193 - Ask Me Anything: Why Most Shops Aren't as Profitable as They Think February 18, 2026 - 00:58:05 Show Summary: If your shop shows strong net profit but your bank account feels empty this episode explains why. It defines the gap between paper profit and real cash flow and outlines debt service coverage current ratio and two turnkey rates that reveal true break even. The conversation exposes hidden profit drains such as inaccurate labor costing excess overhead unused subscriptions credit card fees insurance costs and parts leakage. It also examines marketing ROI customer acquisition cost lifetime value and technician utilization. You will leave with a clear plan to protect cash strengthen reserves and make confident financial Host(s): Kent Bullard, COO of The Institute Guest(s): Eric Joern, CPA, CM&AA, AAM, KAIZEN CPAs + Advisors Show Highlights: [00:02:29] – Why profit on your P and L does not mean cash in the bank [00:05:54] – How debt service coverage reveals true financial strength [00:08:26] – Current ratio and short term liabilities explained simply [00:11:00] – Sales tax mismanagement and the tax squeeze trap [00:13:45] – Inaccurate labor costing distorts gross profit [00:16:30] – The two turnkey rates every shop must calculate [00:20:10] – Marketing ROI customer acquisition cost and lifetime value [00:33:10] – Subscription creep and IT spending that drains profit [00:51:00] – Parts leakage and missed charges costing thousands [00:54:45] – Simple expense audits that uncover hidden cash In every business journey, there are defining moments or challenges that build resilience and milestones that fuel growth. 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Episode Transcript: Kent Bullard: Hello everybody and welcome to today's Ask Me Anything. Uh, I'm joined with Eric Jorn from Kaizen CPA. Um, I said that right? Correct. Kaizen, Eric Joern: you, you, you guys got it down. Kent Bullard: Nailed Eric Joern: it. I appreciate that. Love it. Love it. Kent Bullard: To today, we're gonna be talking about why you're not as profitable as you, you think. It. Um, this isn't a MA so as you guys are asking questions in the comments, me and Eric are gonna be paying attention to that and making sure that we get those questions answered. Kent Bullard: Okay. Um, a few things I want to just touch base on and we'll, we'll re revisit this again, but we have a few things that we've got coming up that we're doing in partnership with Kaizen. Which is we have a financial intensive, which is gonna be going over all of your finances, getting everything set up correctly. Kent Bullard: Um, here at Institute Headquarters in April on the 23rd through the 20. Fourth, I think it's a two day. Um, you guys can find that on our website at we are the institute.com/events or upcoming events. Um, and check that out. It's gonna be fantastic. Eric, do you wanna speak a little bit to that? Eric Joern: Yeah, yeah, I'd love to. Eric Joern: We're we're excited. We have, uh, our whole entire partner group will be there. So you are getting the whole roster of heavy hitters and it, and it is gonna cover finance from A to Z meaning. How does this interpret financials? Your basic p and l and balance sheet, and what information to clean from that? Eric Joern: All the way to I've exited my business and how do I manage that new wealth that I created through the process and obviously the steps on how to get from A to Z to. That, uh, that wealth creation stage. Kent Bullard: We've had a lot of people, especially through our, our round tables and through through the institute work that have asked for, you know, something like this and we, we spent a lot of time going through all the items that need to be included in that us as well as, uh, oh, I guess I'm Cecil today. Eric Joern: Love that. Kent Bullard: But, uh, to really just define exactly what you guys need in an intensive. So if you, if you're really scrambling with your finances, this is a, this is the intensive. You should, you should attend. Um, and the last thing, and maybe I'll say that for later, let's, let's just jump into some content. Kent Bullard: Okay? So Eric, I'm gonna ask you why. In your experience with the shops that you worked with, why do you feel that they're not as profitable as they think they are? Eric Joern: Wow. Do we not only work with around 200 shops ourselves as current clients, we probably talk to another 200 shops every year that, that are not clients. Eric