The Property Perspective
From hidden gems to billion-dollar deals, this is The Property Perspective - where seasoned real estate pros reveal how they spot value others miss, and industry disruptors share the unconventional strategies reshaping real estate.
The Property Perspective
Mastering Financial Control: Essential Strategies for Real Estate Investors
Unlock the secret to transforming your real estate investment business with actionable strategies from experts in the field! This episode promises to arm you with the knowledge of the Profit First methodology, as championed by Anny Dragonova, COO of BatchService, and David Richter, founder of Simple CFO Solutions. Through their personal stories of financial chaos and subsequent clarity, you’ll discover why high transaction volumes don’t always mean financial success and how true financial control can lead to healthier growth.
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00:00 - Hope (Announcement)
Most real estate investors feel broke despite making money. Anny Dragonova, coo of BatchService, talks with David Richter, founder of Simple CFO Solutions, about the profit-first method helping investors gain financial clarity, control cash flow and maximize profits From hidden gems to billion-dollar deals. This is the Property Perspective where seasoned real estate pros reveal how they spot value, others miss and industry disruptors share the unconventional strategies reshaping real estate. Now here are your hosts.
00:33 - Anny Draginova (Host)
My name is Anny. I am one of the founders here at BatchService and kind of where we got here and how we got here today, just a quick background on me. My background was in construction, then it transitioned into real estate investing and now we are we're doing. We created BatchService for a solution, for what helped us grow our operations, and today I wanted to welcome in a friend of mine, a founder of Simple CFO Solutions and author of Profit First Real Estate Investing. David is an experienced real estate investor who has closed somewhere around 850 plus deals correct me if I'm wrong, david with multiple strategies.
01:18
It was in 2019 when I met David at a mastermind in Vegas. He was actually sharing some of the struggles that he had in his business and how he overcame them. At the time, I think he was doing five deals and scaling to 25 deals a month. Little did he know we were actually facing the same challenges that he was. We had six acquisition guys, a dispo, a handful of cold callers and assistants and we were running a profitable operations.
01:48
From what I thought and to be frank with you, our financials were a complete disaster. We had money coming in from escrow, money going out for payroll and advertising and whatnot. But we really didn't have a hold of our financials at all. And it wasn't until that mastermind in 2019, when David shared his methods of making things just simpler, right and understanding where money is going and where it's flowing from and where it's going to. Once we implemented the profit first methodology in our business, I can say, hands down, it changed our operations. It changed it for the better.
02:35
I wish when we started, when I started the operations, I knew what David kind of preaches right, the profit first mentality, because it would have saved us thousands of dollars just on costly mistakes that we've made along the way. And since 2019, um, david, I know he's he's achieved lots. He's uh, he went ahead and he wrote a book and one of the things that he's also done is help a lot of real estate investors just um gain financial clarity along the way, um, giving them freedom to focus more so on the business and keeping more of that hard-earned profits. And pretty much that's why we're here today and I'm lucky to be a friend and to be in his circle of friends and I want him to just share with the audience as well of how he has helped his business and how he's helped thousands of investors manage their financials for a long-term success.
03:38 - David Richter (Guest)
Yeah, so appreciate that, Anny. I'll never forget that mastermind because it was close to that mastermind when I met some of the first people that we actually worked with at Simple CFO, so I could go into that. But up until that point, I've been in the real estate space since 2012 and was part of that company where in 2014 to about 2017, 18, we had scaled it up to about 25 deals a month and was doing wholesale turnkeys, fixing flips, everything but we were spending 26 worth of deals at the door. So that sucks. It's like why are we doing this? Like, why are we scaling this up? Why are we doing more? Why are we hiring more people and pouring more into marketing? We have nothing to show for it.
04:24
And that was just a big wake-up call, because I sat in a lot of different seats there. I was in sales, marketing, acquisition, transaction coordination, and the last seat I sat in was the finance seat in my stint there of that company and I got to read a profit and loss, a balance sheet, get to really learn how to read the numbers of a business, and to me that was really interesting. I mean, look at me, I look like that would be interesting to me and that's where I'm like I really did. I like that stuff to be able to read the story of the business. And once I figured out what we were doing, I'm like we're spending more than we make. I don't think this works in any situation here, like, what are we doing? That's before I'd even heard of Profit First. I just knew that something had to change. Well, it did. Something did change. I wish I had a great ending to that story.
05:11
But that company blew apart and like people had to go their separate ways and I moved across the country and other people that were in there there was like 25 businesses at that time or 25 people on the team. Gary Harper was part of that team. He wasn't the owner, but he was part of that team and that's where he spun off his sharper business and stuff. And that's where we were all at that company. And that's where I knew too it wasn't just us, because we were going to some other masterminds at that point and other people were like we're in the same boat as you who are making money, but we feel broke, like where is all this money? And that's when I realized that it's not just us, it's other people and it's unfortunate that no one really teaches us the basics, like the basics of something that we do every day, which is move money and and have cash and like make sales. What do I do with that money, though, from here, so that way I don't just keep growing the big business that ultimately fails, like, how do I grow a business that's healthy and what do I do with the cash? That's where helping some other investors.
06:16
I moved across the country after that into the richmond virginia area. That was about 2018, started working with an investor there at At that point, I knew what to look for in the numbers and, like, right away, one of his big complaints to me of his business was like I never get to take money out or I'm not paying myself. I'm like, well, I've heard that before and I've seen that firsthand, so like, let's dig in here. And we found out that. Number one, he had sucky bookkeepers that weren't in the real estate space and didn't know what they were doing. Number two, he couldn't get any clarity for himself. Like, just what was he making spending and was he able to keep any for himself? Like basic, basic stuff.
