Profit Doesn’t Equal Cash: Why Shops Go Broke While Making Money

By Hunt Demarest, CPA – Business by the Numbers Podcast

 

One of the most confusing (and frustrating) things I hear from shop owners is this: “Hunt, I feel like I’m going broke — but when I look at my financials, it shows I’m profitable.”

Sound familiar? You’re not alone. And honestly, it’s one of the most common misconceptions I run into. Just because you’re showing a profit doesn’t mean you have cash. And just because you have cash doesn’t mean you’re actually profitable.

It sounds backwards, but let’s break it down.

The Cash Flow Reality Check

I like to joke that the number one killer of small businesses is lack of cash flow. But really, it’s no joke at all. You can have great margins, talented techs, and low overhead — but if you don’t have cash, you can’t pay your people, advertise, or even keep the lights on.

Here’s an example. Let’s say you run a lean shop with no debt and solid margins, but you’re tucked away with little visibility. You’ve got great technicians, but no new customers are walking in the door. What’s your first move? Advertise, right?

Well, advertising takes cash. And if you don’t have it, you’re stuck. That’s why cash is the fuel that keeps the engine of your business running. Profit alone won’t get you there.

When “Profitable” Shops Struggle

Not long ago, I had a client call me in a panic: “Hunt, I’m going broke. I don’t know what’s happening.” Naturally, I assumed his shop wasn’t profitable. But when I looked at his P&L, he was consistently pulling 15% net income.

So why was he drowning? The balance sheet told the real story: massive debt service. His business was profitable on paper, but nearly every dollar of profit was being eaten up by loan payments.

This is where most shop owners get tripped up. It’s not the amount of debt that kills you — it’s how it’s structured and how quickly you’re required to pay it back. I’ve seen shops saddled with daily withdrawals tied to credit card deposits, where lenders skim 20–30% off the top. Try operating when one-fifth of your sales never even hit your account.

>>> LISTEN TO PODCAST EPISODE 188, FOR MORE ON THIS TOPIC. <<<

Your Options: Bootstrap or Borrow

When cash is tight, you usually have two choices:

1. Bootstrap. Cut all non-essential spending, both in business and personally. This means living lean — no “nice to haves,” just the essentials. The goal is to stack cash reserves, not just to pay down debt, so you’ve got a safety net when things get tough.
2. Borrow smarter. If your debt service is crushing you, sometimes refinancing into longer terms with lower monthly payments can give you breathing room. Not all debt is bad — it’s about making sure it aligns with your profitability.

The key is recognizing the root cause. Are you really unprofitable, or are you burning cash because debt service is outpacing your income? Once you know, you can take the right steps.

Final Thoughts

Profit matters. But cash is what pays the bills. If you’re profitable but struggling, dig into your debt service and cash flow. If you’re unprofitable, focus on fixing margins and labor rates first.

At the end of the day, the shops that survive aren’t just the ones making money on paper — they’re the ones managing cash smartly, building reserves, and staying out of the trap of high-interest, short-term loans.

Because when it comes down to it, cash isn’t just king. For your shop, it might be the difference between survival and shutting the doors.

 

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ABOUT THE AUTHOR – Hunt Demarest, CPA, is a Partner at Paar Melis & Associates and a leading financial expert in the auto repair industry. As host of the Business by the Numbers podcast and a published author, he educates auto shop owners on how to improve profitability and cash flow through proactive tax planning and practical financial insights.