Why Busy Shops Often Feel Broke

Welcome to Ratchet and Wrench Radio,

produced by Endeavor Business Media,

a division of Endeavor B2B,

bringing you strategies and inspiration

for auto care success.

The Bays are full.

The phones won't stop ringing.

Sales keep climbing.

So why does it still feel like there's never enough money?

In this special three-part Ratchet and Wrench radio series,

CPA Nick Papakarikos breaks down the financial realities

independent shop owners face every day

and the systems that can change everything.

Hosted by me, editor Christine Schaffrin,

the series explores why growth alone

doesn't guarantee profit,

why private equity is betting big on auto repair,

and how shop owners can turn years of hard work

into long-term financial security.

Episode one dives into the busy but broke trap

and introduces practical strategies

to take control of cash flow, reduce stress,

and finally make profit a priority

instead of an afterthought.

Let's listen in.

Welcome to Ratchet and Wrench Radio.

Today, I am here once again with Nick Papakarikos.

How you doing, Nick?

I'm doing well. How are you, Christine?

Good, welcome back.

It's always great to have you here.

Thank you, it's a pleasure to be here always.

You work with auto repair shop owners every day,

and today we're kicking off a three-part series

called the Financial Future of Independent Auto Repair Shops.

Nick, tell me, what got you fired up

enough to wanna do this whole three-part series?

Well, we work with independent auto repair shops

all across the country,

and there's so much potential in this industry,

but yet we still come across

so many really hard-working shop owners

that just struggle,

and they just need somebody to point them

in the right direction to change their life

and really just change your whole attitude.

I'd like to say this is,

this first episode is what I really call

life-changing one-on-one,

because once you understand what happens,

you just, your whole world changes.

And your podcast is the perfect place

to reach independent shop owners,

so we wanna help them make their business

everything that they dreamed it could be

when they first started.

Everybody starts out,

when they start their own business,

they have this beautiful vision and dream

of what they want it to be.

Oftentimes, it devolves into basically

what feels like a menial job that you're stuck in

and your business owns you and you can't get out of it.

So that isn't the real world for auto repair shop owners

if you get the right advice.

So let's break it down.

We've got three episodes here to map out.

Episode one is...

It's today's episode.

It's why do busy shops still feel broke sometimes?

And then episode two will be...

This is the interesting one

that I don't think has covered all that much.

Most shop owners are aware

and have heard horror stories about private equity.

Well, what does private equity see

and why is it buying all these independent auto repair shops

like yours?

You know, what do they see that's wonderful

in this industry that maybe you don't

or maybe you knew once and have kind of forgotten about?

And then to wrap it up in episode three,

what are we gonna cover?

Well, this is the roadmap to what you do

with what you learned in the first two sessions.

So it's how to move from being simply

an independent shop owner to what I say

could really be generational wealth for your family

or at least that great sale for your business,

far greater than you will get

if you didn't understand this information

and didn't follow what we talked about in the third episode.

So we're trying to lead these shop owners on a path here

that gives them each piece they need to know

in small bite-size amounts.

And then our goal is at the end,

if you already know what a great business you're in

and a great industry,

you'll have some really good information

on how to use that information

and make it even better.

And if you're maybe a little bit burnt out

or maybe a little bit sort of on the fence,

this is gonna give you a whole new perspective

and as I've always said, we're here to talk.

We encourage anybody who wants to reach out to us

for free consultation, we'd have you to chat about it.

Because at the end of the day,

what we like to do is when I put my head on my pillow at night,

I wanna be able to say to myself,

we really helped somebody change their life today

and that's what we tell all of our team.

We are fortunate to be in a business,

the advisory work that we do

that allows us to really take somebody's dreams,

understand it and help show them how to make that happen.

We can make it happen, obviously,

but for a lot of people,

they just don't know what they don't know

and that's our job is to fill in the missing pieces

and help them get where they wanna be.

Well, we've got a great framework,

so let's get started by setting the tone for our listeners.

Great, so let me ask the shop owners

who might be listening now.

