Getting into trouble with taxes is easier than most shop owners think. Everything can be fixed, but preventing problems is far easier and cheaper. In episode 86 of Maximum Octane, Eric Joern, a CPA and partner at Kaizen CPAs + Advisors, explains what shop owners need to know about financials, taxes, and payments.
Eric specializes in serving the automotive aftermarket. He and Kim Hickey discuss what to look for in a CPA, why payroll deserves serious attention, the difference between a CPA and an accountant, inventory, year-end spending, and where shop owners most often “miss the boat.”
This article is for general education only and is not tax or accounting advice. Consult a qualified CPA about your specific situation.
What You Will Learn
- What every auto shop business owner should look for in a CPA
- Why you have to take payrolls seriously
- What’s the difference between a CPA and an accountant
- Let’s talk about inventory
- Is spending extra money on December 31st a good idea?
- Where most auto repair shop owners “miss the boat”
What to Look for in a CPA
Around the 5 minute mark, Eric explains what shop owners should look for in a CPA. Industry experience matters. A CPA who understands auto repair knows how shops make money, how parts and labor margins work, and which benchmarks matter. That knowledge leads to better advice than a generalist can usually offer.
Kaizen CPAs is an ATI partner, and ATI’s Partners page lists other resources for members.
Beyond industry experience, shop owners should look for a CPA who communicates clearly, responds promptly, and provides proactive advice rather than just preparing tax returns. Regular meetings throughout the year, not just at tax time, allow the CPA to help with planning, cash flow, and major decisions. Asking for references from other shop owners can help find a good fit.
Take Payroll Seriously
Eric explains why payroll must be taken seriously. Payroll taxes, withholding, and filings carry strict deadlines and significant penalties. Mistakes can quickly become expensive. The IRS outlines employer responsibilities on its employment taxes page. Many shops use a payroll service to reduce the risk of errors.
Payroll errors can lead to penalties, interest, and employee dissatisfaction. Common issues include misclassifying workers, miscalculating overtime, failing to deposit taxes on time, and incorrect withholding. Using reliable payroll software or a payroll service, and reviewing reports regularly, reduces these risks. Owners should never use payroll tax funds to cover other expenses, as unpaid payroll taxes can create serious personal liability.
CPA vs. Accountant
Around the 9 minute mark, Eric explains the difference between a CPA and an accountant. In general, a CPA is a licensed professional who has passed the CPA exam and met state requirements, which allows them to perform certain services, such as audits, and represent clients before the IRS. Bookkeepers and accountants play important roles too, but the level of training and authority differs.
Many shops benefit from a combination of professionals: a bookkeeper who handles daily transactions and reconciliations, and a CPA who provides tax planning, financial analysis, and strategic advice. Understanding the roles helps owners get the right support at a reasonable cost.
Let’s Talk About Inventory
Eric discusses inventory and why shops must look at it closely to avoid future tax headaches. How inventory is counted and valued affects reported profit and taxes. Shops that do not track inventory accurately may overstate or understate income. ATI’s 8 Tips to Make Your Shop Successful With Inventory Management and Don’t Forget to Take Inventory offer practical guidance.
Inventory affects both taxes and cash flow. Excess inventory ties up money that could be used elsewhere, while inaccurate counts distort financial statements. Regular physical counts, clear tracking systems, and reviewing slow-moving items help keep inventory accurate and lean.
Is Spending Extra on December 31st a Good Idea?
Around the 16 minute mark, Eric addresses a common habit: spending extra money at year-end to reduce taxes. Buying equipment or supplies the business needs can make sense. But spending a dollar just to save a fraction of that dollar in taxes leaves you with less cash overall. Year-end purchases should be driven by business needs, not just tax savings.
Tax strategy should support business strategy, not drive it. Purchases made only to reduce taxes may leave the business with equipment it does not need and less cash for emergencies. A CPA can help evaluate whether year-end purchases make sense and how they fit into longer-term financial plans.
Where Shop Owners Miss the Boat
Eric closes with the areas where shop owners most often miss the boat. Common gaps include not reviewing financial statements monthly, mixing personal and business expenses, and not planning for taxes throughout the year. Regular meetings with a CPA can catch these issues early.
