Wake up, Buy Here, Pay Here people. It's a beautiful day. Go grab yourself another cup of Joe and say hello to Jim and Michelle Rhodes on the Buy Here, Pay Here morning show. Take it away, you two. Good morning, everybody. Happy Wednesday. Happy Wednesday, and we're glad you're here. White Hat Wednesday, and we have kind of straight line, but yet we always flow in some of those White Hat way type of things, and it then... Yeah, so we're going to talk buy here, pay here accounting, but we're going to kind of bring a white hat perspective to the whole conversation. And yeah, so there's that. Let's get some announcements done. I think TIADA is, most people are heading home. Yeah, congratulations. And I hope you guys had a great conference. We saw some different social media posts and lots of, there was a photo that Scott Shemrell from Neo posted with a lot of photos faces and names. If you're part of a buyer pair success, they, um, there were some names that you see all the time. So it was really cool to see these familiar faces for us and, and, um, up on stage. So yeah, we saw several familiar faces in that photo. And then, um, I saw that, uh, Vicki Davis was, uh, moved from president elect, I think, into the president's chair. So congratulations. We just had a chance to meet Vicki at the NIDA convention in June. So glad to see her, uh, step into that role and she is surely aware that jim and michelle are happy to support the texas association anything just let us know yep yeah absolutely so uh last night um uh our v8 meeting for group four and I will just share that we do have seats available in the 100 to 500 account range so if anybody's got an interest in one of those jump in there and we are like really close to opening up a second are that that's the it's it's like there we've got two thousand we we now look for commitments from four dealers before we start officially and so we've got rich conversation it looks like we're starting a group with that 500 to 2000 range and so yeah that's uh we've got dealers ready to step in on that but the reason that's significant is we had our meeting last night with group four and this thing around accounting and cash flows very much became part of our conversation and it just affirmed that this conversation needs to happen. It needs to continue to happen. We need to make sure dealers, we need to make sure providers are aware of what dealers really could use in terms of information to manage their business. So, so yeah, look for us in that conversation. We need to make a note that we have a special guest. Oh yeah. She's off to, she's off to my left. We, we brought Jim's mom home with us from New Mexico when we were there for a wedding. She's from Oklahoma. She's, she's, She's visiting from Oklahoma, but we were at a wedding last weekend, and she rode back with us. Yep, it's her first time in the northern. She's been to Moab, northern part of the state. Had a lot of fun with her yesterday, and we... visited all of my old hunting grounds from when I lived up in the mountains and showed her the mountains and ski resorts and all that kind of stuff. And it was fun. We had a really good time. So really grateful to have her here. She's not on the microphone. She's not on the camera, but she is on the headphones this morning. So happy to have her here with us. Absolutely. So accounting. Accounting. Can I, you know, one thing that I've observed, I'm, you know, I'm the one that married into buy here, pay here. It's relatively new, you know, to me. But I've observed as we've brought on new clients and that one of the big conversations to have is around the how you account for different things, cash flow, all of that. And what I've observed personally is that there are so many dealers out there that are using the accountant their dad had or using the accountant that is from their hometown or using the accountant that they're a great accountant. And so for those of you that are listening that are new, great accountants are great accountants for normal business. For a normal business. For a normal business. But it is a very, very different world in the world of buy here, pay here accounting. It is. It's not like if you're in a business where your sales are in cash, you open a taco stand, you buy some stuff, you buy your ingredients and you sell your tacos and you collect the cash. And at the end of the day, you're done. You know how much ahead you are behind, right? In our business, we have this thing called phantom profit, right? So let's talk about that for a minute. So in... Buy here, pay here. For those who've been around it, they've heard these expressions. But I think for those that are new, when you hear phrases like phantom income or paper profit, it's this notion that we buy a car for X, we sell it for Y. The IRS treats that profit as income. Actualized money, right? They treat it that way, even though it's paper profit, right? We don't have any of it in the bank yet. In fact, we're probably negative from a cash perspective. We bought the car for $5,000. As an example, we got $1,000 down. We're negative $4,000 in cash, but the IRS thinks we made profit. Because you just sold the car for $14,000. Whatever. It's like you marked it up and you have your part. And so that's why in our business, that's why these related finance companies are in the picture we have. So there's RFC accounting. But even if you forget the RFC for a minute, just to keep it simple, like Just in buy here, pay here alone, if you just had a dealership and haven't yet set up an RFC, then there's different elements to this because it's a little