For more information and to access David’s ebook, visit https://bit.ly/4dVl0le
In this episode, I sit down again with David Richter, author of Profit First for Real Estate Investors.
We discuss how to build a business that thrives, especially during challenging times, by focusing on what truly matters: profit. David shares powerful insights on managing cashflow, the importance of having reserves, and how business owners can avoid common financial pitfalls like wasting money on ineffective marketing or unnecessary subscriptions.
We also talk about the critical role of CFOs in guiding visionaries and entrepreneurs to make better financial decisions, so they can achieve lasting success without sacrificing their personal peace of mind.
Key Topics Discussed:
- Why cash reserves are crucial for business sustainability
- How to analyze your business expenses and cut unnecessary costs
- Marketing and personnel: the two biggest areas where businesses leak money
- The difference between building a profitable business and just scaling for the sake of growth
- Why it’s important to have a financial leader (CFO) to guide your business decisions.
David’s links
- https://www.facebook.com/thesimplecfo/
- https://www.linkedin.com/in/david-simple-cfo/
- https://www.instagram.com/simplecfosolutions/
- https://www.instagram.com/thedavidrichter?igsh=MWdraDBwM3Q5MXlmcw==
TRANSCRIPTS
Speaker 1 (00:00):
Would you rather build a $2 million company or would you rather have money in the bank? The next one, I almost don’t want to say out loud because I go to a lot of these places and this is where we get clients and stuff, but
Speaker 2 (00:30):
Hello, my fellow Ripples. This is Chris Miles. You are cashflow expert in anti Financianal advisor, one of our show’s. For those of you that work so freaking hard for your money and you’re now ready for your money to start working harder for you today, you want that freedom and cashflow now, not in 30 or 40 years from now, but you want it today. So you can live that life that you love with those that you love, but not just about getting rich, but about living a rich life. Because as you’re blessed financially, you now have a greater capacity to bless the lives of others because you are financially free. Guys, that is the goal of the show today. That’s the ripple effect I’m here to create in your life. Thank you for tuning in because without you, we couldn’t do this. So thank you for binging.
(01:07)
You’ve been sharing these episodes and help push us up into the top 1% of all podcasts worldwide that has all because of you guys. So thank you for being such faithful listeners. Hey, as a reminder guys, if you are also wondering what do I do, what are some other strategies I can try that maybe doesn’t require me to invest hundreds of thousands dollars? One thing you can start looking into is infinite banking. We got a max ROI infinite banking strategy that we teach on our website@moneyripples.com to teach you how to not only store your money in this high-yield savings account, but also be able to double dip on your money to where you can get your money to pay you in two places at the same time. So check that out@moneyripples.com. All right guys, so I’m bringing back a repeat guest because honestly we got to keep hearing from this guy.
(01:47)
So David Richter, if you guys don’t remember him, he’s the author of Profit First for Real Estate Investors. He wrote that with Mike Mitz, if you guys ever read Profit First, an excellent book. But David is specifically the expert for real estate investors. He actually started out as an active real estate investor, went from doing just a couple of deals a month to doing literally dozens and dozens of deals every month, growing a massive business and was able to take all the things he learned from there to put it into his real estate business. So whether you are in the real estate business or if you’re even a business owner, listen up because what I’m hearing right now is that many of you guys have been struggling. You guys have been watching your profits slowly tick away as expensive has gone up, but then you’re also having a hard time getting sales go up too. And if you are, we all more profit. We all want to get more money, so we all want to get paid more. So definitely that’s why I’m bringing David today because I think this is exactly what you need to be hearing right now. So David, welcome back.
Speaker 1 (02:41):
Thanks Chris. I love being on your show and love your message to the world as well too. It’s an honor to be back.
Speaker 2 (02:48):
Well, let me just start open this. I wasn’t planning asking this question, but let me open this. What do you feel your ripple effect is in the world?