Is your shop busy?

I mean, like really busy.

Cars in the lot, days of full,

phones ringing off the hook,

but somehow at the end of the month,

you're still asking, where's the money?

My sales are growing crazy,

but my bank account never seems to move,

it still stays at the same place.

And to boot, on top of that,

you might have customers telling you,

no, 50% of the time when you go off at services,

you might even feel held hostage

to some of your key employees.

Some weeks you don't even get paid,

some days you go home so exhausted

you can't climb up the stairs to the house,

or just in a bad mood.

You don't feel like you own the business,

like I said before,

you feel like the business owns you

and you can't easily quit.

And then the end is, you just wonder,

will this ever change and can it ever change?

So if any of that sounds familiar,

I tell you, you're not alone.

And more importantly, you're not doing anything wrong.

You're just running your business on a system

that was never designed to make you wealthy.

I'm sure that's going to strike a chord

with a lot of people in our audience.

So if they're doing everything right,

working hard, growing sales,

why does it still feel like they're broke

or running on a treadmill?

Well, there's a trap that most shop owners

walk straight into.

And it starts like this.

Everybody, not for dumb reasons,

starts with the belief that

if I just grow my revenue, I increase my sales,

everything else gets better.

And that's true to a degree,

having more sales is better than having less sales.

But that isn't really,

that's all you understand.

You're missing the big picture.

So what actually happens when a shop grows revenue?

Well, a few things, and they're not all good,

contrary to what you might think.

So growing sales can do some bad things.

It can cover up a lot of profit leaks in your business,

at least temporarily until the leaks get so big

that both starts to sink.

Things like low margins on labor and parts.

You might have a lot of volume,

but if you're not getting the right margin

for all the good operational reasons

that we coach our clients and talk to our clients about,

well, you're undercharging for your work.

Maybe your inventory is out of control.

You have cores are not being returned.

You might even have a case of theft from employees, fraud,

you know, all kinds of problems that could be there.

When sales keep growing,

and it's like a classic Ponzi scheme,

more money keeps coming in,

but more money keeps going on the back door.

And until you know what's going on,

you just, you feel like you're on a treadmill.

So the things I just mentioned

are all important things and factors

to handle in your business,

but they're a topic better left for a different day.

The thing that we wanna talk about today

is that let's set all those things

I just mentioned aside for a minute.

Let's assume your shop has none of those problems.

You can still be busy and feel broke.

And here's why.

Your shop goes from a million dollars

and doubles to 2000000 dollars.

Suddenly you have more technicians,

higher payroll, higher work as comp and liability insurance.

Maybe you feel pressured to keep your employees

to offer the pay for a summer day health insurance,

maybe all of it, offer a retirement plan.

Life just gets busy, there's more chaos.

In your take home pay, sometimes they remove.

I've heard you say before it kind of blows people's minds

that a $3 million shop owner

can actually make less than a million dollar shop owner.

Is that really a true statistic?

It is, I've seen it with my own eyes

and I'll come back to that at the end as well.

But the simple explanation,

this is really the underlying point

of everything we're gonna talk about in this episode.

The simple explanation comes down to human nature.

As your sales increase, so do your expenses.

Maybe not right away, but very quickly.

So here's an analogy that I like to use.

I think most people can relate to it.

Think about a busy road or highway near where you live.

One that over the years has become more and more congested

and oftentimes when you're on that road,

you just sit in traffic for so long, you can't believe it.

So finally, the city decides to widen the road.

When it's done for a few weeks, maybe even a few months,

the traffic eases up.

But then it starts to get bad again.

Why?

Because now that the road is wider,

more people decide to take that road and the traffic returns.

So the same thing happens in your business.

The more money you take in for sales,

the more money that's sitting in your bank account,

the easier it is for you to stop making bad,

spending decisions and spending that money.

There's actually a name for this concept.

It's known as Parkinson's Law.

And what it means in our context is the more you make,

the more you spend.

And I know that everybody, including me,

can understand that.

It's just human nature.

