Are You Paying Yourself? Learn How to Start Now!
“The Profit First formula is:
sales - profit = expenses. Meaning, I make a sale, I take my profit first and then I have the expenses left over for what I need to spend on the business to grow it or whatever else it might be.”
Welcome to the Next Level American Dream Podcast. We have a great guest for you today, but first please make sure you have subscribed, if you haven't already. We also love getting your feedback through likes, comments, ratings, and reviews. Today, Sean has a conversation with David Richter. This is David's second interview with us but this time he's talking ALL about his new book, Proft First for Real Estate Investors. David realized the original profit first structure by Mike Michalowicz wasn't conducive for investors so he altered it to fit the business cycles of real estate. To learn how to start paying yourself in your investing business, this is the perfect episode for you! If you found any value from today's episode, then please share it with a friend and help us grow.
Key Topics
Tell us a little bit about your background
HIS BOOK
Why did you write it?
Why did you want to make a more specified version of the original profit first book for real estate professionals specifically?
What are some of the biggest things you hope people in real estate take away from the book?
What does the American Dream mean to you?
Connect with David Richter:
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Abigail Thomson 00:01
Welcome to the Next Level American Dream podcast brought to you by Thomson multifamily group. Your hosts, Abigail and Sean will discuss how you can take your American Dream to the next level through real estate investing, business practices, and personal development. Join us as we share our experiences as a father daughter duo who are trying to accomplish their goal of financial freedom. We hope you learn more about how to define and achieve your American dream. Here's another episode of next level American Dream.
Abigail Thomson 00:33
Welcome to the Next Level American Dream podcast. We have a great guest for you today. But first, please make sure you have subscribed if you have not already. We also love getting your feedback likes, comments, ratings and reviews. Today Sean has a conversation with David Richter. This is David second interview with us but this time he's talking all about his new book Profit First for real estate investors. David realize the original Profit First structure by Mike Michalowicz weeks wasn't conducive for investors. So he altered it to fit the business cycles of real estate. To learn how to start paying yourself in your investing business. This is the perfect episode for you. If you found any value from today's episode, then please share it with a friend and help us grow. For more information on our sponsor, visit thomsonmultifamilygroup.com to start taking your American dream to the next level through passive investing.
Sean Thomson 01:28
David, thanks for coming back on the next little American dream. I appreciate you being here. How are you doing?
David Richter 01:33
Thanks, Sean. I'm doing very well. I'm really excited to be on today.
Sean Thomson 01:37
Good. I wanted to have you back. You know, you and I talked at one of the events that we were just at together. And we you've been on the show before. But I want to have you back on because your book is out. It's available now. And I wanted to talk in more detail about some of the contents of the book and how it can help people in the real estate business when we had you on the podcast before we kind of you know talked about your life. And we did talk touch on the book a little bit. But I think there's so much in the book that can be helped. So I wanted to kind of have you have you come back and discuss some of those things. Let's start off with just tell people I think we did the previous podcast. But just to kind of remind everybody kind of what your background is and what you have going on today.
