Meet David Richter
David Richter, owner, and author of Profit First for Real Estate Investors and Simple CFO Solutions joins the show to discuss his new book and how to position yourself as a business owner to get clarity on your finances.
He explains how to get into the mindset of daily profitability, what numbers you should be monitoring, and the bank accounts that you need.
:30 Intro on David Richter
Getting deals in and getting income in are the #1 important thing as as a business owner….after that is handled…profit first is the number one most important thing.
Profit First helps people put control back in their hands by gBeing intentional with your income and allocating money.
David read Rich Dad Poor Dad in College, then he did a couple deals his own in college right away and then starting working with a real estate investing company. David helped take that company from 5-6 deals a month to 25-30 deals a month.
David got to sit in every single seat of the business…. He was kind of the utility man. Go into different seats, build systems and processes, make fixes to the existing aspects of the operation and move to the next.
What piqued David’s attention was although they had 6-7 figure months….all that money went right back out the door. He realized that how profitable you are is what he wanted to focus on.
He moved across the country with a stabilized rental portfolio in place, and started working with another company. The first thing David wanted to look at was the numbers so he looked at their Quickbooks account.
Like most people, there was no clear picture of where the company was financially. They got the numbers cleaned up, and realized the partner had a ton of his own money in projects. Once they organized the numbers he was able to refi his rental portfolio and go from 30% LTV to 60% LTV and was able to pull out several hundred thousand dollars into this own pocket. Knowing his numbers transformed his business and his life, this is what sparked David to start teaching it, it’s too important and he believes it’s the true key to financial freedom.
Keeping your money is the most important thing.
Then David started Simple CFO, it is someone to help you with your money relationship… how do you think about money, what are the decisions being made, do you need accountability to this system we are putting in place. David called a mentor about the business idea and had him read Profit First. This was an amazing frame work to tell people how to manage finances without having a CPA on board. Get control of your cash, your business with these principles.
David went to the author of Profit First sharing how this was working for clients of David’s and started writing his own book based on these principles.
10:00 Profit First…. where to start?
- Profit First is all about the mindset
- Formula: Sales-Profit = Expenses … this is what the business has to run on and keep going
- How do you know you have the mindset? It’s through your daily actions and habits
- Make Profitability a habit in your day to day!
11:45 The Practical Steps
- Open up bank accounts for different things
- Operating expense account is the primary account
- 1: Income: This is for you to have control and choosing where to spend it
- The next 3 are the golden trio
- Owners compensation
- Owners income tax
One of the first objections David hears is that its too much to open four accounts. If this is your mindset, you’ve already lost. These four accounts are for you.
The Overall Goal is the mindset. You need to make profit a habit.
What can you do from this podcast?
- Create one bank account
- Transfer 1% of all income into the Profit bank account
Now, you’ll start to see the practical effects of the mindset coming full circle! Pay yourself first! This gives you so much peace of mind.
Set up an OPM account (Other People’s Money) as soon as you start doing anything in addition to wholesaling. You get extreme clarity on what is yours and what you owe to other people.
20:00 What does it look like to work with Simple CFO
Essentially it is like hiring a part time CFO
Systems, People, Processes —> Implementing Profit First and the Cash Flow system. Then looking at avenues for long term generational wealth.
23:00 What is a health profit margin range?
It’s a range as the company grows
When first starting out…shoot for 5% Profit paid to yourself…. as you grow this goes up to 10, 15, 20%.
For example if you have $0 – $250K in Gross Profit shoot for: 5% to profit, 50% to owner comp, 15% to taxes, 30% to operations expenses.
The Two Important Numbers:
- How much did I make?
- How much did I keep?
Dial in where you are right now. Look back and do these numbers from the last year, or 6 months, or how ever long you’d like to. You need to start where you are, and have targets to shoot for!
David wants to stress…. these numbers are just targets. Don’t beat yourself up! Give yourself grace… you can see where you can cut expenses or make more money!
Every dollar you cut adds directly to your bottom line! Help yourself get lean!
30:00 Recommended banks
Smaller banks, credit unions in your own town might give you the most flexibility. Some banks like Chase make it easy online to make different accounts, Charles Schwab is completely virtual.
Stay away from a Bank that charges you fees! The point is to automate finances and avoid fees.
Keeping the culture and morale as high as possible is one of the best returns for your business. David has an account for employee bonuses /
Profit – owners pay- owners tax- operating expense – income (hold money until you allocate til other accounts) CLARITY ON YOUR BUSINESS!
Profit First for Real Estate Investors on YouTube
Profit First for Real Estate Investors on our Podcast
David Richter is an active real estate investor who has been essential in closing over 850 deals over the last 7 years which include wholesale, turnkey, brrrr, owner finance, rentals, lease options, and any other exit strategy you can think of. While growing and building a real estate business from 5 deals a month to over 25 deals a month, he realized that as much money was coming in, it was going right out the door.
With the unique opportunity of being in every seat as a real estate investor, he found a calling in the company’s finance seat to help businesses see where their money really went. David has helped real estate companies completely turn around from going out of business to building cash reserves by using the Profit First cash flow system.
He wrote Profit First for Real Estate Investors. This book is a derivative of the original Profit First by Mike Michalowicz that is tailored specifically for Real Estate Investors. His goal is to completely transform the Real Estate Investing industry when it comes to how real estate
investors view their finances. He wants to bring investors true financial clarity and freedom, and help every investor stop living deal to deal.
Go to Davids website to join his free Facebook Group and tell them Carlos sent you! 🙂