06:55
Then, from there, it was like he had a portfolio of property small, like maybe 30, 40 doors and we figured out while cleaning all this up and just getting him some basic numbers in place that he was super under leveraged, like he didn't have a lot of loans on the properties and he poured a lot of his own hard-earned capital back into the business, like a lot of people do, and reinvest. But he's like I think I put too much. He was like 30% loan to value, so he had 70% equity in this portfolio and was able to like refinance hundreds of thousands of dollars into his pocket. He I'll never forget that conversation when he had just done that and he got clarity in the numbers and he's like what this has changed my life, Like knowing where my numbers are and then being able to be in a good cash position, and I did that at the beginning of 2019.
07:47
Well, the beginning of 2020, we all know what happened then and this guy's name is Rich Lennon like called me up and you know the beginning of 2020 is like I'm sitting on all this cash and everyone else is freaking out and I'm like this is why I want to start Simple CFO. Like I want to give people just a fighting chance that if you're going to make money. Like, how do you start this process? Like, how do you make sure? I had not even read profit first with rich Gary Harper was the one when he heard that I was starting Simple CFO Before I went to that mastermind with you, Anny it called me up and said I hear you're starting like this company to help people with the clarity around the numbers.
08:24
He said you should read profit first and that's where, as an, I am. I'm an entrepreneur at heart and you know I definitely look like the numbers person, like we've already established that. But my background isn't in accounting and finance and I read profit first and I'm like this is such a great system to manage money you know like, and you don't have to have an accounting degree, you don't have to be a financial wizard. So that's what spoke to me and I knew I could get that message out because it was bottom of the shelf, like I could do this. And that's when we started implementing profit first in the businesses. And that's coming back full circle to your question.
08:57
Like, through that story is that I wish I would have had what we're implementing now, because I've seen businesses literally turn around from like not having the cash, not paying themselves, not doing anything, to having these cash reserves the owners taken care of, they've got a you know tax bucket so they don't have to worry when tax time comes.
09:16
Like I love that feeling. But if we would have had that in that first company like it wouldn't have blown apart, like we would have been able to know where's our money going, how much do we need in reserves and we would have had a simple system. All wealth is built on systems. But we didn't even have a system with having all those deals that we didn't have a system for our cash. So that's where now being able to really implement profit first and get someone on small business teams to help them and be coordinating the financial department for them so they know like I have clear numbers, I have clear cash like and that cash flow. So there's just a long answer to how do we see people getting you know help from the financial side? It's not a bookkeeper, it's not a CPA. It's someone that's coming in and helping from a higher level to know where the money's going.
10:02 - Anny Draginova (Host)
Yeah, and kind of to your point like this is not taught. And you said your background is not accounting or finance. My background actually is yes, so I actually graduated with an accounting degree. Yet managing our financials in the investing business was very difficult for me, because you always made the excuse for yourself as well, as like, oh, this money is being held up in this property or this property or it's the wire. I'm waiting for the wire to come in. And yet, like you're saying, you just always felt broke. Right, money was flowing, but you never actually had money to take out of the business. Which kind of leads me to your, to the, to. The next question, or to a question for you is what is a common financial challenge that you see in real estate that people face in their business when they're either starting or when they're trying to scale?
10:56 - David Richter (Guest)
Yeah. So when they're starting, it's what do I do with my first check? Like what do I pour my money back into? Should I pour it all back into marketing? Or like when can I start taking money out? I would say that's probably the number one thing I hear when people are first starting and they're doing their first deals. That's why I'm like I love pointing them to Profit First. Like if you just started a business, you don't need a fractional CFO like the service that we offer. You just need to read Profit First and implement. Like read profit first and implement. Can you at least do that? Because that'll give you a good first starting point.
11:30
Another big one I see as people start to scale is that if they don't have a system that's helping them with their cash, like profit first, or a cashflow type system helping them build cash reserves and be profitable on the way up when you're small, then you just grow bad habits as you get bigger. That's what we were doing. The habits we had at one deal a month in that company. Then five deals a month grew into 25 deals a month, but they were bad money habits. So that's another big thing we see too is that since we're not taught and we don't have someone in our corner telling us how to do this and like what is the next step? How do we make sure that we're on the right path? That's another big thing that I see people. They're just lost. They don't know what to do. It's not even that, oh man, they know what to do and they're just not doing it. It's like no, we have, like you said, we have not been taught. So that also creates a vacuum in which bookkeepers and CPAs a lot of them out there are, like you can't know this stuff, like you are just a business owner, you shouldn't know this, or you know, or you should, but you're not smart enough. It's like the kind of messages we get from the financial crowd and it's like, oh, like, oh, well, then that that's fine, that's just for them then, and then they never the owner never focuses on it.
12:44
But I will say the number one thing I hear when we work with people is when they get a grasp on where their money's going, like putting cash in their pocket and like being able to actually invest where they want to, they say they feel like a true business owner now. It's like they've kind of almost been faking it. They feel like up to this point, but once they get a handle around their money, they feel like they put on you know, their adult pants, like now I can go out there and I can actually do something because I know what's going on in my business. So I feel like that's another disconnect that a lot of people have is they think that financial knowledge is just for, like, the CPAs, the bookkeepers, because a lot of them just they talk down to us or over us or like a different language, like accountanese, and it's like here's where the simple language of business.
13:30
We need to know where money flows and how to get it in and like do you know simple words like make, spend and keep, and do you know how much is coming in, how much is going out, how much you get to put in your pocket? Just trying to make the conversation simpler so that the owner actually ends up with more of what they want, which is cash in the bank, which translates into that financial freedom. You know like we all play that cashflow game in real life. I don't know if you've that Robert Kiyosaki cashflow one-on-one, where it's like you're literally in this little wheel in the middle trying to land on green spaces that say big or small deals and we're just landing. We try to land on those on the next deal, get me out onto the fun track. You know financial freedom to land on those and the next deal, get me out onto the fun track.
