Harry and Joe's Repair Service Harry and Joe were friends in high school. They were both interested in cars and were very skilled at repairing them. During the summer, they created summer jobs by taking care of neighbors' and friends' cars. They called their company Shade Tree Mechanics Co. They would pick up the car, bring it to Joe's backyard under a large shade tree, wash and wax it, do a tune- up, or perform other minor repairs as needed. After high school, they each went to work for large auto dealerships in the area. They then decided to create their own repair service. That was 20 years ago, and they have been very successful since then. They now have a large repair fa- cility that specializes in cars and light trucks and employs 58 people, including the office per- sonnel. They even have a popular talk show on the local radio station about car repairs. They have purchased the latest computer test equipment, have many trucks and vans for pickup of cars and parts, extensive office computer systems, and a great deal of other equipment that is used in the repair shop. The total value of the shop, office, and trucks is approximately $400,000. The building that they own cost $200,000 eight years ago and they have since re- modeled it and added on to the facilities During a recent lunch at the deli across the street, Joe and Harry were discussing the com- pany's finances. Joe said, "The bookkeeper says that we made more money last year than ever!" Harry said, "Yes, but where is it? All we ever do is buy new equipment for the shop or the office. We get a good salary from the business, but shouldn't we get some dividends as owners?" Joe said, "We've got a cash flow problem. Harry said, "Right. All the cash is flowing out and nothing to us! Joe agreed. "You're right, but the bookkeeper said that we are using the best depreciation methods we can and that we are saving on taxes because of our depreciation methods Depreciation, cash flow-accounting stuff! All I know is that for all the work we do and Il the customers that are happy with our work, we sure don't get much in return! We're not get- ting any younger-what about our retirement?" Harry saicd Joe responded, "This afternoon, let's sit down with Margaret, the bookkeeper, and have her go over the numbers with us. She can explain things well. Maybe she can explain depreciation, cash flow, and the other accounting things. And maybe she can suggest some way we can get more cash out of the company and plan for our retirement." "Good idea," Harry said. "Let's have dessert." 1. If you are Margaret, how do you respond? 2. Explain the concepts of depreciation and cash flow to Harry and Joe. 3. What financial measures could be used to show Harry and Joe their financial results? 4. How can Harry and Joe's plans for retirement affect the organization's finances
