that they're performing? Oh yeah. And I'll say for some efficiency things, right. There might be things like when they're compiling an estimates and you need part, you need a part list.

Eric Joern: Yeah. And they're the ones actually on the physical card. You know? Can a service advisor use a standard guide and compile that? Sure. But. That's a probably a fine line, but is there anything else? Moving cars, right? It's the reason why dealers use Porters. Yep. And another life. I wrote Service Now we were spoiled.

Eric Joern: This was during the both during the unintended acceleration problem for Toyota and their Tacoma Tundra right frame rot issues. But we had technicians that were at over 200% productivity because we streamlined as many processes as we could. 

Jimmy Lea: Wow. Yep. That, and that's a lot of porters running stuff around.

Jimmy Lea: So the technician is more, more productive. I love that. You know what, that reminds me of a story I want to tell you about a shop that came to the institute and said, Hey, look, we've been to a few different training companies and every single one of 'em seemed to hit on these three things. And if you look at your car count, increase your car count, increase your average repair order, spend more in marketing.

Jimmy Lea: Yeah. And the shop came to us and said. Look, if that's your jam, that's cool, but that's not our jam. That's not what we want. That's not what we need. We need shop efficiency. We need to be more productive in our shop. So don't talk about these. We've got a solid average repair order with $650.

Jimmy Lea: We've got a solid car count. We've got a solid. Marketing plan. I need shop efficiencies. Great. Love it. You are in the program, so he comes in a family business. The success or failure of the family depends on this business. It cannot fail. That's some pressure, right? Absolutely. He comes in, he and his sister, and they're working the system.

Jimmy Lea: They're being coached and trained. Within nine months, they go from a 7% net profit. Did I tell you the 7% net profit part? Yep. 7% net profit. They couldn't break that. He's like, I just can't break it. What can we do within nine months? Got to an 18% net profit. Wow. Boom, boom. Right? The natural progression of him coming into our coaching and training program is to progress them into the GPG group.

Jimmy Lea: It's to a group environment, a mastermind. This is where you have a composite partner that keeps you accountable. So he moves into. The group environment goes to these meetings and goes and visits a shop, and they come away with an action list for that shop owner. 200 different things that you need to do on your shop, Eric, to make it a better, more attractive for the consumer, for the public to come in and purchase from you.

Jimmy Lea: Love it, 

Eric Joern: love it. And another shout out to that group environment. You know, we, as a firm, one of the best things we ever did was. Join an association that has, we call 'em financial review groups. Very sim this is your mastermind groups. These are your 20 groups. We have our 20 groups as well.

Eric Joern: So, and one of the best things we do is we go out, we meet, we spend a few days together, we come away with our long list of to-dos that our co o hates when we come back with that list. But it's a it's what moves us forward, right? It's one of those things that, Hey, what is working for your shop that's not working for mine?

Eric Joern: We're all doing right things and wrong things, and when we can com compliment them. One another. That's how we all move forward together. 

Jimmy Lea: Oh, 

Eric Joern: I love it. 

Jimmy Lea: I love it. I love it. I love that you're in a mastermind group for CPAs. That has to be the most riveting meeting you go to. Yeah, that was sarcasm. I was being sarcastic.

Jimmy Lea: Sorry. 

Eric Joern: Ironically, as a group of CPAs, we focus so much less on numbers and everything else because we're all good with our numbers. Good, okay. It's everything else that's challenging for. Oh, it's 

Jimmy Lea: a good meeting. So let's get to the end of the story here, because this is where I want to tell you that group environment that you speak so highly of.

Jimmy Lea: That we tout as great. This is where we want you to move into, because this is where you have that peer-to-peer accountability. This is where you really move the needle. You already heard we moved the needle 7% to an 18% net profit. Yep. Huge, solid. That's a changing event. It really is Now.

Jimmy Lea: Now nine months in the program. Now they move to the group environment. Now they've been in the program now about roughly a year and a few months. Let's call it a year and a half, record months, 24.9% net profit. 