14:08
You know financial freedom like in the game and we just go round and round and round for years and like for our case it was five years of being in a rat race until it blew apart. We never saw financial freedom, much less, you know, cross over to that, the fun track. Like we blew apart and had to start over. It's like this is ridiculous.
14:23
And that's where I see a lot of people say you know, like I don't even know where to start, I don't know where to begin and it's too complicated. It's not what people like. Like a lot of entrepreneurs are allergic to spreadsheets. It's like they don't love that side of the business. So it's really trying to make it as simple as possible and what's going to make the biggest impact to you to you, your family, your situation, your personal pocketbook and that's really where we try to focus on and that's really where I feel like the profit first message, why I love telling it because it's like it's simple for an entrepreneur, it's simple to implement, and then it's really about the discipline of doing it consistently that keeps you as a wealthy entrepreneur.
15:03 - Anny Draginova (Host)
Yeah, one of the things you said is that accountants and CPAs they talk down to you, they do speak a different language altogether and I feel like when you are in a meeting they say these words that you have no idea. They quote IRS forms and you're like I have no idea what that is and even for myself, having an accounting background, I felt stupid asking the question of like hey, what is that? What is that? So I'd go home and I start Googling. I'm like what is this? What is that Right? Terms that they've used in in um, in our, in our meetings. And, let's be honest, like knowing your financials isn't necessarily the sexiest thing, right?
15:40
It's not the sexiest thing as part of the business, but it honestly should be like coaches, like harper on like know your kpis right, know the number of calls you made, known the number of contracts you sent out, know the number of everything in your business. Yet the financials is left to just be there because it's not a cash generating activity in the business. But that needs to flip right, that needs to flip all together because if you don't know where your financials and how your financials are run, it'll be super difficult for you to be able to have cash generating activities being performed in your business altogether. And even starting batch service like.
16:23
One of our earlier mistakes was not to have someone dive deep into our books. The day we started it was always right Figure out the platform, figure out the sales like, figure out absolutely everything and finance kind of just when, when we get to it. It was a we'll, we'll get to it eventually. Again, I we've made the mistakes and along the way I've made them. Personally, I know how to read a financial statement, but yet I still find it difficult to manage not using the profit first methodology in a real estate environment, even for our business. Now we do have a very simple way of managing our financials and it is very similar to the profit first methodology that you teach um and that you, you implement for people as well. Um, it's again, I want to kind of just um dive, I guess, into like how, what are the first steps if someone's wanting to to set up the first methodology, what are some of the first steps that you'd want and you think that they need to implement Some of the most crucial steps?
17:35 - David Richter (Guest)
So, first of all, if you don't know what we're talking about or have never heard of Profit First, it's a book by Mike Michalowicz all about cashflow management. It's basically the same message as Rich Dad, poor Dad, like pay yourself first or the richest man in Babylon, but profit first puts a system behind it. It's not just words anymore, it's like here's what you can actually do. And that's what Annie's asking me is like what's the actual system and how can we start it? The first thing I would say is, even before you start setting up the actual system, learn what you need. Dig into and ask yourself what do I need from my business? How much, on a monthly basis, do I need to take and put in my pocket to support me, my family? And then, like, ask yourself, why did I start this dang thing? Why did I start real estate investing? Why am I stuck? Why do I want to break away from my job or whatever? And then it's like what's that number on a monthly basis? What's that want you need? Need I tell people to start there? Because I want you to have a goal that's yours, that you're working towards and not someone else's goal, that they're telling you what you should do. It's like what is my goal for me, because it's you, your family, your situation, that's different than every other real estate investor out there and it's like I want you to be pointed and playing your own game and not someone else's game. Second thing that I would do right after that, once you figure out what you need from your business, is set up the system to start getting what you need. Click now, we're gonna set up the system. So what is the system of profit first? I don't know if you've heard of the envelope method Dave Ramsey has made that very popular in the personal finance space where you get different envelopes and set them up and be very intentional with every dollar.
19:07
Profit First is built on that. You just set up different bank accounts and you literally name them. You name these bank accounts for what you need from the business and then you start filling up the accounts from all your sales and man, I wish we would have done this back in the day, but I'm glad at the same time we didn't, because otherwise I probably wouldn't be teaching it. But this is where you can just start out like from here, the first bank accounts, I'll give you the five core accounts and you say five, that's a lot. Set up one. I don't care. Like just start the dang thing, because the practice is the habit, like that's what I want to give you is the habit of just not spending everything you make. So what do you set up?
19:47
The first three I call the golden trio of accounts because these are like the three main heroes of your business to help you keep more of the money you make profit, owners compensation and owners tax like three physical business checking accounts that you open up at your bank for your business. That profit is like what do I want from the business? Like why did I start it? The owner's comp is to pay yourself on a regular basis. So that way it's not just Robert Kiyosaki saying pay yourself first.
20:10
Now I have a bank account dedicated to that and like your compensation like weekly, you know, monthly, bi-weekly or whatever. And then owner's tax a peace of mind account, making sure when you pay your taxes, like that you have an account there and it's like, oh shoot, I'm doing flips or I'm doing wholesales, I'm doing a lot of active stuff, so I'm going to have to pay taxes. You know, and you might've never paid taxes before in the past If you were W2, it's like shoot, now I got to pay these. That's why, from every deal, portion off a little bit to go towards the tax bucket.
20:39
So you don't have to worry about taxes at tax time. But those three accounts help you get started to keep more, because what a business owner really needs is the two skills of money making it, which is usually the sexy part, like you were talking about, annie. Like that's where batch comes into play and why I like batch? Because, like they can help you make the money. There is no money to manage if you don't have lead generation, like if you darn out there and getting the deals in the door. But if you are going to do that and you're going to get deals in the door, the yin to that yang is keeping the money skill. And this is where these three bank accounts, like if you start to set these up, you're starting to build that skill. Like here's accounts bank accounts, physical bank accounts that are dedicated to helping me keep more. So set up those three first, then the other two.