like this thing about, so let me ask you. So let's just say first, RFC, for those that are new, is a related finance company. And not every dealership has one, but it's a really great to separate the dealership and the collection side and how all the money is moving from the people that you've sold the car to. often primarily a tax strategy for this exact reason because we have this paper profit that we have not yet you know collected we may never collect it so we certainly don't want to pay tax on it so finance companies are taxed differently than dealerships are and they they are taxed as they collect payments instead of um being taxed on that you know Paper profit. An unrealized future potential profit is what I usually call it. So an RFC, that's why an RFC becomes an essential thing for a lot of... If you're doing any kind of volume at all, and I would just say for those not familiar, that's not our subject today, but I would just say that if you're not sure, reach out. I would say that the... the threshold for starting an RFC is lower than it used to be. Software's easier, it's better. The, the ability to move from a dealership to an RFC or add an RFC is just a much simpler process than it was when I first got in the business. So, so just be aware. It could be part of a tax strategy. But I think for today, just talking about, so I put on the screen here and, and I told Michelle, I probably missed the opportunity. It would have been a little more provocative to put out, it was our title today. Michelle Keefer- Tim's always like, what's a provocative topic? I don't get provocative, so at least not in time for the broadcast, right? I think we all suffer from that. It's like, oh, dang it. I wish I had said that. This would have been funny. This would have been better. So no, I think in this case, I just kind of wanted to put out this idea. I'm not saying that anybody's accounting is wrong. right I mean it may be exactly right in the eyes of the irs so so most accountants or cpas they have to have a certain education and they have to follow you know gap accounting principles and and so they're probably doing exactly that I'm not saying that your accounting is wrong now there would be some dealers out there that don't I've seen stuff that is wrong they're not handling in fact we have a client now that's in a mess because they manage their their rfc discounts incorrectly when they set it up before we were in the picture they they got some bad advice and and uh and did something wrong for those of you again that are not familiar rfc again is the related finance company and that the dealership will sell the paper to the rfc at a discount because we all know in this world that it's likely you're not going to collect all of it right and so it's there's already a discount that's part of the the tax strategy because because the finance company is acquiring the risk and so they get it at a discount. But again, that's not really our subject today, but look at you learning RFC. I, well, I mean, I'm, I'm sitting here, especially having my mother-in-law sitting next to me. It's like, I'm aware that there's a lot of dealers out there that are new. And so when things come and I hear things that are like, okay, I bet you there's a lot of people out there that don't know what an RFC is or what, how that transaction happens. So I mean, I will interject. yeah go ahead so so when I say is your buy here pay your accounting wrong I'm not saying it's wrong it may be exactly right but what is accounting really there to do it's mostly there why are there where are there cpas who follow a certain set of rules and certain gap accounting rules it's because we have responsibility to irs we we're taxed on our income and so we have to calculate our income correctly to report correctly to the irs that's the primary role of a cpa That doesn't help us manage our business. Like what we see in our balance sheet, in our financial statement, in the buy here, pay here space, while it may be accurate, it's incomplete. It doesn't help us in all the ways that we as dealers, I still say we, I haven't been a dealer since 2011, but I learned a lot in that time period where I was a dealer. You've worked with a lot of dealers and understanding, hey, your accountant may need a little training. Even though they've been doing this for 30 years, they've made it a little training on buyer payer. Let's back up and talk a little bit about my own accounting background. Because I think as I speak to this subject, especially on behalf of White Hat Way and on behalf of dealers, I think it's important for people to kind of understand my particular background. expertise. One accounting class in college, I did fine. I don't remember a lot of the details about that. When I go back into accounting now, and I learned a lot of RFC accounting in my own dealership, and we got the hang of it. And since then, I've worked with lots of dealers in lots of places. And often in a contractual arrangement with them, part of the service that we'll provide is I will be a liaison to them. in the accounting setup, especially when it's time to set up the RFC. So what do I mean by liaison? I'm the guy who steps in and sits between the dealer and their software and their CPA. And I help them understand, okay, here's how the accounting is supposed to work. And often, You know, this is me being a smart aleck, but often I say just to kind of drive the point across is I'm not a CPA, but I have educated a few of them. I was waiting for you to say that. It's something I say just to kind of get people's attention, just for fun