Eric Joern: Huge. What? And that's better. The, we saw those industry averages, right? That I put up under the formula 20.

Eric Joern: That's above it. It's above 

Jimmy Lea: it. 

Eric Joern: It's above 

Jimmy Lea: it. 

Eric Joern: A year and change. And this just somebody 

Jimmy Lea: that came into the program a year and a half ago. Wow. Let's see this, I gotta think now, this September, ooh, I think it's this September. It'll be two years that this person has now been in the program. This family, I'm gonna call it a family because it's not just him it's.

Jimmy Lea: It's her as well, brother and sister and family. They have nephews, nieces, sons, daughters that are all working in this business, plus the additional family that you adopt because you choose to bring them into the family. They are part of the. Ship. They're part of the machine. They're part of what makes us awesome and amazing and takes us out to that next level.

Jimmy Lea: So a big, huge shout out to this shop, and he's a very dear friend. And I don't know, I'm not gonna name him in this environment, but if you want to know, come to me privately and we can talk about it. 

Eric Joern: Awesome. Awesome. I hate after all that excitement. I hate to drive us back to a PowerPoint, but there are a few things that we still want to drive home here.

Jimmy Lea: Well, let's do it. Let's drive it home, because even though this is the PowerPoint, even though this is the numbers, this is where we wanna put our focus and attention so that as a shop owner, we know, okay, do I have money in my pocket? Well, that's the wrong way to look at this. We gotta look at the long term.

Eric Joern: Absolutely. Yeah. So is money in your pocket? Absolutely. We have the formula, so whether or not we choose one of these industry standards, or we actually go through that exercise, we come up with our numbers, right? That that calculator is gonna give us what we need to hit for gross profit percentage, what we need to hit for operating expenses, to achieve the net income, the lifestyle the business infrastructure that we want.

Eric Joern: So we come up with those three numbers. We're just going to every month, what's our goal? Hey, are we hitting our goal? You know, we have our revenue number based on that target that we had. Were we above or below it? Are our cost a good sold where we need it to be to hit that number? Right? So in this case, this is just pulled right off of a QuickBooks p and l to snip shots of it.

Eric Joern: Now I, one thing, one downside with QuickBooks online, they won't do nice things like, Hey, I'm gonna calculate my parts costs off my parts sales to see how that corresponds back to my goal for parts margin. But we're gonna look at that gross profit amount, right? Is that 60, in this case, 64% gross profit?

Eric Joern: We're pretty happy with that number. How are we doing as a whole? Our part. So we, you could just take a little Excel sheet and just drop those few numbers in there, right? And we're talking again, five numbers. That's it. What are our parts sales? What are our tire sales? What are our labor sales?

Eric Joern: What our sublet sales shop, supply sales? And I know those, fortunately for those in California, you can't participate in that program. But we have parts costs, we have tire costs, we have sub labor costs, and we have our sublet costs and shop supply costs, and what are our gross profits and what do they aggregate to, you know?

Eric Joern: So when we say that 65% was at 55% under that 60% goal, I. Which, which category do we need to work on? Right? Maybe it's our parts sales. We go back to the parts pricing matrix. If it's labor, we go back to our efficiency. All the things we talked about with labor efficiency, right? That was moving the needle more than anything, right?

Eric Joern: Even more than a parts pricing matrix or whatever other costs we can carve off off the business. Maybe we're missing out on some sublet markup. Maybe we're missing out on sub shop supply sales now. Again, this from a gross profit standpoint, I'm pretty happy with how this p and l shook out.

Eric Joern: What are the other items we're looking at? What's our total expenses? Remember we talked about 40%, and that's gonna include all those overhead items. Also include the owner salary. Also include my service manager's salary to hit that 40%, and that's how we end up with a 24% net income percentage. Huge, and it's simple, right?