21:27
I would split out your OPEX account, your operational expenses, into income and OPEX, so you have income where all the money comes in. You transfer it. The first transfers from a sale would go into the keep accounts, like those golden trio, and then the rest would go into OPEX to run the business. But now you're getting clarity. That's the real magic. It's not just an accounting hack, it's a magic of I know where my money is and what I have to pay myself, what I have for paying the expenses in the business, and like where am I, percentage wise right now? Like, what can I even support on that type of a system? That's where, if you're in the business and you're in the trenches, it's usually very revealing of like, if you start to split out your money, like how much, percentage wise, is really going out the door for my expenses versus what I can put in my pocket, you know, to take home, and a lot of people just don't have that clarity inside their business, especially from a cash perspective. They might have a great bookkeeper. This is what I hate about the financial world. Okay, want to know what I hate? You could have a great bookkeeper, a great CPA accountant, have meetings where they're not talking down to you but they tell you here's, here is everything on the bottom shelf and here's what you made, here's your profit and loss, here's you made a hundred thousand last year. And you go to your bank account, dig, dig, dig. You pull it up. Why do I have like $5,000 there? Then it's like you could have the best accounting system in the world and your cash is totally different. Well, profit is a theory and cash is fact. Like that's where a lot of people need cash and the cash management piece, so they know where their cash is going. So set up those accounts first to give yourself a fighting chance.
23:01
I like to say it this way in the context of as entrepreneurs, we're all playing a game right, and if you're in the real of as entrepreneurs, we're all playing a game right. And if you're in the real estate world, most people think we're in the real estate game, but we're not. Every entrepreneur is in the game of money. We just don't know what to do with our money and how to win that game. We've been taught how to do real estate. We've been taught how to do a deal. We've been taught how to get on the phone, but we haven't been taught what to do with the money and how to make sure we're actually keeping it.
23:29
This is where it's a system to start that skillset, and that's why people feel like business owners once they get it implemented, because they feel like not only do I know how to drive revenue, I also know how not to be just flying by the seat of my pants all the time too. Now I know how to keep more of what I'm making. So that would be the first two steps. I would number one find what you need from the business and then build a system around the bank accounts to give you clarity. There's things to do from there, but let's not overwhelm everyone. So it's like let's keep it simple. If you can set up all five, great. If not, set up the profit account from here, can you do one thing and transfer 1% of every sale you do Like. The big thing is, like I said, the habit of I have a system that's working for me and helping me keep more of the money that I make.
24:16 - Anny Draginova (Host)
Yeah, and it the first time I heard it I was like that sounds so complicated, managing five accounts. I could barely manage one. Like how am I going to manage five? It actually is the opposite it is easier to manage the five than it is to manage that one account.
24:34
Now, even like going to the bank or like just talking to the bankers that sometimes I'm like you got to go to the second page of all the accounts we have set up, because the same thing you're saying is like have multiple accounts across, across um for our businesses, and it helps create that clarity because I mean, how many of us have made a transaction or done a transaction or move money around and the accountant says like hey, what did you do with this five thousand dollars on january 3rd of 2023? And you're like I don't know, like I don't know what I spent money on last week. Right, that creates a lot, of, a lot of clarity and I like the fact that you were talking about cash and it's super helpful like how to manage your cash and the cash flow. So can you tell us about some of like the essentials of what having a cash reserve and how it's essential for just business longevity and growth in the long term.
25:25 - David Richter (Guest)
I dedicated an entire chapter of my book to this because I knew the real estate investing community would like push back so hard. I feel like because of every entrepreneur I've worked with being a real estate investor myself, going to all the masterminds meetups, being parts of groups like this and just hearing the community it's almost like reserves are anathema, like I need to just stay away from that at all costs, like I need to pour everything into it or I need to be buying a deal where, if you're a true business owner, like a business, if you want to stay in business a long time and enjoy your business, then the decisions around money should not be just what am I saving here? Or like how am I nickel and diming everything? It's what helps me sleep at night and for a lot of entrepreneurs, especially in the real estate world, cash is like this. You know why? Because real estate is like this. You know why? Because real estate is like this and the seasons and the cycles and then everything that goes on. And then you have a crazy election year and you're like what's going on right now? And then you dig out of that. It's like you have such a cyclical business in the real estate world that having a cashflow system to help even that out is number one big thing. And then, from there, what's the cash system supposed to do? It's supposed to help you build reserves, for a couple different reasons. How can reserves help you? Number one not only do they help you sleep at night, they should help you if you get into a horrible situation in the business.
26:54
I myself, this has not just all been smooth sailing for me these past five and a half years of having simple CFO. There's been ups and downs, but for the love of God I'm glad that I've had cash reserves. I've never had to pull my hair out, pants on fire type, and that's where I see the clients that really lean into profit first, and seeing people do it firsthand. If they have that cash reserve, they don't mind the bumps in the road Like Rich. The very first person I ever worked with through this system was like COVID just hit and I have no idea what's going on. Everyone is panicking, but he's like I'm sitting on multiple six figures right now and I feel pretty good. I'm like boom, this is what I want for people along my journey to feel, because he's not even a person where he's like oh, I love cash reserves, but he was loving them then and it's like that's where cash reserves is a lot for you, the owner, psychologically, but also if you are like, no, I love risk and I want to take my cash account down to zero all the time and like, just, you know, I'm just going to go out there and do all the deals.