mostly. And it's not that those CPAs are just not familiar. With the RFC structure in the way that I have been. And so it's often helpful for me to be able to fill that role. And that's why I say sometimes the joke is, you know, I know enough accounting to be dangerous. I think in this case, it's more appropriate to say I know enough accounting to be helpful. Like I think I can help connect the dots between those pieces. I've sat back and watched you do that. with some dealers. And they just want to teach their accountant because they know their accountant. They love their accountant. They've worked with their accountant for years and watched that. And it's just been really, really... When you get to the point where the accountant, the light bulb turns on of, oh, it's because it is a different paradigm in some of that... accounting for where money's going and it's important to understand that in a lot of the softwares that provide that do some level of accounting it's really this is important for people to understand this is where you start to separate dms and people are saying you know they look at a dms when they're stepping in the buy here pay your business and I want one that'll I just want to stock in the cars sell the cars and collect the payments well there's going to come a day you're going to want more than that it's hard to help because I'm not in the business selling software yeah right and I want to help them understand you're going to grow to a place and you're going to be adding a related finance company it's only then perhaps earlier but certainly then you're going to realize the limitations in your software are going to cause you a lot of headaches you're going to go through a lot of aspirin bottles trying to figure out this thing and your cpa is not going to be much help because they don't know your software and they don't know this accounting side so it's just an important thing to help dealers really understand I think for today I wasn't it's not so much the software side, but I would say so. So my level of accounting experience is such that I'm rusty on debits and credits. I know plus and minus increase and decrease. When I get in there, I'm not talking in debits and credits. I'm just simply saying what's going to happen is this is what's going to happen on the dealership side. This is how the RFC is going to acquire that potential income. And this is how it's going to become, you know, the next thing. And so I'm basically just walking them through that piece. So I think it's important for people to understand that. When I start speaking to accounting, I'm not a CPA. I don't try to be a CPA. I know the difference, but I do know enough to, I think, be able to help dealers connect the dots between what it is they need. And I think for today, last night's V8 meeting, we had this situation. And then I want to also talk about a dealer story. So there's two. There's one from last night. So last night I rolled out for the first time in one of our V8 meetings, an illustration of, of what a cash flow illustration could be month over month. Okay. So we don't, in V8, we don't do, we don't do financials. We don't, we don't, we don't capture anything from the P&Ls or any of the expenses. It was purposeful. We didn't want to wait for accountants and CPAs to finish financials before we could have our composite ready. So your quote unquote composite, ours is different, but We do have all of the incoming cash. We capture all the information on down payments and car payments collected and other types of transactions. So we have that information. So now I've been sharing with dealers if you guys would provide me a quarterly financial, just give me a quarterly profit and loss report, we could take those expenses and I could take the cash that's coming into the operation and show you the incoming cash. And now we can start to show, okay, this is what we're spending to replace cars every month. I have that information in the VA report. And now if we just had expenses from the operation, we can put in front of dealers every month, month over month, based on rolling averages. Here's what your cash flow looks like in your business now. And for example, in the meeting last night, we used just example numbers because I don't have their P&Ls yet. But imagine being able to say to a dealer, according to this calculation, at your current volume of sales and at your current average down payment and at your current expense structure, you are 19 accounts away from being positive in cash. Just think about that. That's pretty powerful. Dealers don't get to see that information. It's like, all I need to do is this, and we're in positive cash. I'm sorry. You can dig through your profit and loss and balance sheet. You will not find that information. It's not there. You don't have it because the income is not reported in the same way. You get into this whole thing about cash versus accrual accounting. Now, this is why... We kind of have to do accrual accounting and buy here, pay here in certain scenarios. Again, I'm not a CPA. I don't know those particular rules, but I'm just saying accrual accounting is sort of like, so in a case of accrual, it's back to that example of you buy the car for $5,000 and you sell it for $8,000. There's $3,000 of gross profit, even though we haven't collected it yet. That's accrual accounting would say we owe... we owe that 3000. If you're doing cash accounting. Or on that 3000. Yeah. If you're doing cash accounting, then you're just doing the cash and the actual cash transactions. And so it becomes a different animal. Well, we don't