Speaker 1 (02:55):
Oh man. Well, I do. I feel like anytime I get to speak the message that I have, it’s a calling of being able to help the small business owner really get what they want from their business. So many people are out there, like you said, whether sales are declining or profits are declining, they’re not really getting what they want from it. They’re not getting the money or the money, what it provides the time off or the time with family. And a lot of people that are visionaries, they run it and gun it and they’re good at getting the deals, but usually the financial side is like, oh my gosh, I’d rather just hit my head with a hammer than look at the finances and I get that and that’s where I’m trying to make it very simple something for them to be able to say, okay, am I on the right or wrong track? So that’s where I feel like my passion is, do you even know if you’re on the right or wrong track and do you even know what your end goal is? If you have no end goal, then we’re just building this thing and we have no idea what’s going on. So that’s what I feel like my mission is, is just get that message out there and help them, honestly, at the end of the day, just keep more money in their pocket
Speaker 2 (04:00):
And that’s a big deal. I mean, you and I were talking before we went on the air about one specific business activity I’ve been doing where money’s going out, but it’s not necessarily coming back in. It’s not a high profit type of activity
Speaker 1 (04:11):
And
Speaker 2 (04:12):
It’s frustrating because I know as a business owner, the thing is you love profit, you want to have profit, how you get paid, yet you find out you might end up being the hardest working employee of your firm without the paycheck to go with it
Speaker 1 (04:25):
Because
Speaker 2 (04:25):
If you don’t get profit from those activities, you’re paying everybody else but you don’t pay yourself. And that’s crushing. That’s not just crushing for a business owner, that’s crushing for the family and how it affects them, your whole personal life, your health, your stress levels, everything.
Speaker 1 (04:40):
Yeah, that’s why, like you said, what’s my ripple effect or my calling I feel like is to help people in that exact scenario. I like to say I like to help people that make money but feel broke if you’re making money but you’re like, where is it all going? That’s why I’m out here trying to get this message out as much as possible because like you said, there’s just so many people that feel that way and you don’t have to. There is a better way. It just takes a little bit of different thinking and some of the stuff that you’re doing in your business, you don’t even have to do things differently. You just have to look at it differently and ask yourself some different questions. It’s making sure that you’re on the track that you want to be on. So yeah, I totally resonate with what you’re saying.
Speaker 2 (05:20):
Now I’m doing this in total reverse as well. I must be asking my usual questions reverse here, but tell them more about what services you offer because obviously you help business owners do this very thing.
Speaker 1 (05:31):
Fractional CFO service is my core product and my core service, it’s a part-time, CFO, so chief financial officer, so someone who’s an actual financial leader and manager, so they manage the current financial team, whether you have a bookkeeper, CPA, we’re the glue that holds that together. So you as the owner don’t have to manage them because if you don’t have a CFO, you’re the CFO managing those people and do you know if they’re doing it right or wrong or are you meeting with them ever? Are you getting anything from the financial people in your life? So we take that headache off. The second big thing that we do is we work with the owner to lead them to make sure, are you going to where you want to go? Let’s define what you want from your business. How much can you pay yourself today, and then how much do you really want from it?
(06:16)
You don’t want to just survive. You want the maximum benefit from your business. So it’s helping them to define that and then making sure their decisions are based around that. That’s really what the CFO is there to be a guide for the entrepreneur where a lot of people in that visionary space entrepreneur space don’t have that person. So that’s our core product. We do bookkeeping too, but you can’t have one of our bookkeepers without a CFO. I’m not going to hand you a loaded gun and just give you a bookkeeper. So we do that, but that’s only if you need one, otherwise the CFO just manages your current one. But that’s my core product and what I offer to the world is a financial leader, not just another bookkeeping firm.