27:55
The other big thing is, if you want anyone to invest with you, they usually love to see cash reserves in place that you don't need their money. You don't need their money for the deals or to operate your business or anything like that. So if you were to keep growing and growing, if you wanted to go to a private lender for you know, for someone that to just to lend on one property, they still a good private lender will want to know that you are a good investment. And how can you show that? That you show that by managing your money well. Then you'll manage theirs well too. But the other thing is, if you get bigger and really want to scale hard and have whatever it might be banks, venture capital, whatever If, if you wanna go really big, they need to see that you're a good investment on paper too, and that you actually have cash in the bank. So it's really about your peace of mind and reserves and being able to weather any storm, versus like every single time, oh, this will help me, this will get just the next deal. The next deal will get me out of this situation. It's like that's a horrible way to live Then being able to be bankable for lenders.
29:03
There's also a great book. I have it behind me. It's called Great by Choice, Jim Collins. He's the one that wrote Good to Great. That's the famous one, great by Choice.
29:12
I really like that book because he talks about the 20 mile march where, if you have cash reserves as a business, you should do a March or like consistently, try and do this level of activity over a long period of time. And you know what helps you with that is having a cash reserve. And he's talking about he tells the story of two competing teams that were the first ones that were trying to, you know, get to the South pole pole the fastest, and he's like one team did 20 miles a day, no matter what rain, shine, snow or if it was, you know, horrible weather, great weather. The other team would stop on the days where there was horrible weather and they would do like 60 miles a day on the sunny one and it was like you would think that team would get their way faster but the other team ended up beating them by like months. It was something crazy. The ones that just did consistently a 20 mile march every day. And you know why they could do that. They were prepared, they had more supplies, they didn't have to try and rush to get there and they just said we're going to do this no matter what.
30:11
And that's where, as a business owner, we crave consistency consistency in leads, consistency in deal flow, consistency in closings, and usually the only thing we can really control out of all that is our cash, is being able to say how much cash do we have and how much runway do we have. So that way, when the leads or the consistency and deal flow or contracts goes like this, our cash, you know, is up here and maybe might take a slow downward dip. But it's not like this, like, oh, we have $100,000 a month. Oh, now we just spent 100,000. Oh, we had a 60,000. Oh, we just spent 65. Oh, we had 100,000. We just spent 200,000. It's like what are we doing here? That's where it's like having a cash reserve. I know that was a long answer, but you can also read my chapter. It's basically the same thing, but that's where it's like as a business owner those three things like making sure that you can sleep at night, being bankable to other people and then having a consistent business as well too.
31:11 - Anny Draginova (Host)
Thanks for that. The other for me, at least, one of the main things of having a cash reserve and knowing your just your cashflow altogether is not facing something like an opportunity loss. Right, like your investor rich like if he would have been cash broke in the beginning of 2020, like I'm sure he wouldn't have been able to invest in in real estate knowing that the boom was happening in 2020, which is huge for us, and that's something that we're always on the lookout it's like what are we losing out on Because we don't have enough cash to play today? That's huge for us as well. I want to take a step back really quick, because we do have a question. I think we're going too fast. We might be a little bit too excited about talking about financials, but what is the name of your?
32:00 - David Richter (Guest)
Profit First for Real Estate Investing, which I laid the whole thing out there. If you actually go to that link I think Zach already posted it you get a free copy of my book there. You get a copy of that and the Profit First cheat sheet which has all the bank accounts and all that Because, honestly, on an hour here, like it's a lot to digest. It is a lot to digest of. Like, okay, I'm actually setting up a system, I'm helping you build a foundation, a financial foundation for the rest of your business life. So this is not going to be a quick one and done. Oh boom, I've got the whole thing. So that's why the resources are there for afterwards. But I do want to circle back to that question too, from Michael of the bank accounts, the first three, that golden trio profit, owner's comp and owner's tax. The other two is income and OPEX. So income, like everything that's coming in and then you're going to transfer them to the different accounts and then OPEX is just all the outflow of money, the operational expenses of the business. I call it the big black hole bank account. If you don't have the system set up, it's just everything that gets eaten up by the expenses. Now you. You asked about percentages too, Michael. That's usually where I go into In my book. I have literally a cheat sheet. It's called the TAPS Target Allocation Percentages based on the size of your business. Because based on the size of your business is where those percentages change, because it looks much different if you're doing $0 to $250,000 in revenue versus one to 5 million and like where the percentages are Cause when you're starting out the percentages are weighed more towards your keep accounts, like profit and owner's comp, specifically like making sure you're paying yourself when there are no employees, if it's just you, if you're just starting out. But then if you're in the one to 5 million range, you have, like I think it's 40 or 50% going towards OPEX and a much smaller, you know, for the keep accounts, because even though it's there and you're paying yourself, you're paying yourself a smaller portion but of a much bigger pie, but you're taking some of the time off your plate too. So I would highly recommend going to that link to get those, because those downloads are there, like on the cheat sheet as well too. I have the taps guide for target percentages, but that's where the percentages are for those buckets.
34:12
I also tell people start where you can. So, Michael, I don't know your situation if you're already started investing or if you haven't, or if, like, you're down the road years into it and you're doing a hundred deals a year. If you're doing one deal a year, I would say, though, no matter where you are, start with what you can do. If you can only do 1% to the golden trio, like, do 1% and do 97% to OPEX, like, do 1% to the goal If each of the golden trio accounts, and then do 97% and then try and get better next quarter, there's some people that hit our door.
34:42
So, while a lot of people, a lot of people come to us, like you said, Anny, when people don't talk about the finances until it's a fire and something's wrong. So we see a lot of people when they come in, they're spending almost as much as they make, if not more. So it's like we have to slowly walk them down. Can we at least get you to the high 90s, and then 90, then 85, then 80, and walk you down, because you can't just go from 110% to 40% or what the targets are. So that's where it's like where are you today and what can you do, and then the targets will give you where in the future. It might take a few quarters or a year to get there.