Now, if you find yourself flooding cash

and all of a sudden the stupid decision you might wanna buy,

the stupid thing you might wanna buy,

you can rationalize just about anything.

So it was originally applied curiously enough to time.

What it means, something as simple as this,

that work expands to fill the time available.

So let's say you had two weeks to get a job done.

And this job could really be done in a week.

If you have two weeks to do it,

you'll almost always take the full two weeks

to get it done because you have that time.

That's the trap.

That's the revenue trap.

It's a good analogy, but there's another layer to this.

Some shop owners do show a profit on paper.

Their accountant shows them the numbers,

but they still feel like they're drowning.

What's going on there?

Well, this is where it gets really important

and really confusing for a lot of shop owners.

So your accountant, somebody likes me or your bookkeeper,

hands you a P&L and it says you made money.

But your bank account still feels like you're drowning.

You're having a hard time taking the bills.

So you ask yourself, well, why is this happening?

What's going on?

Well, profit on paper isn't the same as cash in your pocket.

Now it's true that when you make a profit,

there's cash being created somewhere,

but that cash doesn't necessarily make its way to you.

So here's what's eating your cash many times.

You're putting money into inventory.

Maybe you're buying more parts more aggressively,

the parts you don't use, don't get returned quickly.

If ever, cores don't get returned, the cash goes out.

And if you look at your financial statement,

your inventory number is gonna keep increasing.

It shows as an asset on your balance sheet,

but it's not cash in your pocket.

You might start to buy equipment.

Maybe you decide I want an alignment machine

or I want to buy an inspection machine

for my state if we do inspections.

You find equipment that you're on a rush,

you're growing your sales and you think,

well, gee, I had this piece of equipment,

I could even grow even faster.

And that's not a bad decision on its own,

but it's a decision you want to be very judicious about.

Your insurance costs go up.

Work as cop policies are a great example.

When you buy your work as cop insurance,

the insurance company asks you to estimate your payroll

for the year and you pay that premium.

Well, when the year is over and the policy is finished,

they send you a little audit letter

and they say, well, tell us what your payroll really was.

Well, as you're growing and your sales have increased,

there's a good chance your labor has increased as well,

which means the $10,000 you paid for work as cop insurance

over the course of the year,

based on your actual payroll,

maybe it should be 15,000 or 20,000.

And now the insurance company says,

here's the bill for the difference.

Again, if you don't know that's happening,

it's just a punch in the gut and there's ways to deal with it,

but these are the things that happen.

And then taxes, you know, talk about punches in the face

that you weren't ready for.

You're showing a profit, there's a tax bill to pay,

might be even just the monthly sales tax bill,

whatever it is, when that money comes in,

you're so busy day-to-day in the chaos running your business,

maybe you forget when the tax payments are due,

or you let them slide thinking,

well, I'll catch up later on,

which is just not what you wanna do.

So you're profitable on paper, but you don't feel it

because your cash is tied up, spoken for,

it's already gone somewhere.

So essentially busy doesn't mean profitable,

and profitable on paper doesn't mean cash in hand.

So what's the fix?

Is this where you start talking about a different way

of running the numbers?

Exactly, it's the one simple shift

that literally changes everything,

and that's why I like to call this life changing.

So the thing I want you to really think about

is a shop owner, because I hear this a lot,

people say, well, I wanna go out and buy a second shop,

or I wanna expand my facility.

Those are all wonderful things,

but this system works without increasing sales,

but of course, once you do increase your sales,

it works even better.

Most businesses operate like this.

Sales is the one accounting principle

that most shop owners understand,

every business owner owns it.

Sales, less expenses, leaves profit.

It's what we've all been taught,

it's what your accountants will talk to you about,

and as I said, it's the one thing

that most business owners probably understand about accounting.

The key is whatever's left over, that's yours,

that's the profit, but let's be honest,

there's never anything left over,

if there is, it's very little.

So the whole profit first concept

flips this concept on its head.

We say that sales minus profit equals expenses.