Joern: So when we're talk, when we're going through the financials, right, that actually one of the biggest questions we get is, I made money on paper, but I have no cash. Right, and profit can be an interesting thing to to think about, right? You can just say, Hey, this is what is on my p and l, and I'm good and happy with it. Eric Joern: All, but what we don't know is we were hyper leveraged. Meaning we, we used a bunch of loans to buy everything that we needed, or, hey, we're early, you know, we're early on year one, two, or three. We had to go out to the bank, get loans to buy all the equipment to maybe we bought the shop and now we're paying the TE service. Eric Joern: Well, that, that's not accounted for on the bottom line on your p and l No, that comes out of your profit. So that might be one of the, um, supernatural reasons why you, uh, you might not feel like, Hey, I'm as profitable as the, as the p and l my accountant gave me. Or even worse, the tax return said. Kent Bullard: I mean, there's a lot of things, there's a lot of things you can look into. Kent Bullard: You know, I, I've, uh, had a client in the past where, I mean, they were doing about 27% net profit. And so we went through the numbers. We looked at their, their gp, we looked at their parts, we looked at their labor, we looked at their expense controls and everything, and they were a 27%, uh, net operating profit. Kent Bullard: But like you just said, they were over leveraged. They took a lot of loans. They, they overextended and so their debt repayments every month was like $13,000. So it was eating all of their profits up, let alone being able to set anything aside for taxes or for, you know, being able to, uh, you know. Have, have a, have a cushion, right? Kent Bullard: I mean, how many shops out there have you worked with that don't have that? You know, three to six months of operating capital. Eric Joern: Yeah. Build a reserve, right? Pay down debt. Eradicate debt. Build a reserve. Oh, and you gotta pay taxes too, right? So maybe you hit $300,000 of profit on paper and you could be. That profitable performance wise. Eric Joern: But now we're paying a third Don, uncle Sam. The third goes to debt service and the third is sitting in our savings account. 'cause we had no emergency savings. Kent Bullard: That's right. And think about that. So if you've, if you've, if you're showing net profitability on paper and you don't have any money, what's gonna happen come tax season? Eric Joern: Yep. You're gonna, you're gonna get squeezed. I call it a, the tax squeeze. Kent Bullard: It hurts, it punches you in the face. Eric Joern: It's uh, it's something that we dealt with a lot. Uh, you know, we've worked with businesses outside of the automotive repair industry. Um, our construction contractor, contracting friends. Right. You guys see 'em in your shops, right? Eric Joern: They get new trucks pretty, pretty frequently 'cause they don't want to pay tax. Right? So they're buying trucks every year, but they buy 'em on loan and eventually we run out of deductions 'cause we're accelerating. We're super aggressive 'cause we don't wanna pay tax. And now we gotta pay loan payments. But I run out of deductions. Eric Joern: Next thing you know, I have no cash 'cause I'm using it to pay my my trucks off, but I don't have the tax deduction 'cause I used it or maybe even wasted it in prior years. Now all of a sudden, I don't know where I'm gonna get the cash to pay my taxes. And we see 'em on installment plans for taxes all the time. Kent Bullard: So, you know, we might be, there might be somebody out there right now who's like, well, I'm not profitable. Yeah. I, you know, so I'm not even showing profit on paper. How do I, uh, and in fact, I'd love to just talk to you about this, about cash flow strategies. How do I know if I'm in a healthy position or not? Eric Joern: Yeah. We, um, couple things, right? So a, we can put on our banker's lens and a banker's going to look for one and a half to two times what's called debt service coverage ratio. Meaning I'm making enough. Profit and cash flow from my operations to cover my debt. At least one and a half. My debt payments at least one and a half to two times throughout the year. Eric Joern: So meaning if say, so Kent Bullard: what's the, Eric, what, what would be the formula for that? How would I know what my ratio is and whether or not I'm, I'm one and a half to two over. Eric Joern: Yep. So what is, what