35:22
But then you can see the and I tell stories too of, like actual investors. Joey English, I tell his story a lot. His has just gotten better and better. Like I met him at I think it might've been in that event with you at Sharp and like that's where you know I can just go into his thing. But it's a lot of people I see. They get better and better over the years and they just get closer to the targets and then one day they wake up and they're at the targets. They're like I love this, like I have cash, I have cash flow, I have the expenses, but I'm not out of control anymore. They don't feel you know why? Because when you are in control of your money and intentional with it, it's funny how you're in control now and your money isn't Versus your money, just yanking you around to the next big thing that is on your plate. So just be intentional with it. Thanks, Michael, for the feedback. So there you go. You can also get that download at that link as well too, to get the target percentages.
36:17 - Anny Draginova (Host)
Yeah, I remember actually it was that event where you met Joey and that's where I met him as well. But kind of just again trying to step back a little bit. Um, we talked about what and how businesses leak money and which is huge right, at least for us. We were, we were spending money where money didn't need to be spent, yet we didn't really realize it until it was too late. Um, how does profit first and how do you guys just help businesses? Just address that issue, because for even to this day, it is very difficult for us to just manage where everyone is spending all the money and just removing all of the unnecessary cash leakage in the business.
37:09 - David Richter (Guest)
Yeah, that's where, if you had talked about clarity before. And I love that because in the Profit First system, if you have these bank accounts set up, the income shows you what you're making, the OPEX shows you where you're spending it and then the Golden Trio helps you know what you're keeping. So make, spend and keep. So if you have this OPEX account now, you can start to split out different percentages and even inside of there, if you want to know, especially marketing and payroll. Those are the two biggest ones that we usually see as the expenses going out the door. Marketing you need in order to get deals in the door. So it's like are we on track with our marketing, what we're spending versus what the return is? And then payroll are we not going above 30 35 of our revenue? Those are just some quick things that you're able to look at. But then I love in the system here there's an actual um, there's an actual like worksheet that you can do I don't know if I give it on the cheat sheet.
38:03
If, if not, it's in my book, so it's in the download of my book that you get as well too. It's called the PR and use system to analyze your expenses, where literally once a quarter, you print out for the last three months the expenses and you're marking each one. Is it PR or you? Is it profitable, replaceable or unnecessary? Just a super simple system to be able to say is it profitable, like making me money or saving me a ton of time? So it's not always something that's just making you money, but is it saving you time for you to be able to go out there and do the revenue producing type activities? Second one is replaceable or are like is this one, can I get something faster, better, cheaper, or is there something I could even spend more money on but get a better return? Faster, better, cheaper, or is there something I could even spend more money on but get a better return? And then number three would be you unnecessary. That's usually the ones where it's like why am I still paying for this? Or like that subscription that's still there? Or like when it gets a little bit difficult is when you have to go through that on staff and like do the same analysis. But it's like you can't just have uncle Bob on the team just because he's a joy to be around. We got to make sure that in the business especially in a small business where you're fighting for your life every day it's like making sure that you have the right team members and you've got the right expenses. That's a really simple way to control expenses. I'll make sure, too, that if you book a call, we send you the expense analyzer because we have a little sheet in order to do that. But I don't think I give that on the google um, you know my book, except for, like the outline of it, and then I don't think I give it on the cheat sheet, um. So that's another thing we can give as well too, because that's helped us. That's helped a lot of the entrepreneurs just at the high level.
39:38
From the entrepreneurs perspective, this is a very simple thing to do once a quarter. I will tell you too, when we work with our clients, I think the average we save people is around four to 5,000 a month. Where the high end. We've had as much as $50,000 a month cut in one session, so that saved them $600,000 a year. We've had as low as 1,000 a month, where it's like there's 12,000 in your pocket. So that's a couple of the ways that we've helped just get them a system. Once a quarter too. I'm not asking you to do this every month or every week, it's like at least once a quarter. Do this exercise so that way you stay lean and mean and you don't. You know where all the expenses are going and you're in control of. Do I really have the best things that I'm spending my money on right now?
40:26 - Anny Draginova (Host)
Yeah, thanks for that, David. So pretty much, when you're saying that you've saved companies anywhere from four to five to 50,000, it's just, it's a no brainer to get someone like you and your company to come and help you guys, cause it's at the end of the day, you pay for yourself times.
40:41 - David Richter (Guest)
Right, we have we. That's usually one of our quickest wins. The other quick win we do with people is once you see Profit First in place and you start to use it, you can usually make better decisions of where to spend your money to make sure you're getting a good return. Do you know what all your returns on marketing are? Do you know with the people that are on the team and is everyone productive at this point and am I really able to pay myself?
41:10
So it's being able to have clarity in your numbers, like you said, Anny, and really being that business owner that's intentional of where you're putting your dollars, which, in turn, like I said, if you've got a system like this, you, as the entrepreneur and the owner, should be doing the revenue producing activities. Those are not just the most fun things usually for the entrepreneur, but they're the necessary things where it's like get all the financial crap and headache off your plate and be able to use this stuff to be able to go make more money, not just cut and slash things, which we like that side, but we also like the where should we be spending the money so you actually get a better return? So that way we're not just saving you money, we're actually helping you make more of it too.
41:45 - Anny Draginova (Host)
Perfect. Let me ask you actually I want to invite everyone to. If you have any questions, go ahead and just drop them in, or comments for myself or David. But I want to ask you end of the year is coming up, right. We all know we have to close out our financials. We need to close out 2024 and start a new year altogether right.
42:15
This is where we see people just kind of struggling and hustling and bustling January through April of doing pretty much getting tax prepared. What are some of the questions that people on this call can ask their CPAs or bookkeepers to see? Are they actually on the right path? What numbers should they be actually paying attention to? Because you said in the beginning you mentioned oh well, the accountant said you're profitable, your net income is $100,000 and you look at your bank account and you're only at 5K. You're like, well, where's the difference? How is that possible? How am I making 100K yet I only have 5,000 to play with? So what are some of the questions that they can ask? And then, what are some of the numbers, the most important numbers, that an investor needs to be paying attention um day in and day out and just to to have a more successful business.