Speaker 2 (06:53):
It’s crazy. I was just listening to a book by Simon Sinek over the weekend while I was on my run, and he was talking about the CEO and CFO relationship. He was talking about corporate America where a lot of corporate America gets capitalism wrong because they automatically, they’ll always try to promote the CFO to be the CEO because the CFO is the one position that sees all of what’s going on. They know all the activities, even sometimes more than the COO. They know exactly what’s going on, so they think, oh, he should be the CEO O, but that’s the case. The visionary should stay the visionary.
Speaker 1 (07:23):
You’re
Speaker 2 (07:23):
Just on the backend to make sure that things are running efficiently so they don’t overwork and burnout as a CEO o, right?
Speaker 1 (07:28):
Right. Because that’s what makes the C-E-O-C-F-O relationship so entangled or enmeshed and such a great partnership because you have to have the visionary. The visionary is like what you said great at going out there, being the visionary, leading the company, going out there, getting the deals done, making the sales, building the business, getting the right culture, the right team members, really that emotional leadership that CEO provides where the CFO is like, okay, with what you’re doing, are we on the right or wrong track? So that way we make sure that we’re building what you really want Mr. Or Ms CEO. It’s making sure that you’re there and that you’re actually building what you want to and not at the end of the day saying, what the heck did I do here? Just creating a bunch of chaos and a bunch of sales and not seeing anything at the end of the day.
Speaker 2 (08:17):
That’s right, and I know you get the real firsthand look, right? You’ve seen what’s going on in people’s businesses right now, and I know there’s a lot of talk, even in the personal financial space, we’re hearing about people starting to run up their credit cards that now they’re paying higher interest, so that’s sucking more money out of them. Savings have been depleted. We’re seeing that of course, that now even defaults are starting to tick up even on the auto loan defaults and credit card defaults and things like that. This is all happening. Are you seeing something like this happening in the business space real time right now too?
Speaker 1 (08:47):
Oh yeah. I feel like there’s just that ripple effect and no pun intended there, but there is a ripple effect that’s going through the economy. But I also feel too that if business owners can get the message that I’m trying to get across to people, that it’s not even, you have to buy into what I’m saying. It’s more of the this is what wealthy business owners do in order to stay wealthy no matter what the market is doing that I’m really trying to get out there. I was talking with one of our clients recently who’s kind of going through this situation. He was a part of a mastermind event, and we both go to that event and I saw him there again and he said like, Hey, I’ve got a CFO on my team. I love her to death, one of your CFOs. She’s giving me the clarity.
(09:31)
He’s like, I still feel like sometimes I go through the cashflow cycles up and down and I feel like, oh man, am I doing something wrong? And we got on a call. I offered like, let’s do a one-on-one. And then he told me a little bit more behind the scenes. He told me that he sat down with someone that was implementing an operating system inside of his company, like EOS and one of those types of things. And the client said, they told me that I should be doing a couple million dollars in deals and in the stuff that I’m doing. And right then he was at about 500,000. So they’re like, this is how to get there to the 2 million. And so he started investing more in different marketing channels where he had one main channel that was doing really good, and then he started investing in other ones, and those other ones didn’t pan out the first 90 days.
(10:18)
So he is like, I built it up and then it came crashing down and now I still have that one channel, but I feel like I’m not getting ahead. So I had to ask him point blank. I said, would you rather build a $2 million company or would you rather have money in the bank if right now they’re two mutually exclusive things because right now you don’t have a bunch of money in the bank. And he said, I’d rather have money in the bank. And I was like, okay, that’s interesting. I said, the decisions you’re making now, are they pointed towards the 2 million? Are they pointed towards the money in the bank? And he was like, well, they’re pointed towards the 2 million. And I said, exactly. And what do you think when you get to 2 million if you haven’t built the reserves and everything that it’s just magical?
