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. Hey, good morning, friends. Happy Friday. Welcome to the Buy Here, Pay Here Morning Show. Michelle is here, but she's behind the scenes today helping out with the AV and getting the show kicked off. We appreciate you making time to participate today. You're going to have a chance to hear us talk about... Funding and capitalization for buy here, pay here, you know, our theme for the month of October has been cash flow, or I'm sorry, just been forecasting rather for twenty twenty seven. How to, you know, work in Q four to make sure we're positioned to have a very successful twenty twenty seven in this case. And so I will recap for you kind of what we've covered in our first three episodes, and then we'll wrap up next Friday, which is just before the weekend that the BHPH forum starts. For those who aren't already registered, I think there's still time. I think you missed the early bird rates, but I would urge you to come do that. I will be there. Our salesperson, Cammie, will be there with us for V-Eight dealer groups. And on that note, we had another really great V-Eight meeting last night. We, you know, some of you just continue to miss these monthly V-Eight meetings. And I just don't think you realize what you're missing out on. We have got our format has shifted a little bit. Last night was a meeting that we were able to just really have some great peer discussion. We talked about from some very experienced operators were able to share with the group. kind of what they buy, how they buy it, obviously why they choose to buy those particular cars. But wow, from just purchasing a process, it was really a great conversation. And I think it's just yet another example of kind of where I live. Part of the motivation too for today's topic it's kind of stimulated around this idea that, you know, I was working with a dealer earlier this week and, uh, somebody found us on YouTube and, and, uh, as engaged us to do some cashflow modeling and forecasting, which, you know, obviously ties into what we're doing here. And, uh, You know, let me kind of give you a painted picture, because most of what this dealer will be facing in terms of decisions are going to be similar to decisions that many of you as dealers out there will be making, you know, as you start into the new year. You'll be making those decisions as you do your buying in the fourth quarter in anticipation of refund season. But really, it's about growth decision, first and foremost. And so that's part of what today is about is. kind of thinking through deciding your strategy for growth. And then once you decide, you got to run those numbers and figure out how much capital is going to be required to execute that particular strategy and what are going to be the funding sources. So I'm going to take my time today and we're going to break some of those down. We're going to introduce you to ways to fund your business. One of the quick mention is that, you know, There's a lot of talk out there about AI. AI has been working. I've been working with AI a lot in the data and analytics side and most specifically recently in the tool creation side. And it just continues to baffle me. And I would tell you that you're soon gonna see, and some of the dealers that we're working with now are seeing already, the power of what AI brings and the way it is providing answers for us in buy here, pay here in a way that we haven't been able to answer. I mean, we just simply don't have the pieces all in one place, or we don't have the brain power maybe to process all the stuff that is essential to analyze here. And so this has been a really big step forward. And I share that now because in working with this dealer that has been in business a little while, has enough accounts to cover their overhead, they have enough cash flow coming in to cover overhead, then we're able to bring these tools to bear for the benefit of this dealer and soon other dealers. Because it does that hard math you know this business is tricky it's got a lot of moving parts and the tool that i have created with claude's help addresses those moving parts whether it's an rfc whether it's going to be reinsurance whether it's seasonal volume there's just a lot of elements to consider in in kind of building a plan and making a decision and so i think this business we understand and we confirmed it in our conversation last night you know it's a it's a business that has clearly has a fair amount of risk we we hope that we're helping dealers learn how to mitigate that risk and to make sure that they get an appropriate return against that risk to justify you know the the dollars that they're putting out there And by the way, I got to pause for a minute and tell you, you kind of want to stay tuned to see if the fly that's in the studio lands on my nose at some point in the live broadcast here. You know, Michelle and I have been doing lives now since twenty twenty two and we're we're used to some things coming up. But we'll have to wait and see if that fly. I wasn't able to get it tracked down before we started our live here this morning. So stay tuned. It'll be fun to find out. Uh, so anyway, back to these tools, I just think, you know, it's only, let me just stop here and recap a couple of things, um, for us, because let me just kind of share with you where we're at and, and then, excuse me, I'm gonna get a little drink as I kind of share some things on the screen here, because in the first episode we touched on, this was the first episode in October. That was October second. We talked about the inventory gamble and there are some tools that I'll be bringing and sharing and we'll put them on our website so that, um, you're able to kind of do some of that hard math and project what the demands might be, what the cost might be on the backside of tax refund season for any inventory that doesn't sell. and so on and then episode two was this hooked on refund season for those who missed it that was me sitting lakeside in new mexico trout fishing and talking about tax refund season i talked very specifically about tax max as a solution in tax refund season and uh so i would urge you to find that that's just kind of a little different uh format where i set up a camera on a tripod and did a little trout fishing and and and just talk tax refund season for somebody who's got a lot of experience with