have really a choice in buy here, pay here. We're looking at accrual, but I'm just saying accrual doesn't help us. It reports correctly to the IRS, but it doesn't help us manage our business. And so now when you start to talk about direct cashflow statements and my description of the show, I asked, are you familiar with the direct cashflow statement? And I said, if you're not, I'm not surprised. Like most people don't hear that. And so back to my story about my North Carolina dealer, We've got a client we've been working with for a year and a half, two years. And only in the last couple of months have we been able to get to a direct cash flow statement. Why? Because we worked with the CPA. CPA was busy. They didn't quite understand what it is we were looking for. We got some stuff that didn't quite get us there. And so we finally, the last two months, May and June, we've been able to give the dealer, here's all your incoming cash. Here's what your CPA tells us you spent in cash buying cars. So this is not what CPAs do. So I think it's important to talk about when you ask your CPA for this, understand this is not the kind of service they typically provide. CPAs are in the business of providing accounting. They don't provide management reports. And I remember years ago in my own dealership, I remember having chat conversations with QuickBooks and said, I'm trying to get to a direct cashflow statement, you know, starting big balance. Sir, we don't do that. We're not, we're not a management system. We're an accounting system. So I'm over here trying to manage my business. Because there's really nothing out there. Is there? No. Like a, yeah. So what this dealer's CPA did with some of their junior team members, they created that with our instruction, they created a filter that they could export the information from QuickBooks, run it through this filter and spit out, okay, we spit this much buying cars. Last month we spent this much reconditioning cars last month. We spent this much at the DMV on tagging tax, right? We spent this much in operational overhead cash. This is how much went out of the bank account. That's what we need. So what we're trying to help the dealer get to is a place where Here's my opening bank account balance. And I'm typically looking at it globally. Like if you're a dealership in RFC, that's just a tax strategy. We just need to look at the whole operation and look at what was my opening bank balance in all accounts? How much cash did I bring into those accounts? And maybe some detail on how it breaks out down payments, principal and interest, whatever. But certainly I just want to know how much cash did I bring in? And then how much cash did I shell out? And where did my bank balance close? So I'm just telling you, that sounds easy. It's not out there. It's not out there. And it's like, why is this so difficult? So this is where White Hat Way is going to continue to speak up and say, we've got to figure this out. And so it's that conversation and finding solutions for dealers are on our roadmap. It's like, how do we... Bring together the right people, the right whatever it is so that a dealer can get that kind of information without spending. Because I know with this dealer you were talking about, how many months and months and months that you two spent with the accountant getting to the point where just the last two months they've been able to do this. And he's thrilled. Well, I remember you telling me that he was just like a face-splitting grin. He was so excited, hopping out of his seat kind of thing. It's like, oh my gosh, we got there. But it's like, imagine when it shows the dealer when you can say, you are 45 accounts away from being positive cashflow. I'm picking numbers here, but just 45 accounts away from being positive cashflow. And he says, yeah, that's great. I can't wait for us to start selling 25 cars a month. Okay, well then you'll be 95 accounts away from positive cashflow, right? Because the more you spend on cars, more cash you're going to shell out. Which is so interesting to me because I hear from dealers, and this is true with a lot of businesses, but especially in ours, is if you're in a money crunch, sell more. If you're in a money crunch, sell more. That selling more will solve your problems, and that is not true. Yeah, and the old thing I heard way back when I first got in the business, you can sell yourself right out of business. Why? Because you use up all your cash. You don't have a place to get more, and so you... that doesn't necessarily put you out of business, but if you can't fund the thing, and this is why I say it's, it's cash management. And again, CPAs can spit out typically in their software, they can produce a cashflow statement, but it's not what I'm talking about. It's not what you need. If you go, any dealer can go right now, who's on QuickBooks and generate, generate my cashflow statement for June, try to make some sense of that. It's just not helpful. It doesn't help you with the stuff that I'm talking about. And I think when you start to break it down in terms of number of accounts and we what I was able to show the dealers last night, we took three month rolling averages. So we're just saying not just last month, we're looking at your your history, your recent history of performance and rate of cash flow and rate of sales and all these kind of things. This is what is where you're at. But I don't, as of last night, I didn't have it. I was just working with fake numbers because we didn't have, I was just illustrating for them. If you also apply me this information, I can give you