(11:00)
You’re going to have reserves at 2 million? And he’s like, no. And I’m like, well, then you got to build it now when you’re on your way there. And I saw the light bulb click and he’s like, you know what? I should probably run some of these new ideas I have past my CFO before I do some of these decisions. I’m like, boom, now you understand what we’re here for, but not only what we’re here for, but what your business is here for. It’s to provide you what you want, not become this cash eating monster. So even if some coach out there or mastermind tells you to do this thing, sometimes they help you a ton, but sometimes they take your focus away. Those people out there talking, it’s like, what do you really want? And does 2 million get you there faster? Well, it might if you have a good system to catch the money and if you have your reserves built in place and then you actually take it and be intentional with how you invest the dollars, then that might get you closer.
(11:55)
But right now today where he was, it wasn’t getting him closer. So that’s really what we’re trying to pull out of people, and that’s where now I think it’s more important than ever is that people have to ask themselves better questions as business owners, if sales aren’t coming in, what are we doing? Then? Do you have to pull back on some of the levers? Or if you were running and gunning it in the good times and we didn’t build a reserve, well then that might mean you have to take some steps backwards because we weren’t intentionally taking Just if you’ve ever read one of Jim Collins books, oh, how to Stay Great, I forget, it’s the bright blue one. It’s not good to great. It’s the other one. Other great companies stay great or something. He talks about the concept of the 20 mile march that in good or bad weather, I do 20 miles a day where someone else might do 60 miles in a day when it’s bright and sunny, but if it’s snowy or raining, they do zero miles that day.
(12:47)
He’s like, I want to do 20 miles no matter what. That person gets farther over a hundred day span of weather being up and down than the person who does more on the good days and zero on the bad days. And I’m like, that’s what we’re trying to help people with because if you’re going to have tough times in business, you’re not going to be this anomaly unicorn that never has a bad day or a bad week or a bad month or a bad quarter or maybe a bad year. And that’s how are we preparing now what’s going into our thought process? So it’s not even specific actions, it’s how we think about, well, okay, if I need to invest in this new marketing channel, am I willing to invest and for how long before I cut it off and I don’t lose my shirt on it?
(13:32)
Or how long do I need it to run in order to see a return and to see did I at least make one x two x three x four x five x or whatever your minimum is before you pull the plug after that amount of time? So that’s a couple of the things that we go over with people to make sure that even if you’re not making sales or you don’t have the profit, it’s usually not the issue of not enough sales, not enough. It’s really the am I asking myself the best question around the problems? So there you go.
Speaker 2 (14:03):
That’s great. That’s exactly it. That leads to my next question is besides obviously marketing strategies is a big one. I know that
Speaker 1 (14:11):
Huge
Speaker 2 (14:11):
For personal experience. Besides that, what are other places that people might be leaking money in their businesses?
Speaker 1 (14:16):
People? So marketing and people are your two biggest expenses. So if you don’t have the right team members or if you have anyone on there that’s not the exact right fit or not in the right seat, this is going to be the time of your business, especially if you’re having a hard time where you have to take a hard look. Do I need all those team members? Are they producing? I know I love Uncle Bob on the team, but if Uncle Bob is just there to have a good time, it’s time to cut Uncle Bob from the payroll. It’s like, that’s a big one. The next one, I almost don’t want to say out loud because I go to a lot of these places, and this is where we get clients and stuff stuff, but mastermind events and things that you pay for that if it’s not specifically serving you and you’re not getting what you want from it, why are you there?
(15:01)
It needs to point you in your direction. So if you found one that hits your culture bell, it rings that bell, it rings all the other ones, and it helps you get on the right track and it gives you a great network. I’m not telling you to pull the plug, but I need you to at least ask the question. Another one that racks up, that’s not usually just a $50 a month subscription to Loom or Zoom or whatever. It’s like that’s one that’s usually a few thousand dollars a month. And it’s like, okay, are we getting what we want from it? And so I would say first marketing, then people, and then the high ticket subscriptions, and are you really getting what you want from it?
Speaker 2 (15:36):
And that probably leads to the fourth one, which is probably low ticket subscriptions, especially tech related things like that. Right?