that as a former dealer myself and and somebody who's had success with um the tax max program and with uh you know just basically leveraging the tax refund season to make it really work well for you as a dealer and and for your customers Last week's episode, number three, Michelle sat in with me while we were on a family visit in Utah, and we talked about setting intentions before setting KPIs. And what this really is about for me was just this idea that before we set targets and intentions and kind of, you know, these business objectives, initiatives, then I think it's really important for the dealer principal to understand Take some time. I suggest taking some time off and just really thinking through the intentions that you want to set going into the new year. Because now once you set those intentions, there are a couple of things that happen. It's easier to then set the right targets. based on those intentions, what you want for yourself individually, what you're looking to create out of your business that helps you to make sure that you set KPIs and targets that are going to serve that objective. And they're also going to increase the likelihood that you're going to hit them. If that's your goal and your wish for how you want your business to serve your life instead of the other way around, then setting those intentions and getting super clear about what it is you want twenty twenty seven to look like for you and your family. That's what last week's episode was about. And then today we're going to talk about deciding and funding growth. Okay. So again, I said I would take my time with this because I think it's a big subject. And I think, you know, you're going to find that this conversation is something that you may want to share with dealers who are newer, who are really contemplating a pivot in their business, or they're really thinking about getting more aggressive about growth. Let's first talk about You know how to do that math. Now, you know, obviously we're in the business of helping dealers run this modeling. I said that we do forecasting and I've got a tool that I built twenty years ago as a spreadsheet, which is now a web tool that is in development and testing. It looks like it's doing all the great math and is very interactive and easy to use. to kind of tweak those numbers on the fly. But regardless of what tool you're going to use, you're going to want to figure out, you know, what is the strategy? Am I going to set my sights on growth? Am I going to hold serve here? Am I just going to kind of see how the market goes and kind of just stay steady? I mean, these are all things to be figured out. But if the intention is to grow, I would ask you to think about it this way. And I want to frame it in the idea of thinking about this dealer that I'm working with on cashflow modeling, because it relates to a lot of dealers that are new and a lot of dealers who will make the decisions for themselves about going forward in terms of, you know, how they want to do things. Let me get this phone silent so it doesn't keep beeping at us. Now the, the idea then is, With this particular dealer, when I work with new dealers, I always suggest to them to think about their cash flow and their growth strategy in a couple different ways. The first thing is to focus on how much business do I need to create? How many contracts do I need to have active? whether that's selling a hundred cars and charging off twenty and now i've got eighty active accounts whatever it looks like well what is the target when you're just getting started in terms of covering overhead because once your portfolio has a string of active contracts that are covering overhead then it's my belief that you can now catch your breath a little bit as a business owner and sort of recalibrate your strategy. So this primarily is thinking about dealers that are new and thinking about what is it going to cost me to operate my business? And at what point would I have enough cash coming in the door to cover my operating expenses? Okay. So that's important because when I ask you to think about projecting your capital requirements and deciding financial partners for twenty twenty seven, When we cross that threshold, and most dealers listening to this would be in that place where you already have enough cash flow that is in excess of overhead. So now we have to think about the next kind of target, the next level. So to me, this is what I call achieving operational positive cash flow. So that's going to be when you have enough payments coming in. I don't factor in down payments and cash sales. I'm just looking at the cash stream from the active contracts, the principal and interest that we collect on a monthly basis. How does that number compare to the combination of the overhead that we have in our business plus the cost of replacing the inventory that we're selling? So if we're a dealer doing twenty five sales a month, What does it cost us in overhead to run the business day in and day out? Then what does it cost us to replace and recondition, prepare those cars for sale on the next, you know, those twenty five units in my example? So that number up here at the top would be operational positive cash flow. We're now bringing in cash that exceeds our cost of running the business and the cost of replacing inventory. So in theory, we start to have a little surplus cash. that we can potentially put in our pocket. There's still income tax to think about. And I had a fun conversation with this dealer that we're working with now in terms of planning and budgeting and reserving that income tax. Because obviously that's where conversations about related finance companies come in and strategies about related finance companies and other ways to kind of manage cash and get tax advantages. But for the simple example here, if we leave out the RFC example and we just say, we have positive operational cash flow. We're bringing in more cash than it's costing us to replace and recondition the cars that we're selling. And now what do we do with that cash? Do we reinvest it? Do we use it into growth? For many, that would be the example. There may be some other things you could do with that cash, and that's not the purpose of my conversation today. I would just say that When you get to that place, then now life is a little different. But I know from my V-Aid experience and working with lots of dealers