43:01 - David Richter (Guest)
Yeah. So I would let me answer that second part first. I always believe the three most important numbers for the entrepreneur to know is what you're making, spending and keeping in cash. What's coming in, what's going out, what do I get to put in my pocket? Like that's also what most owners care about the most is like what is tangible to me. So that's where it needs to start and that's what I would start looking at now to be like okay, where do I stand financially? Because cash is a fact like that.
43:28
It doesn't matter a lot of the times what it says over here on the reports. If your cash is good and in order and like you're growing because they play off of each other. So if your cash is good, then usually your profit and loss balance sheet cashflow statement are good as well too. So that's where I would start. But as far as like end of the year, what do I ask my bookkeeper? What should I be looking for? Number one I would ask your bookkeeper if they'll walk you through. If they won't, because they're a bookkeeper and only do transactions you might need someone like a fractional CFO. Hint, hint, hint. No, hints drop there, but that's where you ask them. Show me my cash flow statement and show me how to read this, because the profit and loss will show you if you're healthy, like well, show me my net profit. Most people know it's income expenses, like what's my net profitability? But then also, on the cash flow statement, it shows you over the year where did I start my cash balances and where have I ended, and is that a net positive or a net negative? And they can take you on a month by month journey of where all your cash went.
44:30
If they'll actually do that, a lot of bookkeepers, cpas, won't do that. They're there just to say here's your reports, good day, you know, good day, sir. And then your CPA is there for, like the tax side, the other thing too, to ask your bookkeeper and I would ask them right now, before tax filing time is, and this should have been probably something before you hired them too it's like do you understand real estate investing bookkeeping? That's the number one thing we see when we start to work with people is that if they are in the real estate space and don't have a real estate investing bookkeeper, there's a high probability that things are wrong on the backend. And it doesn't matter if they look at their profit and loss. It's going to be wrong, and it's they. It's not up to date.
45:09
Another question, a specific question they can ask them and the bookkeeper to see if they're BSing them or not, is how, what month are my books reconciled? Like up to what month have you closed them out and like everything is in there and categorized? If you ask them that question and they're balking at you or they say um June, it's like okay time to look for someone new.
45:34
If they say well, sorry, explain what reconciled means real quick reconciled really just means that they have set, taken your bank statements versus what's in QuickBooks or an accounting software or even a spreadsheet, literally, and just match them. Like everything that's in the bank account matches what's in my financial software and I've closed it out and it like balances out each other. So they're making sure they're accounting for literally every dollar that comes in. You know slips through your fingers there. So that's where, if you ask them is everything reconciled and to what month that will? If you've never asked them a question like that, you might throw them for a loop if they're not used to that, but they should have an answer ready for you, and very quickly. Um, that would be one big one.
46:17
On the tax side, right now, it's what? December 17th or whatever it's like making sure that you ask your CPA is there anything else I can do before the end of the year to lower my tax liability? That's also reasonable and feasible. Don't just go out and buy the truck if that's not what you want to buy or if that's not what you're looking for, because a lot of people do that where it's like, oh, I want to go out and buy the thing. Well, unless you are already going to do it, or you need that new truck because your car is falling apart. It's not always the best decision. At the end of the year it's like, well, can you do another deal? Or maybe doing a deal on the personal side versus just the business or being able to do some of the creative things. But you need to also have a real estate investing CPA that doesn't just do prep and file, meaning they just take your numbers and turn them into something the IRS can file. It's also do they do strategy planning? Can you ask them questions like that? That's almost like a pre-question Can you give me some strategy planning on the tax side? What should I do now? What can I be getting you?
47:21
The other key piece that you might want to ask, especially over these months, is I need to get my bookkeeper and CPA on a call together, so the books and everything are exactly how the CPA needs to see them. So I don't hand them to them. And then it's the back and forth, back and forth, and then it's too busy and then it's like, oh shoot, we got to extend and then we've extended forward. It's like that's a nightmare, and then you don't get your numbers. So that sucks. So it's like these are some of the things like to ask.
47:45
At the end of the year I will say, obviously I'm 100% biased, but I created a fractional CFO company. That's like gluing those pieces together, like making sure you have the right bookkeeper, the right CPA, you know the questions to ask and like there isn't this. You don't have to be in the middle of all that junk. So I'm like that's another thing that I would suggest but it's going to sound completely biased because I actually own a fractional CFO company is like get someone in there that takes that half off your plate and is the financial leader for your business, so you don't have to worry about the financial headaches like that at the end of the year, beginning of the year, going into it. But there's some of the tools to arm you if you're going to go into the foray yourself.
48:25 - Anny Draginova (Host)
Yeah, no thanks, david. Honestly, everything that you're speaking and everything you're saying takes me back to when we had the real estate operations and just the mistakes that we've made and the struggles that I faced. I mentioned in the beginning of our call. I had a CPA. I had a bookkeeper actually ask me what I spent the 5K in January Well, that tells you when they've last reconciled my books, right. And then the questions that I would get from my CPA to my bookkeeper, like I see the email chains going back and forth and it was like above my, it was above my knowledge, right.
48:57
Oh yeah, I didn't understand. They're saying they're saying things back and forth. Half of the time I'm reading the threads, half of the time I'm not. I see that it's half of it's right, half of it's wrong, but at the same time I didn't have enough knowledge to fix it. So I kind of want to just wrap things up. But before I do that, can you let us know exactly what you guys offer, what your services are and how you can help investors, whether it's just, like you said, downloading the free book or hiring you, or just downloading the book and realizing that they need your services?