Speaker 1 (15:40):
Then it’s all the things you’ve forgotten about.
Speaker 2 (15:42):
That’s
Speaker 1 (15:43):
Right. Just out there just dinging your card. So then that easy hack is if you’ve got a credit card, just change it. Change it to a new one, and it’s going to pop up all those things. And then you can intentionally think, do I still want the subscription or not? If you’re trying to actively cut, but yeah, that’s another way too. To cut what you want is to have the framework of PR and you take off, you print out the last three months of expenses, just like in profit first it tells you and you mark every single expense, is it profitable, replaceable, or unnecessary, PR or U? And it’s like then you have something that’s just a really simple, easy, fast framework to be like, I got to take all the unnecessary things off my plate right now. Replaceable is like, what can I start to replace with then profitable? It’s like that’s where we pour the money, whether it’s a person that’s doing really well and it’s like you want to keep them at all costs no matter what. Or if it’s a system or a process or a marketing channel that’s helping you. It’s like then you can really see what you should be pouring yourself into on those expenses. But that’s just a really simple framework there for cutting.
Speaker 2 (16:45):
I love it. That’s great stuff. Heck, everybody should go back and rewind that and then turn it into their little short, which we probably will turn this into a short just for that little clip too. Again, it’s a great reminder even if you’re read profit first. I have just hear that again. It’s like, oh, I could probably that. I could hear that in personal life. I can also hear how that works in my business life too, right?
Speaker 1 (17:04):
Exactly. Yes. Because like you said, it’s all those little things that start to add up that you’ve completely forgotten about.
Speaker 2 (17:10):
Oh yeah. Because when I first read Profit First, I had such a small scale business, I knew exactly where everything was going. Oh,
Speaker 1 (17:15):
Yeah. Once
Speaker 2 (17:15):
You start adding team members and you have different things going on, the complexities come in and you’re like, wait a minute, what was the subscription again? I can’t remember. And I’m a little bit anal. I tend to look up my numbers weekly, but even then I’m like, I don’t know if that’s, do I know if it’s profitable or not? Do I have the metrics to even know if it’s profitable? Right?
Speaker 1 (17:33):
I run a fractional CFO company and I have to have someone beat me over the head with this stuff. It’s like I run a numbers company, but I need that person in my life to hold me accountable because I’m a visionary entrepreneur and I’m like, my best use is not to be sitting there in front of the numbers all the time, even as the owner of a numbers company. So that’s where it’s like having someone in your life too that helps you, whether if you’re just starting out, that might be your bookkeeper, but if you’re down the road, if you need help, that might be a higher level person, but that’s a simple framework that no matter if you have that person or not, you could go print that off if you’re listening to this and just mark your expenses. Are they profitable, replaceable, or necessary.
Speaker 2 (18:07):
That’s awesome. Well, I’m going to ask you one last question after this, but if people want to follow you or be able to get in contact with your company, what’s the best way they can do that?
Speaker 1 (18:16):
Well, I’ve got a link for you, Chris. We’re fancy simple cfo.com/mr for Money Ripples. So just it’s super easy. Simple cfo.com/mr that gets you access to my book. Actually, you can go and download Profit First for real estate investing, the ebook and audiobook there, I give a little cheat sheet on profit first. So if you’re like, what the heck is that? You’ve mentioned it several times. It’s really just this very simple system to know where your money’s going built on the envelope method. So if you want that cheat sheet, you could go to that website and you can get more information on what we do at Simple CFO and everything there as well. But that’ll at least give you some resources that a lot of people usually don’t give at the end, and it’s around the finances, how to make your financial life simpler as a business owner and give you more money in your pocket. So that’s how you could get it there at that website.
Speaker 2 (19:08):
Love it, man. So last question. I wasn’t planning on asking this, but I heard you mention a couple times in passing, which was you kept talking about some of your first steps and one of ’em was cash reserves. Tell us about that. How important is cash reserves for a business?