Eric Joern: Those are our formulas at least from the analyzing the numbers standpoint. It's simple. The complication is going out in execution. How do we drive those labor efficiencies, right? We wouldn't be able to hit this 24% without having our labor gross profit at 76% without hitting our parts sales. At 53%, we have to focus on our parts pricing matrix.

Eric Joern: This is our labor efficiency. Bringing the right cars in the door with the right a RO, the right gross profit percentages.

Eric Joern: And here's a breakdown of some of their largest overhead items with inside of that 40%, there's three items that we probably might wanna spot check inside of our overhead operating expense account. It's usually gonna be our three biggest items, right? Because that's the thing, you know, we can go through and we can beat up our uniform vendor, we can beat up our insurance provider, we can beat up our accountant CPA to help reduce some costs.

Eric Joern: Probably those are representing a fraction of a percent of your total p and l. We need to focus on these big heavy hitting items, right? What's our rent and marketing? Are we, you know, do we have enough? And that's the truth teller, right? Is do we have enough cars coming in the door to justify our spend on our space and bringing those cars in the door that tells us when we have a revenue problem, more so than a cost control problem, we need to make we, if we have.

Eric Joern: Four walls that cost us x, we don't really have an option to move the shop. So that's when we know we need to drive more revenue. Is our service manager percentage, is that in line? Right? Are we too heavy on the front end of things? And then, hey, in this case, they're just taking the most comp out of this deal.

Eric Joern: So their three top overhead expenses representing half of their overhead load is. What they pay their service advisors, what it costs for their four walls to bring the cars in and to compensate themselves to hit their financial goal that they have.

Eric Joern: So high level we talked about a few, just a few numbers. Sales. Did we hit our sales goal? Did we hit our cost of goods goal? Absolutely. Our total cost of goods sold was 36%. Our goal was 40%. We were under by 4%. Our operating expenses, our goal was 40%. We hit 40%. We're right on target. Our net income our goal percentage for that was 20%.

Eric Joern: We hit 24%. All these just pulled right off the QuickBooks p and l. Super simple. I would keep a spreadsheet with those five metrics. What's my goal? What's my actual, and what's my result?

Eric Joern: Now, a lot of times people ask, Hey, where, what about where I'm spending other parts of my money? You know, how do I control costs? How do I not let that creep out and get outta hand? How do I not let my overhead costs get outta control? Now you can. I analyze and you can look at what you pay your vendors every month and really deep dive and spend the time on that.

Eric Joern: In my opinion, time is better spent in actually setting a budget. What I'm willing to spend in those categories to hit that 40%. Right. The more we plan, the more we can prevent outrunning things running into issues. We're gonna actually create a budget and say, this is what we're gonna spend. And now we have, now it's our job to hold ourselves accountable every month to look at it.

Eric Joern: So I might look at a budget to actual and right, this is the first layer of, Hey, I'm gonna deep dive in my financial process. But creating a budget really should be your first. The first avenue you want to go. If you need to find a way to control costs. Because if you set a plan and you hold yourself accountable to it, that's what is going to prevent you from overspending and move the needle.

Eric Joern: So that's something I might look at is what's my actual to budget? You can build that out in QuickBooks Online. You have to have the upside subscription for it, the expensive one. Or you can just export 12 months of p and l to Excel. And then change your numbers, what you want 'em to be and drop in the other one.

Eric Joern: We have templates for that. We do that all the time with our clients and we actually even service some shops in a, what's called a fractional CFO seat that might actually, that will, we'd actually create help you come up with this plan in depth, create that roadmap, and then hold you accountable on a biweekly basis for that.

Eric Joern: Another question that we have that we answer is, I had profits. Now, where's the money? I hear the term cash flow statement thrown out a lot. Now, QuickBooks has got a function for a cash flow statement. That statement comes through. In a way in which only those who had to spend four years going to school, actually five to be a CPA and go take all these egregious exams to understand where it talks about investing, cash flows, debt service, cash flows, all these different items.