By that I mean, you take the money out

before you pay any bills, you take out your profit,

put it in a separate bank account,

and you pay expenses with what's left.

Profit comes first, not last.

So you're saying profit comes before you pay your bills,

that sounds contradictory to what most people,

like you said, have learned their entire lives.

How does that work in practice?

I know, it sounds crazy, but stay with me for a minute,

because this is where the structure comes in.

So think of when you were a child, when you were a kid,

it's like eating a dessert first,

because if you wait until after dinner,

you might not have room for it.

And what does your mother tell you, she's a good mother?

You don't eat your dessert first

because you won't have room for it, that's a bad thing.

Well, when we flip this concept on its head,

and we reverse it, it's more like going on a diet.

You're trying to lose weight, and you love cookies,

the best thing you can do is remove the cookies

from the house, don't buy them at the grocery store,

don't leave them in the pantry,

if they have some stashed away,

try to remember where they are and get rid of them.

So you won't be tempted.

Well, when you take profit first,

and we'll show you how to do this in a minute,

you force yourself to run the business on what's left.

That's a good thing.

So moms, don't worry,

we're not teaching your children bad habits here.

So that constraint that you're creating for yourself

is exactly what creates the financial discipline.

We're trying to take our human nature,

the thing that we all suffer from,

and instead of having it work against us,

let's change our system so it actually works for us.

All right, so walk us through what that actually looks like.

It sounds great in theory, but how do you implement it?

Well, this is the beautiful part,

because you don't need to be a CPA,

you don't need to be a bookkeeper,

anybody, and I mean, anybody can do this.

So think of it this way.

Right now, most shop owners run everything

through one bank account.

Maybe you have a payroll account,

you transfer the money into,

so you don't bounce payroll checks someday,

and for those employees who are independently wealthy

and don't cash their checks for like nine months,

you know, when it comes through, it won't bounce.

But basically you have one bank account.

And I think every shop owner listening here

knows this morning routine.

You get your cup of coffee,

you sit down at the computer,

you sign into your online banking,

just before you enter the last digit of your password,

you cover up one eye, you hit enter, and you pray.

So you peek through one finger,

and either you're stressed for the day

because the number's too low,

or you breathe a sigh of relief

because the number looks okay,

but you only breathe that sigh of relief

until tomorrow when the process starts all over again.

And here's the problem,

even when that bank balance looks okay,

the money is all in one account.

So you don't know how much of that money is really yours.

You don't know how much it's going to go payroll,

parts, taxes.

At best it's like a false sense of comfort.

And that's why the next morning

you're right back in the same anxiety.

That's basically chaos.

So what we do is we say,

we're gonna move you from using one bank account

to five separate bank accounts.

Counts, okay, let's break that down

because that might sound a little bit overwhelming.

Let's walk through what each one's for and what they do.

Great, no, I agree.

It might sound that way.

Most people aren't looking to complicate their financial lives,

but what you'll see here,

this is the exact opposite.

It's not complicating and it's managing it.

And you're gonna see how instantly de-stressing this is.

Okay, let's break it down.

So online banking systems almost always

let you give a name to your bank account.

So some people do, some people don't.

Well, we use that to our advantage.

So we're gonna create five accounts.

The first one will be the one you already use.

And we're gonna call this now the income account.

So if we try to imagine a vehicle

that corresponds to this,

think of this as like a fuel tanker truck

that drives up to a gas station.

That's your customers coming to your shop

and giving you money.

The fuel tanker fills up the gas station's tank

so it'll have money and gas to sell and make money.

So that account, the income account,

is where all the customer income comes into.

Checks, cash, credit cards,

just like it probably does now.

This is where everything starts.

This is the starting point.

On bill pay day, so most shops have a rhythm

to how they pay their bills.

It can vary.

You might pay parts vendors every day

when they drop things off.

And the point here to remember

is that this system works with any system

and we can help you figure out what works for you.

But in our example, let's just say

that bill pay day is every Friday.

Payroll is Friday, the bill pay day is Friday.