Another common gap is not understanding key financial ratios, such as gross profit margin, labor efficiency, and net profit percentage. Learning to read and interpret financial statements empowers owners to make better decisions. Many CPAs and coaches offer guidance on which numbers matter most.
Another frequent gap is waiting until tax season to find out how the year went. By then, most of the opportunities for planning have passed. Owners who meet with their CPA during the year, often quarterly, can adjust estimated payments, plan major purchases with a clearer picture, and avoid an unpleasant surprise in the spring. Clean books make those meetings far more productive. When transactions are categorized correctly and accounts are reconciled every month, the CPA can spend time advising rather than cleaning up. That is usually a better use of the fee, and it gives the owner numbers they can trust when making decisions about hiring, pricing, or equipment.
Building a Strong Financial Team
Strong financial management requires a team: the owner, a bookkeeper, a CPA, and sometimes a financial advisor or coach. Each plays a role in keeping the business healthy and compliant. Regular communication among team members ensures that everyone has the information needed to provide good advice.
Eric’s message is that getting professional help is an investment, not an expense. The right CPA can save more in taxes, penalties, and missed opportunities than they cost, while giving owners peace of mind and clearer insight into their business.
How to Put This Into Practice This Month
Owners do not need to overhaul their finances overnight to benefit from Eric’s advice. A few focused steps this month can build momentum. Start by scheduling a meeting with your CPA that is not about filing a return. Bring your most recent profit and loss statement and balance sheet and ask what stands out, what the CPA would watch more closely, and what questions you should be asking.
Next, confirm that payroll is running correctly. Review the last few payroll reports, check that tax deposits were made on time, and make sure everyone is classified properly. Then set a date for a physical inventory count and compare it to what your system shows. Finally, open a separate account for tax savings if you do not already have one, and move a portion of income into it on a regular schedule so tax payments do not compete with daily operations. ATI’s practical guide to financial planning and tax prep for shop owners walks through related steps.
Financial Health Checklist
- Do you receive and review financial statements every month?
- Is your payroll handled accurately and on time?
- Do you count and reconcile inventory regularly?
- Do you set aside money for taxes throughout the year?
- Does your CPA understand the auto repair industry?
For more on financial structure and planning, listen to Jerry Jankowski in How to Protect Our Assets and Avoid Tax Surprises and Ron Saharyan in Bringing Balance in Our Finances’ Force.
Frequently Asked Questions
Does my auto repair shop need a CPA or just a bookkeeper?
Most shops benefit from both. A bookkeeper handles daily transactions, categorizes expenses, and reconciles accounts so the books stay accurate. A CPA is a licensed professional who can provide tax planning, prepare and review returns, offer financial analysis, and represent you before the IRS. Using a bookkeeper for routine work and a CPA for planning and strategy is often a cost-effective combination. The key is that both understand the auto repair industry and communicate with each other regularly.
What should I ask when interviewing a CPA for my shop?
Ask how many automotive repair or collision clients the CPA serves and which industry benchmarks they track. Ask how often they meet with clients outside of tax season, how quickly they typically respond to questions, and whether they offer proactive planning or mainly prepare returns. Ask for references from other shop owners. Finally, ask how they work with your bookkeeper and what reports they expect to see each month. Clear, specific answers are a good sign that the relationship will be useful.
Is it smart to buy equipment at the end of the year to lower taxes?
It depends on whether the business actually needs the equipment. A purchase that improves productivity or replaces worn tools may make sense, and the timing can sometimes help with taxes. But spending a dollar to save only a portion of that dollar in taxes leaves the shop with less cash overall. Talk with your CPA before making large year-end purchases so the decision fits your cash flow and long-term plans. This is general information, not tax advice.
Why does inventory matter for my shop’s taxes?
How inventory is counted and valued affects your reported cost of goods sold, which in turn affects profit and taxes. If counts are inaccurate, financial statements can overstate or understate income. Excess or obsolete inventory also ties up cash that could be used elsewhere. Regular physical counts, consistent tracking in your shop management system, and periodic review of slow-moving parts help keep inventory accurate. Your CPA can explain which inventory methods apply to your business.