Eric Joern: And in reality, you know, for us on a day-to-day, month to month basis, it's not practical to look at that and interpret it and be educated to the point where we need to understand that particular rapport. And I don't think it's gonna answer the questions that we want to answer. We'll, let's do it even in an even more simple way.

Eric Joern: We're gonna run this balance sheet report, so at the end of the month into the prior year, and we're gonna display columns by year. That's the important part when we do that. And what this will return us is a. Balance sheet that shows us the prior year balances. So what's in our bank? What do we have for fixed assets?

Eric Joern: What do we have for other assets? What do we have for liabilities and equity? And it'll show it where that sits in the current month. And we'll just follow this along, right. Hey, we're up 50, 50 plus grand in cash. Our total assets are up, so we know we're actually holding onto some of our profits. Oh, it looks like we acquired some more short-term liabilities, but we paid down some long-term debt, but we're up actually a little bit altogether from a liability standpoint.

Eric Joern: And then, hey, we maybe took a lot of money out outside of the, out of the business, so I. Some of the money we're accumulating as assets and some of it we're taking out of the business. And you can actually foot the change in all these balances back to that net income number to exactly know where all your cash flow went from your net income.

Eric Joern: So when I don't know where the money went, I. From my p and l, I made a hundred thousand dollars. But where did it go? It's not in my bank account. Follow the balance sheet, see where those accounts all moved, line by line. And that'll tell you exactly where the money went. And usually we see that in the shareholder distributions account.

Eric Joern: Hey, we pulled that money out of the business. And then final question, is my business even healthy? Here we're gonna focus on this equity number right now. This. This shop was actually highly profitable and it's a new thing. And you'll see their balance sheet's not super healthy, right? We have more debt than we have assets, so we have negative equity.

Eric Joern: What we want to do is over a long period of time over trends, I. Years and years, we wanna see the equity section actually continue to grow, continue to accumulate versus going negative. The good news for this shop, right, we went from a negative two 60 equity to start the year and through the first quarter we actually chipped away at that.

Eric Joern: So we're improving the health of this business little by little month after month. Super important basic balance sheet item to look at.

Eric Joern: Slideshow is all done. This is our contact information if you did want to get in touch with us. Jimmy do we wanna open up the q and a or we wanna do a little a little other experiment about deep diving? 

Jimmy Lea: I. I like the deep diving. If anybody's got any questions, comments, concerns, type them into the comment section and yeah, let's dig into it.

Jimmy Lea: Let's, if not pull up your, 'cause you've got a how often is it that this report goes out to your clients when you're working with them? Is this a monthly or is this an annual 

Eric Joern: or quarterly? Yeah. Yeah, so this is a tool that we use when we hold something called a strategy session. So we can provide reports all we want.

Eric Joern: We try to make them as informative as possible, but we wanna actually sit down and talk to you about it. So something that we might bring up in your strategy session. Can everybody, am I sharing the right thing? Nice little graphical Excel workbook. There you go. This is just a a tool that we use.

Eric Joern: If we wanna do some more deep diving and if we want to answer some questions of like, how do we become more efficient? What goals do we need to set, where we do we need to be? So this will help us analyze trends. So like our average repair order from a period to period. Hey, is this seem, is this seeming consistent?

Eric Joern: What happened in September and November that it's so much higher than say in January, February? I think we can answer those questions, right? Those are. Maybe some seasonal aspects to our business. So this really gives us some tools to talk about different things. And let's look at the, the total view, this is kind of spreadsheet, this is my language.

Eric Joern: The graph is more everybody else's language. But yeah, we're looking at, hey, what's my average repair order? What are my gross profit percentages, labor, gross profit parts, gross profit? What's my overhead rate? And then what did my net end up being? And then we wanna look at maybe even some other items that help us understand, Hey, what does our car count?

Eric Joern: How do we back into those gross sales numbers? How do we know if we're pricing things effectively? How much overhead do we have per car? Every car that comes through the shop? How much does that, does it cost us to just have that car come into our building? How much per labor hour sold? What's our labor cost per hour?