some really useful data. I'm one of the dealers from Tennessee. Yeah, the dealer from Tennessee is like, this is exactly what, this would help me a lot. Like, because I know, and I also know that dealers, even if they might know how to do what I'm talking about, they could maybe scratch it down on an envelope or whatever they might get there. But they don't get enough time at their desk. Yeah. So this is why we as providers got to create better solutions for dealers so that they can spit that thing out. And we've designed it. We've got the structure to kind of refer to the roadmap. Like we've designed what we're not tech people, but we know what dealers need. And those of you that have listened for a while, we're trying to create. or we're not trying, we are creating tools and things that will help dealers because it's not just about who's our client, who's in a V8 group, all of that. And, and one good example is this, um, this report that we're, that we're working with the DMSs to, to create. And we actually got some really great news yesterday about that. I'll give a quick update. I think Mike Downey just scheduled with me for next week. And so, uh, Mike Downey with AM, AMS looks like that's auto master systems. Um, Looks like they're going to be the first ones to accommodate our request. So I look forward to meeting with them. We're going to verify that the numbers are working and that we'll be able to have a chance to roll that out for dealers. So, you know, that's. We'll have them on the show to talk about it. That's interesting stuff. Like it's it's it's a it's a first step toward absolutely helping dealers get to some of the information that they're going to benefit from. And what we're talking about here. It doesn't matter if you're a dealer with 100 accounts or you're dealing with 5,000 accounts. This information that I'm talking about is just as critical to the small dealer as it is to the big dealer. So that report, same thing, but also this, what you're trying to layer and weave in what's happening in your DMS and what's happening in your accounting to get a really holistic view of what's happening in your business. Sure. Yeah. And this is why I say it's not that our accounting is wrong. That's not what I'm saying. I'm just saying it's in most cases, it's incomplete. And while your CPA might be able to prepare this for you, just understand it's not typical for them. These are management reports. And so we may pay extra for that if they're willing to do it. But with our North Carolina dealer, the CPA, like I said, they actually took the time created. The dealer paid extra. And so, but we got it and the dealer is thrilled. Like it's really great information. And we've already talked to that North Carolina CPA about the possibility of them producing the same thing for other dealers that are on QuickBooks because it's just somebody made the time to sit down and design a filter that would sweep that information and spit out the results. And I don't know for sure because I'm not as familiar with DMSs, but the filter sheet that they use is for IDMS? Yes. Solera. Yeah. And so I don't know that that filter would work for Frazier or work for a dealer center or work for. The filter that they create is really for QuickBooks. Oh, okay. So it doesn't have anything to do with IDMS. I mean, we have what we need from IDMS. I mean, I'm quite familiar with IDMS. So all the incoming cash from the operation, we have that. It's all the outgoing stuff from the checkbook. And so now just imagine what it looks like for a dealer to be able to say, because you've got you've got internal transactions. You you bought 15 contracts from the dealership into the RFC. So there was a check written for X. Well, there's some accounting that needs to happen there. But globally, that doesn't affect us. That's internal money. You write a check from one pocket into the other pocket and the money globally doesn't. It's not really talking about external money. Yeah. Money that we shelled out. to overhead, buying cars, reconditioning cars, overhead that we spent as cash. It's gone. And so that's the part that we're trying to get to the place where we can show dealers exactly what this looks like. And this is why it's such an important conversation, why I thought it belonged in a white hat Wednesday. It's like white hat way is in a position because of my experience, I recognize better what it is that dealers need, what they could It's interesting that... Well, and I know you well enough to know that because you've been a dealer and it hits close to heart, it's like these are things that would help dealers be better and have a better view of what's happening in their business, feeling more in control through an understanding which will allow them to be able to step into working... on their business more instead of being in their business, being able to shift their focus on things that matter in their community, in their business, in their teams, their culture. It's just like every little help that we can create so that they stand on firmer foundation. A firmer footing. Yeah. And I think you know me well enough to know that I don't get angry. I don't show anger. I think part of what you're seeing in this emotion today is there's a little bit of anger and frustration in it. Like in 2024, the job of buy here, pay here dealers is way more difficult than it ought to be. Yeah. It's way more difficult. They're taking way more risk. you know, than most dealers and they're having to get this information. And getting slapped for, you know, from other outside entities. It's like, you