Speaker 1 (19:22):
Oh, man. First I would say, how important is it to the owner? I want to know the owner. The owner needs to know, do I really want cash reserves? I’m going to tell you, as a business owner, I think any business should have no less than three months reserves. If you’re on the Profit first system, I’m talking about all your accounts. Do you have at least three months with everything that you have that you’ve got in your system? And then from there, that’s the base absolute base. Even if you’re an entrepreneur who’s like, I just want to go a million miles an hour, I don’t care about reserves, you should still have at least three months. But then from there, I need to know the owner. I need to know, do they have a family? Are they single? Do they have other things going on in their life?
(20:03)
What matters to them and how much reserve should we have it? Or to give them financial peace of mind, and do they have team members that they’re married to? That will also factor into this because sometimes either one, either side of the line there, one or the other usually has more risk tolerance and one more security wants more security. So we always have to take that balance too. If there’s those people, I would say three months at the bare minimum, and then that’s why it’s so important. You have to know where do you want to take this business and what do you really want from him? Like that one client I was just talking about where he thought he wanted to scale because other people were, but when he really had introspection and when he saw me, he was like, no, I really want cash reserves. So then to him, that meant having six to 12 months in reserves and not touching it, and then he can think about growing or doing whatever the heck he wants from there,
Speaker 2 (20:57):
Because
Speaker 1 (20:58):
Then he at least has peace of mind for where he is now as a business. And I think so many people trade their peace of mind for growth, but then they end up farther back than where they started. So it’s like, don’t do that. Don’t do what a lot of business owners do. Go out there, be different, and you’re already different as an entrepreneur. Be different in a better way. Now, go out there and build a business that you love that has those cash reserves, but also gets you to where you want to go. So there you go.
Speaker 2 (21:23):
Amen to that. And I know we talked about this off the year before too, but researching it, trying to figure out how many business owners actually have even just two months of reserves of operating expenses, and it’s 25%, so three months. I mean, anybody listen to this right now, if you can even get to the point where you build up to that three months, you are healthier probably. I mean, I don’t know the exact numbers. I would guess you’d be at least in the top 20% if not better.
Speaker 1 (21:48):
Yeah, exactly. And it’s so crazy. Once you have reserves, what happens? Your psychology changes. It’s easier to get money from other people and from banks and from institutional or private money or whatever it might be when you don’t need it. And then how many other things in your life just seem to be like, you know what? There was a big blowup at work, but it’s okay. It’s like, I’m not on my last dime. It’s like that’s the peace of mind that you can have. But a lot of, like I said, trade it. They trade it for the, I’m just going to scale. It all costs no matter what, and there’s a time and a place, but most people that we work with aren’t venture capitalists that are just like, I have to get to the billion dollar revenue thing or the multiple, or I’ve got to get there as fast as I can.
(22:35)
That’s not who we’re working with. And so don’t treat yourself like that if that’s not who you are and you’re not creating this big tech company that’s going out there and just trying to get the valuation to be crazy out there, no, you’re Main Street America, you’re the backbone of America. You need to go out there and do the deals. You need to make sure you have a profitable business. No one is coming to rescue. You got this, and now you just have to think about money and make the decisions and just ask yourself a few better questions before you jump into something.
Speaker 2 (23:04):
That’s right. David, I appreciate your time today. Exactly.
(23:08)
I think the perfect sentiment to end on is no one’s going to save you, right? It’s up to you. And I think that’s up to every listener, guys. We’ll put that link in the show notes so you guys can follow David’s stuff, even get his ebook for free. Such a generous gift there. But again, if you’re just hoping and praying that something’s going to change, but you’re not changing as well, you’re going to keep hoping and praying, and it’s going to be without any faith, any real faith. So I just challenge you guys, make sure you’re not just a hearer of the word, but a doer as well. Go and make it a wonderful process week, and we’ll see you later.