Eric Joern: What's our revenue per hour? I think some of these numbers might have gotten jumbled here. Hope our labor cost per hour is not $158 an hour. That's, that'd be hard to manage. But what's our revenue per build hour? What's our gross profit per build hour? What's our net income per build hour. So this is this is how you can know if you're making money on a car to car basis is when you drill down into some of these metrics like that.

Jimmy Lea: Yeah. And that's something that needs to be drilled down, not just annually. 'cause you can't correct the ship if you're only doing it annually. You can't do it quarterly, you can't do it monthly. This is a daily analysis of those daily numbers. So those five numbers that you were talking about on the daily man, they're so valuable because it really does give you the indication if you are going negative further in debt or if you're on the positive rise, if you're increasing and.

Jimmy Lea: Making money. 

Eric Joern: Yeah. I mean even like our effective labor rate variance, right? That's a daily thing. I'm be looking at my, what is my how off are, what's our bound right? And usually we see around 10% is our bound of how often can I vary through vary from my what my street labor rate is, right?

Eric Joern: We set that labor rate to make it a gold gross profit if I don't keep that under control on a regular, recurring basis. That's how money walks out the door. We're never gonna get our efficiency number that we're hoping for if we're not doing that. 

Jimmy Lea: Yep. Gotta be careful. Thank you for sharing your spreadsheet there.

Jimmy Lea: That's, 

Jimmy Lea: that's awesome. 

Eric Joern: Yeah. Hey, 

Jimmy Lea: Go ahead. Sorry. Oh, 

Eric Joern: Yeah. If somebody wants this tool to use to tinker with themselves, happy to share it. Share it. Here's my I guess I can pop back to the, to my contact info. Yep. Awesome. Reach out. Happy to share it with you. If you want to call, jump on a call, run through an exercise.

Eric Joern: Anybody in the institute family is also part of my family, so I'm happy to provide that to any member. I. I don't sell anything. I'm not, I'm a partner here at the firm. I'm not one of our salespeople, but I'd be happy to walk through that with you without any pressure of coming to work with us.

Jimmy Lea: Nice. Thank you for that offer, Eric. That's very cool. So, anybody that goes to Kaizen that's scanning this QR code, make sure you, that you saw them on a webinar with the institute. Yeah. That way you get some the institute experience there with them. So thank you. Thank you very much for doing that.

Jimmy Lea: And is this also an email that'll 

Eric Joern: get to you, Eric? Absolutely. Yeah. So this is, it's a shared inbox, but I'll see them come through and I've instructed my team to write on anybody requesting this directly to me. 

Jimmy Lea: Beautiful. Beautiful. Thank you for all you're sharing with us today, Eric. Really appreciate that.

Eric Joern: Yeah, my, my pleasure. It was a good spirited conversation. We didn't get too far into the. Deep dive into spreadsheets and hopefully everybody was able to follow along 'cause we didn't get too far into the number crunching. 

Eric Joern: Yep. 

Jimmy Lea: But we got in there and this is good. And you know, the, this is what we do with our vendors in the industry is we lock arms in together we, we make a difference.

Jimmy Lea: And for the institute, thank you for the institute for sponsoring this webinar. They have a phenomenal advisor, program manager, program coaching, one-on-one, even group environments. So if this information you're finding valuable and you would like to join the institute, we'd love to work with you, go to our website.

Jimmy Lea: We are the institute.com book, a business review, book of business analysis so that we can look at your business. We're here to listen. We will not judge. We're here to listen and we'll take those next steps with you. So that you can be a profitable business as well. It's a total different set of skills, right, Eric?

Jimmy Lea: It's a different muscle set compared to being a technician working on a car. Now we 

Eric Joern: have to work on the business. It's the hardest, har hardest leap to make for a business owner in general. Absolutely. 

Jimmy Lea: So true. So true. 

Jimmy Lea: Thank you Eric. Really appreciate it, brother. Thank you guys. Nice. We'll talk to you again soon.

Jimmy Lea: See you guys next week.