know, you're getting slapped because you're predatory or whatever, but it's like, they're the ones that are out there willing to take the risk and, and supply people with vehicles that, that, typically are really bad at managing money. And we, you know, we did the math in a prior episode and I've heard for years that dealers in a buy here, pay here segment originate annually about $10 billion. Did you hear that? I mean, that's a lot of money. I think our math was more like 20 to 25 billion. And so it's like just, just extrapolating from what we know. That's a lot of money. A lot of money that dealers originate. They're providing a really important solution to consumers who really are in a tough spot and need some help. So this is where I'm saying for dealers to be able to manage their business better. Look, let's just let them make their own decision, but get good information in front of them so they can make better decisions themselves and know how they want to run their business or decisions they want to make themselves. how many cars they buy tomorrow and what they want to spend for cars and all that stuff. We got to get better information to them. And this is where I'm saying, I look forward to working with Brent Carmichael at NIEDA and all the people like there's, there's, there's opportunities right in front of us. The software people and the tech people are there. They can produce this stuff for us. And we're, we're just driving the, the conversation and we're designing the stuff I've got this stuff designed in a way that we can help uh the tech people understand what the opportunity is and how to create that for dealers and you know what what code is used in the end it won't be me but I'm just saying this is this is what that's like another conversation with amanda sanchez is can we standardize the the uh Coding the accounts. You and Amanda can work on that. I'm not going to be involved in that. I just think standardizing and buy here, pay here is like, I'm going to be retired before that happens. But I'm just saying that you're not going to get really the standardization. But what you can get is information because cash is cash. You know, like I said a while back, the old expression about cash is king. maybe, but cash is definitely cash. It's not profit. It's not, it's not all these other things. It's like, it's, it's a, it's represented on your balance sheet. And it's like, we need to be able to better analyze our cash flows and buy your payer. So that's the biggest part of what today is about. If we can, When we tie that back to our P&Ls, like this thing that I'm saying is if I want a bank statement sort of snapshot that says my bank accounts opened at X, which should exactly correlate with my balance sheet, by the way. So if I'm a lender listening today, I'm going to say, yes, your cash, we want to see bank statements match up with balance sheets. If they don't, that's a problem. And that's something to look at. Yeah, that's definitely something we want to look at. we're going to get accounting right. And I'm saying, as we do that, we're going to create management reports that are going to be really useful to dealers, going to be helpful to lenders and all the people that are involved with the dealership on the periphery. Then, you know, that's kind of what my, my drive was for today. And lastly, I just want to throw in a mention about lease your pay your accounting. We don't have time to get a lease, your pay your accounting. There's a lot about lease your pay your accounting. I do not understand. I've had kind of a peripheral look at that different assets and, The part that I'm talking about with cashflow is the same. You're buying cars, you're collecting car payments, you have overhead. The lease structure and the lease financials look different. Why? Because instead of a receivable on the balance sheet, we have inventory on a balance sheet. It's okay. It's fine. That's accounting. That's what we have to do to report to the IRS. And that's how lease accounting works. But it doesn't change what I'm talking about from a cash flow standpoint. We buy cars. We recondition cars. We collect a down payment. We collect payments from the customer. Some of it's principal. Some of it's interest. Yeah, some of it's called a money factor and a lease instead of interest. It's the same thing. It's like it's cash. We need to be able to account for our cash knowing this is where we started. This is how much cash came in. This is how much cash went out. This is where we ended. And so when you put that information in front of dealers, that can make better decisions. I promise you. We just got to work together to get that stuff in front of dealers. I love it. Yeah. I love it. thank you yeah yeah good conversation uh anything else you want to add before we start no just a reminder um about we have uh there's not time to get in the group we have one more v8 uh group free meeting that's our beginner group and we have rooms we have seats in there so if you're a newcomer we just do a little more coaching in that group so you know that's if that's something you're interested in you can still get all your numbers Reach out. Reach out. All right, everybody. Thank you so much for joining us on Wednesday. We've got a few more days left in the week. And it's kind of Wednesdays are a lot of times a quieter day or it's the day that you're at the auction or things like that. So thanks for listening and making us part of your morning. We will see you on Friday. We're going to go out and do some more sightseeing. Yeah. Enjoy your day. Thanks so much for joining us.
