My $1.2 Million Business Is Making Zero Profit

From the headquarters of Ramsey Solutions, this is Entree Leadership. I'm your host Dave Ramsey with over 30 years of experience leading in the trenches right alongside you. If you got a question for the show, go ahead and click the link in the description. Cody is in Orlando, Florida. Hey Cody, what's up? All right. So I am the owner of a small uh automotive repair shop. Um we have four full time employees, uh five including myself and two part timers.

Um our revenue last year was one point two million and we are struggling with cash flow. Why? Um mainly we went through a slow time, uh starting by the beginning of November, um, through the end of the year. And uh we were pretty much pretty tight going into that. And um So at one point two you're not profitable?

Correct, yes sir. And we so we've been open uh we opened July of twenty two. So a little over three years in. But you're bringing in one point two million and you got four employees and you're not profitable? Yes, sir. Okay. So um So you don't charge enough for your repairs? I my labor margins are horrible I've found. Um, I mean you're either overpaying for parts and labor or you're undercharging for your service or both. These are the only components that make up cash flow.

Okay. Yeah, we um we're in a very rural community. Um and that's another thing too uh Um or you know, our labor rate I think is competitive. Um, but we've we've compared some jobs to shops surrounding us and um, you know, we want to be competitive but Um we seem to be a little bit more than a little bit of a little bit of a little bit of a little bit of a good thing. Right. Competitive I worry about if I'm making too much profit and they're stealing my business away. Yes, sir.

Closed, we don't care if you're competitive,'cause i if you're not making a profit on one point two million, you've got to adjust something or you don't get to exist, agreed? Yes, sir. So we just need to decide what we're going to adjust. So where do you think the adjustment is possible? Labor cost parts down or price up? I feel like we're definitely not cheap by any means.

Okay, so you're what you're saying is is that if the labor is competitive and your price is competitive, that your competitors are all breaking even or losing money. It seems that way, yes, sir, from what I've heard. Not logical, dude. Yes, sir. I mean Everybody's got a r auto repair business in your area in a similar setting is all losing money or breaking even.

Uh why would they all be doing it? They're not. Okay, they're making a profit somewhere. There's something that you and I are missing in this discussion, and I don't know what it is.

But um if I'm you, if you wanna c solve cash flow issues, that's it. I mean cash flow can be caused by your borrowing money or it can be caused by other stuff. You got a bunch of debt on this thing? Uh, so total we're in it for about two hundred and fifteen thousand right now. Good Lord. Why? What'd you do? Um I've got I had an initial fifty thousand dollar loan when we opened. Um pretty much to get the business established, equipment.

Mm-hmm. Payroll. And what's the other two hundred thousand for? Uh I got a eighty thousand dollar line of credit, this personal line of credit that I used to fund it. To cover the losses? Yes, sir. Okay. Well that's not that's not sustainable. two uh credit cards, business credit cards right now that have about Uh Forty thousand total.

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I would say one of the issues that I'm having is we have a good bit of accounts receivable. Um for whatever reason I've got some we've never really had to deal with collecting it. Um but we've got some stuff that's out, you know, ninety days and a decent amount that's out sixty days as well. Why are you running accounts? Uh it's mainly for local businesses, um, you know, that do multiple multiple things a week with us.

Yeah, well just tell'em to get a put it on their debit card or their credit card and just pay you. Yes, sir. Yeah, we've got about sixty five thousand in receivables right now. Okay. Well I would do away with that. Okay. There's no reason for you to not be in the cash only business. They can if they need to cover it, uh I mean their guys can walk in and use a company card and and or you keep a card on file and just charge it to that card.

And you run an open account over to their card, their debit their business debit card or their business credit card. And there's no reason for you to be their bank. You don't have enough money to be somebody's bank. Um I would do away with ri accounts receivable in this situation. There's no reason for it. You're not gonna lose a dime of business. Just say we're converting it all to customer accounts. I just need a card to bill your stuff to from this point forward.

And I need to collect on everything that's outstanding and you need to do that yesterday. And you got something out there ninety days, you got a good chance you're not getting that money. You need to go get all that money right now. Yes, sir. I started a last statement. I put a disclaimer in our um statements, you know, the three percent charge for anything over thirty good. You need to pick up the phone and call them. Yes sir. And and here's what you say. Hey guys, I'm a super small business.

I've discovered receivables are about to put me out of business. And I'm so sorry, but I have to collect this. You guys have been a good customer. We appreciate you. Can I swing by and pick up a check today? Yes, sir. And go over there and get a check. And and just be kind, but just go, I'm a small business. I I the I didn't know what I was doing. I made a mistake and

This is these receivables are gonna put me out of business, so I've got to stop doing it. We're gonna put you on a card at from this point forward. You give me one of your cards and we'll pay you. You happy to do your repairs and get out of the receivables business. Because that is a cash flow burn. Yes. And so that does explain where sixty five thousand of your last forty and eighty went, right?

Yes sir. You're covering that loss because you got that cash you got all the labor and parts going out and your margins aren't big enough to absorb that blow. Yes, sir. So yeah, stop that for sure today and then go collect it tomorrow. Um How many of these businesses are there? Oh, probably fifteen or so. Okay. So fifteen phone calls is not that big a deal. You could do that before noon tomorrow, right? Yes, sir. Yeah. And then run by each of those places and pick up a check. Um

And then and y and when you're on the phone with them, just say, Hey, I can get your card information now. I'll set you up an account here to just charge to your cart your company credit card next time they're in. So we can keep taking care of your guys. We want to take care of'em. Yes, sir. And if you lose one you didn't lose anything'cause they weren't gonna pay you anyway. Right.

So um yeah okay. So that's gonna help a bunch because that's I mean if you average that out over a year, that's five, ten thousand dollars a month. That starts to be a a dent. Um

And then the second thing that's going on, probably, I'm not sure, but I've dealt with uh auto repair stuff enough, is that you guys are buying too many tools and pieces of equipment. You need to make money with what you have. The next time the Matco Tool guy comes around, tell him to take a hike. You've got enough stinking tools. Yes, sir. Because you guys are addicted to gadgets. Did I just read your mail?

Yeah. Um let's see. Yeah. Yeah. Okay. That's what I would do. Okay. So I I want to get off the gadget train and we're not going to quit buying crap. We're going to start making money. We're going to raise our prices five percent across the board. Um, and I'm gonna tell the boys we gotta tighten up the shop and clean up the shop.

Everything's gonna have to be detailed and we're gonna tighten up the cash flow or no more receivables, collect the outstanding receivables, put everybody else on a card, run off the bad business, which is perfectly fine. I'd rather do no business and business I don't get paid for. And uh then that'll help you turn this thing around, I think. But don't start with the assumption that all your competitors are losing money.

That's not a realistic assumption. And quit borrowing money to cover all this. That's you're sustaining this thing, you're propping it up and not dealing with your issues. So this debt is gonna kill ya. It's gonna catch up with you and take you out. Folks, if you enjoyed today's episode, be sure and like, share, and subscribe for more great leadership content. I'm your host, Dave Ramsey, and this is Entree Leadership.