across the country, there's a whole lot of dealers out there listening to this that are in between. They're still negative cash, or maybe they're just hovering there. Maybe they're paying themselves a little bit of a salary, but there's really no money left over. in the business they're just kind of you know working their cash flows and and buying based on the available cash and that's no reason to feel bad about that it's quite common i think what i would ask us to consider is once we got enough cash flow to cover overhead Then what that means to me is every dollar that we put into the business past that is in theory, an earning is going toward an earning asset. We are acquiring with that capital and earning asset. Now we can say, yeah, but we have losses. That's true. But you have to look at, does that cash turn over? Again, our overhead is covered. We're not addressing that here. Now, once the overhead is covered, the dollars that we take out of our pocket or out of our line of credit or draw from our partner that we put into the business now are going into contracts that are going to be earning and producing for us. Obviously, the rate at which those things produce varies. But in my experience, the buy here, pay here portfolios, tend to turn over at a rate that supports the cost of outside capital. Okay. So we've got, we've got enough return, even with factoring in our repos, we have enough return against that capital against that risk to justify sourcing some money. Now it's just a question of, do we want to, does that fit with our strategy? Um, you know, I have to stop and say, we've talked to dealers who, uh, I've talked to so many dealers in the last couple of years who say, we used to have two, three, five locations, and I've cut it back to one. So we've talked about bigger is not always better. Maybe growth in this way is not the strategy for you. But when you really do the math and you've already done that exercise that Michelle and I talked about, you've decided the intentions for yourself. You've decided you feel like your target needs to be based on some math and some factors. You've decided you need to have more accounts on the books, more cash flow, and that will satisfy a certain thing. So we've decided to grow. All right. Now, once we make that decision to grow the portfolio, But when you talk about how and where we're going to fund that, if we don't have the cash in our own pocket, we have the desire to grow. We have the capacity to grow. We can recondition more cars. We have a sales team that can sell more cars. We have a lot that will hold enough to increase our sales volume. So there's no other barriers in this example except for capital. So now the question becomes, how would we capitalize that growth? If we're sitting there rocking along, we've been selling twenty, twenty five cars a month in twenty, twenty five and twenty six, and now we want to set our sights on forty. Well, where can that money come from? All right, so. The cost of money, the types of buckets of money that are available to dealers in that scenario varies. i would say that it's my hope that you can find affordable capital because even though you're in a high-risk business and your local bank is not too crazy about being in this business in reality this is where data comes in and this is where the work that we do in va and all the source data becomes really important and for you as a dealer individually va dealer or not having your own data strung together and having a a capable DMS, and having the ability to present your mathematical history to a would-be banker, lender, capital partner, private investor, whatever that looks like. So now when we say that this is the rate at which our portfolios turn over, this means that is the rate at which I can repay debt. Okay, so now you can figure out what that cost looks like. But, you know, I've been in meetings as a coach. I've certainly been in meetings with dealers all across the country, meeting with their bank. I've sat at meetings with the dealer principals and sometimes there were multiple partners and then you've got the lending partner there. And so I've met with banks. I've met with private investors and dealers. We've worked to make introductions and warm introductions to capital providers across the industry that we're familiar with. So I think, you know, you really think about what are the sources. I would just tell you, even though here we are recording in late twenty twenty six and the capital availability is not what it was just a few years ago. There are fewer providers in this space. They'll come back. There will be others who step forward and provide capital solutions in this space. Why? Because there are always people looking to make money. There's always people looking to make money on risk. They're going to come into this risk base and provide capital. So it'll be back. Until then, you've got the options that you've got in terms of, I'll kind of put them in a bucket of, you've got specialty capital providers. It may not be a traditional line of credit revolving line where you draw it back up. It might be a special program that's designed to fund single contracts. It might fund pools of contracts. It might fund streams of payments. There are different ways to get to money in this industry. and even the most expensive ones. And I'm not going to call anybody out here. We just know we have that math and we kind of know what the cost of money is. And that's part of what we would be urging you to work into your own financial plan. Because I would tell you quickly, some of the capital, even though it will fund growth, it can also nearly strangle a business. If you don't manage it well and you don't have the discipline to be able to graduate from it, then it becomes a scenario where The lender is making some money, but you're having a hard time getting ahead as a dealer. So be careful about those programs. I just think you've got to do the math. You've got to be able to know what the program costs and run that math and anticipate your cash flows and be able to sort of graduate. And so there are – now you move from that kind of a program into – you know really I gotta say right now I don't see a lot in between you've either got kind of what I typically would call early stage money it's aimed at providing funding to dealers who are in that place where they need some cash they don't