So every pay day, on Friday in this case,

you look at your bank account, that income account,

and you see what was deposited over the last week

since the last bill pay day.

Now remember, no money's coming out of this account

during the week normally.

So what you're seeing is like a little mini version

of your tech metric or whatever dashboard you use,

you're seeing when a bank account grew this week

and that's how much money came in the door.

And we all know at the end of the day,

even if your software says you had these amount of sales

until you see it in the bank, it's not real.

So you see how much money came in.

In our example, let's say it was $20,000.

So it's bill pay day, we say, great, $20,000

came into the income account.

Here's the first key change.

Before you pay a single bill,

you look at your second account,

which we call the profit account.

That's what we mean by profit first.

Think of the profit car as your favorite sports car,

your dream car.

Remember, this is your business,

you record, you've earned a profit, you need to take it.

So before you pay any bills at all,

you're gonna transfer a percentage of the money

that came in this week into the profit account.

Now we're started a small number,

I'll tell you why in a minute.

So for our example, let's say we're gonna say 2%.

So $20,000 came in, 2%, $400,

I challenge anybody to say you can't afford to take $400

out of that account before you pay your bills,

put it in the profit account

and still be able to do what you have to do.

So I know $400 sounds very small, that's not the point.

The point right now is developing the habit.

Again, think human nature, think habits,

let's get into a rhythm here.

We review that percentage every quarter

and as we get used to it, we gradually increase it.

And people that follow this habit,

starting slow in building are some

of the most amazing success stories

you'll ever come across in business.

And I'll give you an example later on in this podcast.

Yeah, 2% doesn't sound like much,

but I guess it's just a slow build, as you said.

Right, as I said, the goal is to build the habit

and not to go backwards.

So I can be a very enthusiastic person,

I like what I do and I get real excited.

So if you had presented this program to me

and I was a shop owner, my personality would be,

well, great Nick, let's start off by putting

5% in profit and the higher percentage in everything.

That's great, it's great that you buy into the system.

But all the data tells us that to go too far,

by the time you get to the last account,

there's no way near enough money to do what you wanna do

and you're forcing yourself to go back

and transfer money back.

And that's the cardinal thing, you don't wanna do that.

That's breaking the habit.

People who do that, almost always,

the system doesn't work for them.

So we're gonna start out slow, we build the habit.

It means you can sustain.

Okay, so 2% in profit and then what's the next account

that we're looking at?

So the next one is just important, we call it owner pay.

So you're the most important and valuable employee

in your company.

What would it cost to replace you?

You need to remember that, you need to get paid first.

So if we're thinking about this as a vehicle,

think of this as a comfortable mid-range sedan.

It's not flashy, but it's not a beater either.

It's reliable, it gets you to work.

And the goal here is to be able to pay your household bills

with the payroll.

So here again, we're gonna transfer a number

to the owner pay account.

So we haven't paid a bill at all yet.

We've transferred 2% to the profit account.

Now we're gonna pick a number, let's say in our example,

somewhere between three and 5%.

Now we'd like to transfer enough

so that your payroll can be enough

to cover your household bills.

Cause remember what we're trying to say is,

you run a business, but you also live a life,

you manage a household, you may have a family.

We'd like ideally for that paycheck

to be enough to keep life stable on the own front.

So there's no crisis, there's no emergency

that's coming up financially.

That isn't always possible.

So if it isn't possible, we start slow here.

Cause if it isn't possible, there's a good chance

there's some weeks you don't get paycheck.

So we're just saying we wanna solve problem one,

which is to make sure you, the number one person

in this company gets a paycheck every week.

Now we know your employees are gonna get paid

cause if they don't get paid, they won't be at work.

But you and number one employee, you get paid.

So if we said three to 5%, we've taken in $20,000,

that's transferring anywhere from $600 to $1,000

into the own pay account.

So now if we save the $1,000, it's $1,000 there.

So on payday, you can pay yourself $1,000.

Not bad, it's $50,000 a year, it's something.

You can't get there right away.

Like I said, we start small and we work our way up.