49:35 - David Richter (Guest)
Yeah. So I would say if you're just brand new, starting out, not making money, you should not get on a call with us Like we're not just for everyone. If you're making money, I'll go into that. But if you're just hey, I'm getting started out, I'm doing my first deal or I'm in my second deal, whatever, then get the book and the download and start to implement profit first, to give yourself a fighting chance on the cashflow side. So that's where I would start. If you're on that journey, if you've started to make at least six figures in top line revenue or gross profit, so above your expenses, if you're there, that's when you can start looking into a fractional CFO.
50:10
And what do we actually do? I like to say we lay the financial foundation in businesses. So we do three things up front with that financial foundation. Number one we make sure you have a good bookkeeping system, process, person and good communication with the CPA and we run point and we make sure you have a good bookkeeping system, process, person and good communication with the CPA and we run point and we make sure we manage those relationships for you. So that's the big number one. Number two is profit first, implementation and accountability. So we make sure we implement it with you for your business, customized to your business, and then from there we're holding accountable to that. Like are you paying yourself? Are you putting the money into here? What are the percentages at? Like? Let's look over this. The next quarter.
50:49
Number three is a dashboard. We implement what we call the simple cfo dashboard, which is really what you're talking about with kpis and all that, but it's kpis from your numbers. So if you have quickbooks, we're actually able to pull numbers directly from quickbooks into your custom dashboard. That pulls in the numbers we need to look at. So if you're like, hey, I'm a flipper, I'm doing these types of deals, like where's my cash? I'm just always in the middle of flips. And like I don't seem to have any cash, like we're breaking it down where it is and like do we need to go and get some more money right now, you know, to finish these flips or we're doing projections.
51:21
We're making sure that you don't just have the rear view mirror in your business Like a lot of bookkeepers. Cpa are just about what's happened. We wanna be a GPS when have you been? So we know where you are now and to get to where you want to go in the shortest route possible, like there's lots of ways for me to get from here to Annie, like I could walk, I could fly, I could take a bike, I could take a car and, like other GPS, like I could go north and then south and I want to get you there in the quickest way possible. So that's what we're doing at Simple CFO is making sure you're getting what you want from your business and that's what we do.
51:56
Those three things and I would say if you're doing 100k or more and at least gross profit, that'd be a good time to reach out. Anyone who does book a call with us and you have to be making at least a hundred K top line, you get access to our course for free. We have a profit first for real estate investing course and bookkeeping course, which gives you some of these questions to ask that Annie was asking me. It's like all downloaded there. Or like if you're hiring a bookkeeper, we have a whole module on like what to ask them and the interview questions. So you get that for free, just if you actually book the call.
52:26
And if you get on the call with our team, we're on there, we're just going to see are we a good fit? Do we have a good thing for you that we can help? And actually do you need this help now, or do we need to just pin you to someone in our network Because, at the end of the day, you might just need a bookkeeper, you might just need a CPA or something at that point. So that's what the call is about is like where are you on your financial journey? So that's what we're doing and how we can help people with a part-time chief financial officer as part of their team.
52:52 - Anny Draginova (Host)
Perfect. Thank you. Actually, let me ask you one more thing, because you mentioned how people it is tax season, how people can lower their overall tax liability. What are some other expenses someone can can just make at the end of the year to lower their, their tax liability, to help them out?
53:10 - David Richter (Guest)
oh, man, asking the real questions. So those are the two biggest ones that I see that the tech first of all. I am not a cpa, so like don't, no one can use this. There's my disclaimer it's on recording right now, so anything I say can and will be used against you, not me. So I would say those are the two biggest ones. I see is like are you, are there big purchases that you can make?
53:33
Now that you have planned on making this one, it's almost like I wish we weren't recording, because this one is like um, if there's services you pay for monthly but you want to pay annually in the last year of the month, that's another way sometimes which isn't always the best. Like that, one's like a gray area inside of the tax code. So like I'm not your CPA, so run that by your CPA first before you do it and see which side of the fence they're on. Cause, like we run on a monthly basis with some of our people and it's like sometimes they just like saying hey, run it in December for the whole year, so that way we don't have you know. So that way it's like we get the extra expense at the end.
54:13
There's some of the other ones that I would say off the top of my head, because obviously you could do the car thing If it makes sense for you, you can do the thing if it makes sense for you. But then also it's like what services are we already using or what products are we already using? Do they offer an annual option? December is a great time to start stacking that stuff if you're already going to pay for it, and a lot of companies give you months of discounts, usually if you pay for a whole year in advance. So you're like you're being able to expense more, but you're also being able to save more money as well too. So see if what you're already paying for as an annual option. That will help you save money too.
54:50 - Anny Draginova (Host)
Yeah, yeah, to that point. We do see a handful of actually annuals towards the end of the year and I know that's for that specific reason you mentioned. Well, I want to say thank you, david, thank you for your time, thank you for sharing all the knowledge with the audience and providing the free resources. I don't know if you have any last thoughts or anything you wanted to say.
55:12 - David Richter (Guest)
To kind of wrap things up, literally I was just at an event last week. A guy came up to me and said I literally went to like a short little recording like this, the profit first system, and he said it's if that was a full year ago. He came up to me at that event last week and said I have six months of reserves now. He's like I've never had that much in the bank and he's like I have never felt peace in my business like I do right now. I almost broke down'm like this is why at least he listened. So from here can you set up one bank account Like can you do like the bare minimum to give yourself a fighting chance to have the reserves you want in your business and build good money habits as an entrepreneur. So that's what I wanted to leave you with.
55:58 - Anny Draginova (Host)
Awesome. Thank you, David. Thanks for everyone for attending.
56:02 - David Richter (Guest)
Yeah, thanks, have a good day.
56:04 - Anny Draginova (Host)
Bye.
56:05 - David Richter (Guest)
Bye.
56:07 - Hope (Announcement)
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