yet qualify maybe for traditional line of credit and you know that could be a whole different conversation we'll come back and talk about qualifications for a line you know as we go but We really have to know the math about what is that money going to cost us? What are the sources? What is the rate at which we have to repay it? And so that we can be prepared for that math. But I would just tell you, even at the most expensive money that you're pulling into your buy here, pay here business, at least the ones that I've been exposed to, kind of almost hard money type of scenarios, even that expensive money, when you compare it to your return on your portfolio, portfolio, you're going to have a chance to recover that because you're going to have a chance to have gains. And yes, you're going to pay an expensive price to add the next fifty hundred hundred fifty contracts. But the cash yield off of that should put you in a positive place with a good strategy, good game plan to be able to take that cash in and go into what's next. So this is the part that I would say, and one thing that I always have to remind dealers about is you think, man, I can't pay twenty five percent for money or whatever the number is. I'm only charging my customer twenty five percent. But the thing we have to remember is. you're charging your customer twenty five percent on a hundred percent of the note and you may only be paying eighteen twenty five percent on thirty percent of the note yourself and so you gotta allow for that delta the difference between those things because you can still make that work yes it's restrictive yes it's prohibitive and expensive and yes of course you'd like to get your business healthy enough that you can qualify to get into some of the more affordable buckets But until then, just know that there are folks out there still who are actively funding dealers. It came up in our VA meeting last night. There are dealers out there who, by the way, you know, they raise the conversation in a VA meeting and somebody says, I'm talking to so-and-so or I decided against so-and-so and other dealers chime in and say, yeah, I did the same. I looked at their program and decided to path. So, you know, it's just an example of, you know, what can happen when you have a chance to really hear it from peers in that way. But the reality is I think there are still programs. There are still people who are out there providing funding for buy here, pay your dealers at almost any stage of business, almost. And, um, So I think this is the time. October is a great time to catch your breath a little bit. We got about a week left. November should also be slow with most of our dealers, as I talked about in our tax refund season things. November, December for us will be slow if we allow it to be from a sales perspective. So it can be a good time to really pause and make a game plan going into twenty twenty seven about how much we want to grow. how we want to capitalize that, what we're prepared to pay for money. And don't wait till the last minute because a lot of these funding partners are going to take weeks to get your approval done. They're going to go through your application. They're going to look at your program. They're going to ask you to send some data over. They may want personal financial statements. It varies, right, in terms of what they're going to want. But I would say just don't wait till the last minute, especially if you're one of those dealers who's looking to stock up on inventory in the month of November and December to really be prepared to make a hard run in the first quarter. So, you know, those are kind of the things that I really wanted to introduce. I had hoped this morning to be able to share with you this new web tool that I've created. And I could, I just think we'll save that for our kind of a wrap-up session next week. This will be a way for us to start to show you some of the math that we can identify, some of the numbers that we can work in order to help you make that decision. And I see that Michelle put the number on the screen. I would urge you to text me, call me, reach out to me if you're in that place where you're needing help with building a strategy, like building the actual financial component of your business plan going in next year. if you're needing some introductions on these capital partners i'm happy to do that we're happy to share what we hear and what we know directly from our experience with some of the folks who are out there providing money and so yeah reach out we're this is the time of year to really catch your breath a little bit decide what is going to be um you know your strategy going into next year and how to really make it a pivotal year i can tell you quickly we had a meeting earlier this week on our on our v-eight um with our V eight groups. And we, we looked at year to date numbers through September and we compared twenty twenty six to twenty twenty five. And what I can tell you is that most of those dealers in the pool were better in the key numbers in twenty twenty six than they were in twenty twenty five. So just to me, in a real kind of cursory way that our industry is stabilizing. We certainly still have consumers that are struggling, but it does feel like it's at a time when we're stable enough to look at growth. And we certainly are talking to some people that are very growth minded at this point. And so now it's just a question of really being smart with capital, making sure we access the right money for you and leveraging that in a way that it will definitely produce for you what it is you're looking to create for yourself and your business. And so I hope this is helpful. I look forward to having you back here next Friday. Again, one more reminder, if you're not already registered for the BHPH forum, I will be there. We'll be looking for folks that we know, industry providers, dealers out there, And happy to talk to you about our V-Eight dealer group. We don't want to see you miss out on that in the V-Eight group. And we have some really great comparative numbers on our tools that we're being able to bring to dealers. Our references will tell you. The tools and the data that is available in V-A is better than ever. And we're excited to bring folks into these conversations. So let me let you get back to your Friday and enjoy your day, enjoy your weekend. We'll see you back here next time.