Fourth account is, so these first two accounts,

I like to think of them as reward accounts.

You're rewarding yourself for all the hard work

you put in play to get that customer business in.

The fourth account is what I call a protection account

and that's the taxes account.

So here the best vehicle I can think of is a police car

because if you don't pay your taxes,

that's exactly where you end up.

So this is where you rely on your CPA or good bookkeeper

to say, well, how much do I set aside?

So think of it this way.

You only pay income taxes on your profit.

You're gonna pay sales taxes on parts,

but if you simply said, if I put aside a certain percentage

of all the money that comes in,

I can figure out what that number should be

and based on what my taxes will be.

So what you're breaking this down to is saying,

all right, $20,000 came in.

In my example, we're gonna say 15% we're gonna set aside

and I just break that down so you can think it through

of 5% is gonna go to the sales taxes

that we collect from our customers and have to pay

and another 10% for income taxes.

So on this $20,000, 15% is $3,000.

So now we've moved $3,000 to the taxes account.

So a reminder, we haven't paid any bills now.

Now what's left in that income account,

we're gonna move and the strategy of the taxes

really as simply as this, it's the plan for them

so you don't panic.

We don't wanna scrimp it.

We wanna make sure that we have a reasonable percentage.

Whatever your accountant or your bookkeeper says

is the number, if you can't make the numbers work,

especially the sales tax numbers,

there's something seriously wrong in this picture

and in this business and you need to fix it.

That's where you wanna work and ask your CPA,

your bookkeeper to figure it out.

But for most people, they can figure out this number

and get it close.

Okay, so really quick to recap,

you've got the first account is your income,

the second account is your profits,

third account is your owner pay

and then you've got account number four is taxes.

Right.

What do we do with account number five?

So now you're ready to pay your bills.

So you've already taken a lot of money out of a pot of pool

and now you're saying whatever I have left,

which in this case is about $16,000,

that's what I have to pay my bills with.

So again, if we're thinking about a vehicle,

think of it as a heavy duty utility truck

with orange flashing lights.

This is the workhorse of your business.

This is the money that's gonna keep the lights on,

keep the employees paid, keep the rent paid,

all the things that it takes to run a business.

But you're paying it with whatever's left.

It's payroll, parts rent, all those things.

You're intentionally shrinking the available pool of money

you have to make hard choices.

Just like you did when you first started your business,

very likely.

I still remember this day, almost 40 years ago,

when I first started my business,

the first decision I had to make was,

which bank do I use to open up my bank account at?

I remember just calling so many banks,

back when there were a lot of banks,

what are your service strategies?

I remember agonizing about which bank to use

and I finally settled on a small place

because it was small bank accounts.

But it's been a long time since I struggled

at that level of detail and a question,

but I probably should do more of it

because it's always a good plan.

Well, you've made choices like that early on too,

and as you make more money, you get busy,

you get tired, it's human nature again.

You start to say, I'm not really gonna worry about this one,

it's a small amount of money.

So you've already forced yourself to do this

because now you're saying I'm not going back,

I'm not transferring any money out of the other accounts,

how do I pay my bills with this $16,000?

And if you didn't do this system,

I'd ask yourself to ask yourself right now,

and ask you to ask yourself right now,

how likely do you think it would be

that you might have spent that whole $20,000

on bills, payroll, expenses, and had nothing left

either to pay yourself and show me nothing less to profit?

It's the most typical story you come across.

Yeah, it sounds like you're deliberately putting yourself

in a position where you have less money to spend

on operations and you're saying that that's a good thing.

Exactly, and here's what I've seen happen.

Almost every single time.

When you start doing this, and when I say this,

what I mean is looking at, I have expenses to pay

and I only have a limited pool of money,

you start looking at what you're paying.

The easy and most common one we see these days

is subscriptions, we all sign up for subscriptions,

whether it's a streaming video, whether it's audible,

whether it's whatever, and we sign up on a trial basis

and we never get around to doing it.

They even have software tools, I think it's called

Rocket Money by Quicken, that will help you find those things.

So you're gonna have a lot of those things.

Yeah, you're gonna have a lot of those things, we all do.

And it's always a good exercise to look at that,

no matter what, but when you start this process,

you're gonna see those things.

You're also gonna see other things,

you're gonna see the things that have to be paid,

payroll, insurance, but it may motivate you

to touch your insurance agent and shop that policy,

for example.

You're also gonna come to a point very likely

that you run out of money and there's still some bills to pay.

So two things are gonna happen then.

The first thing, and this is always, always, always

really good, really good financial habit.

When you are thinking that something is urgent

and you have to buy it or spend on it,

a lot of times my dad's advice was always

take a breath, wait a day,

and tomorrow it might not seem so urgent.

The best example I can give you is people

who end up buying timeshears.

I went to a timeshear a weekend one time

when my wife and my kids were very young,

and these people are just, they're such high-pressure sales.

You're ready to sign on the dotted line.

They're telling you essentially it's only good today

and it took every ounce of discipline

that my wife and I had to say no.

And we basically said, all right,

if it's just gonna deal today,

it's gonna be this gonna deal tomorrow.

Most people aren't lucky enough to make that decision.

And we have friends that went through

that didn't make that decision.

And it's not because you're dumb,

it's because these are really skilled, skilled people.

Well, the next day you say, you know what?

It really isn't all that great

and three days go by and all of a sudden you're safe again.

Well, the same thing here.

You might have something you think you wanna buy,

wait a day, and what might happen is tomorrow

this urgent problem maybe solved itself.

You don't need this tool, for example.

You figure out a way to do it.

Maybe you can borrow it from the shop next door

or one of the friends

or maybe you figure out a different way to do something.

So a lot of times those problems solve themselves

and you haven't spent the money

and now you said, hey, you know what?

This is a good habit.

I wanna start doing this a lot more.

Let me just go back to one more thing I wanted to say

about the operating expense account.

Let's say you do all those things

and you still can't pay your bills.

There's still some things that you have to pay.

That's all warningly.

That means there's something seriously wrong

with your business.

Either your expenses are too high.

For example, maybe your payroll is too high.

Maybe your rent is too high.

You might not be able to change that.

Your insurance might be too high.

There's a problem there.

And that's where you, your accountant,

your book, you have to rethink it.

Maybe you're just not getting the profit models you need.

That's an easy fix or at least that's an easy thing to spot.

Maybe you're under charging for your work.

So that's what it tells you.

So let's assume you can get the bills paid

or get close and you work towards that.

The real message here is that every dollar

that comes into your business has a job.

It goes into one of those accounts before you pay bills.

Okay, so when you log into your bank account

every morning, you're gonna see five accounts now

instead of one.

How do you navigate that?

Well, that's exactly what happens.

And here's why it's actually a wonderful thing.

Instead of seeing that one bank account,

it means nothing to you.

It's just stressing about what's in there.

You now see five accounts one after the other

and the names of their income.

So you instantly know how much I brought

a customer business this year.

The profit account, you see how much profit

I've already taken out of the account this year.

That's gonna grow each week.

The owner pay, you see that I've got my money

for payroll in there already this week.

And every week that's gonna get dropped out of zero

when you pay yourself.

The tax account is a really comforting one

because instead of worrying about stress, taxes

or conveniently forgetting about it

because it's out of sight, out of mind,

you see an account there and there's a really nice feeling

about saying, gee, I have some money set aside here.

I know that I'm not gonna have to worry

quite so much about that.

And the final thing is you're spending

less money on operation because you're forcing to.

So think of it as this way, one bank account,

what you're looking at is confusion.

These five bank accounts, you're in control.

Every dollar has the job, you know where it is

and you're like a director of the sympathy.

The money comes in, every bill day, this goes here,

this goes there and you are really in control

and more importantly, on a day-to-day basis,

you're making decisions with some pretty good

financial information.

To some degree, you're running a business

through your bank account.

Now, while a lot of accountants would hear that

and enroll in agony, we're not saying that's the solution

to every problem you have in business,

but what we're saying is on a day-to-day basis,

how do you, the shop owner, make sense out of it

and have a tool to make good decisions?

Like I said, anybody can do it, there's no more guessing

and you don't wait for your P&Ls to show up,

whether it's in two weeks or in two months,

anybody can do this.

Now, for a shop owner who's listening right now

and they're thinking, wow, I wanna try this,

what can they actually expect and how quickly

can they expect it?

It is amazingly fast, so three things happen really fast.

If you're not paying yourself consistently every week,

now you are, because you're making it a point.

And if you're running a business and you can't pay yourself,

again, that's a warning, like something's wrong.

You have to be able to run this business

and pay yourself, otherwise, what are you doing for it?

The taxes stop surprising you.

So one of the number one causes of anxiety is taxes.

Well, every week you see that money going in there,

you're planning for them and planning for something

is such a de-stressor.

And you also actually see where the money's going.

You see the money come into your income account,

you see it goes where you want it to go,

and you see what's left in the expense account.

And by the way, you don't have to spend

everything in your expense account.

When you get good at this,

you're gonna find that you have some extra money in there too.

So you basically have less stress, more control,

actual profit you can see,

and it all boils down to peace of mind.

You are not running around like a chicken

with your head caught off stress to the gills, as we say.

So what I would say is, okay.

Well, I'd just say, so we're at the end of this topic

and the key things I want listeners to take away is,

busy is not the same as profitable.

Cash flow is the real game.

You have to take your profit first, not last.

Putting this structure in place changes your behavior

and it makes human nature work for you instead of against you.

Well, it seems like great practical advice

for shop owners.

As we wrap up, what's the one thing you want

every shop owner to do to get started in a plan like this?

Okay, so I hinted at before,

really I'd like you to think about this.

Before you think about growing,

whether that's through advertising

or adding another location or expanding,

before you think about the extra locations,

and certainly before you think about

getting close to selling date, fix this first.

Get the cash balances up.

Get profit first, get yourself paid.

And the example I'll give you is,

I have a client who I met with recently

who started this process about a year ago.

And in addition to implementing

some real good business strategies,

he implemented the profit first program.

And he went from having virtually nothing in cash.

He's got multiple locations, but cash is never around.

We looked at his numbers for the first quarter of 2026,

compared to the first quarter of 2025.

Sales had doubled because he implemented good practices.

His profit more than doubled,

and he had $800,000 of money in the bank,

something he would never have dreamed of a year ago.

Now I'm not promising anybody

you're gonna go up to zero at $800,000,

but when you're sitting at zero or 25,000, it never moves.

When you start to see that become $30,000,

and $40,000, $50,000, $70,000,

that has its own momentum.

And you start to really say,

hey, where was this 10 years ago?

Why didn't somebody tell me that it was before?

So it really has its own momentum,

and you're gonna feel like I'm in control.

I've got this covered, I'm gonna make this work.

Life changing is the way I put it.

I love it.

This has been a fantastic podcast.

Tell us, can you give us a little taste

of what's to come in episode two?

Sure, I tease it like this.

I know a lot of shop owners get run down.

I'm at the tail end of the baby boom generation.

I know there's plenty of baby boom shop owners

around my age that are getting tired,

and they're just wondering, what do I do here?

And you all know that private equity

is a big factor in this space,

but there are also other people of value.

So what I wanna do is to remind everybody

why does private equity think this is a great industry?

You may know what it is,

but maybe you've forgotten all the great things

about this business.

So why are they pouring money into their industry?

What do they see that maybe you don't?

And if you own a shop, you're gonna wanna hear this,

because once you know this,

and you know what episode one is,

you set yourself up for a major decision

and a clear path for where you wanna go with this business.

I'll see you there.

Thank you so much, Nick.

Have a great day, and we look forward

to the next installment.

Thank you, Kristi, and I too.

Bye-bye.

That's going to do it for us today

at Ratchet and Wrench Radio.

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and may the rest of today be the greatest day of your life.

Parkinson's Law

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