David Richter 02:09
Sure. So real estate investing is my background and have done over 850 deals that basically I was doing smaller deals. So those were onesie twosie. As you know, here and there with a company that we were doing that we had built where we were running about, we took it from five deals a month about 25 or 30 deals a month between wholesale fix and flip turnkeys real rental properties, lease optioning properties doing a bunch of different stuff. So I've got quite the exposure to the deal types, then I in that company to basically sat in every seat, you know, so acquisitions, selling the properties, property management, project management, the finances, you know, everything that I got to see in that company, kind of like a utility man and, you know, fixing processes. So that's my background, as far as real estate investing, I got into it by reading Rich Dad, Poor Dad in college. So I mean, that's how I think a lot of people get into it. And that was one of the big game changers for just a minute, a big mindset shift for me. And that's why I wanted to get into real estate. That's why I started buying my own properties started working with that company and just wanting to learn more about real estate investing. And now, now actually on the other side of it, after seeing the real estate investing side and seen that we were doing 25 or 30 deals a month, bringing in six, sometimes seven figure months with what we were doing. And you know, that much or more was going out every single month to that was a huge eye opening thing to me, when I sat in the financing, I was like what the heck is going on here. You know, there's like, we got to make sure that if we're going to put all this time and effort to do this many deals that we're actually keeping some of this and have a net bottom line, because that owner too, that we I was working with had lost a lot in 2008 and nine and you know, lost a lot of properties or portfolios. And unlike I mean, there has to be a better, better way than, you know, just doing the same thing again, only with now an active business. So that was kind of eye opening to me. And then I started working with another investor in the Richmond area, the Richmond Virginia area and basically helped turn his financial business around like he had, he was doing fixing flips, he was doing rentals and his financial books and like, we're all a mess. And now it's one of the first things I went in and said like, hey, I need to know where you are. Let's get this all in order. So we did and that was that was really eye opening to me and to him because right away he was able to refinance some of his properties. He had like put it sunk a lot of his own money into there that he didn't even know how much he had in there, but was able to pull out quite a substantial amount of the properties. And that to him was like eye opening and he said this has changed my life changed my business. Like I have control over my numbers. I have control over my business. I have this cash in the bank, I could do whatever and that to me was like a huge lightbulb moment to say like, if if what we just provided here could have been with that other company doing 25 or 30 deals a month like then We could have had like, the best business ever, because we could have been keeping more of that money and like knowing where we were. And that's where what sparked what I'm doing today with profit first and with my company, simple CFO being a fractional CFO service, like just helping people understand finances, because I believe that if you know those, if you know your numbers, you know, you can have control of your business control over your life and do that. And so that's kind of my background, what I'm doing today. And then, like you said, appreciate you having me back on so we could talk about profit, first real estate investing.
Sean Thomson 05:32
Yeah, it's amazing that, you know, everybody talks about the stats of how many businesses are started every year? And how many businesses and every year right, yep, because they just can't make it I think this is a problem with most most businesses is that they aren't maximizing the efficiency of their finance side, right. They're, they're doing a lot of work. And they're just turning capital through their system, but they're not keeping any enough of it for to make them their life better. Right.
David Richter 05:55
That is so so true, right, catch you off. But I see it all the time. I mean,
Sean Thomson 06:00
I think that's, it's, it's, that's a critical mistake that everybody makes, they think they're very busy. They think they're doing a big business, they have all these these top line numbers that are doing fantastic. You know, you're doing hundreds of deals every year, but you're making $20,000 a year, it's like, what are you doing, you're turning, you're just turning your capital over, you need to carve some of that out for profits, you know, for me, my business is I've never considered my business successful with the volume that I'm doing. I only consider my business successful with my bank accounts and the finances that I have at the end of the year, you know, what does my bank account health look like? And so I think this is a big problem for a lot of people. They get caught up in how am I doing 1000 deals, you know, if I really do 10 deals and make a lot of money, then do 1000 deals and make a little bit of money, you know? And oh, yeah. So I think this is a great thing. And I want to talk more about the book for sure. So what was the catalyst I guess for because Profit First, the book itself was was out you you've kind of made it a real estate specific version. What was the catalyst for you wanting to do that?
David Richter 07:01
So once I started this business, after that light bulb moment with rich Lennon, he was the guy I was working with in Virginia, and still work with him. He, you know, after that, it was like, I got to start a business to do this. I want to help people. And actually someone that we personally know, is one, one of my mentors, Gary Harper. I called him and said, Hey, I'm thinking of starting this business. What do you think? And he was like, yeah, like, I think this is really needed. A lot of people need just an advocate for on the financial side, like they just need someone like that. So I said, Okay, he said, have you read the book profit first? I said, No, I've never read that or heard of it. So I read it that night, after his recommendation, took 10 pages of notes and said, This is the framework to help people I got this can give you an actual step by step of like keeping more actual money in your bank account and having an actual cash profit. So we started implementing that with real estate investing companies. And that's where about a year into that I went to Mike McCalla wits, the author of Profit First the original book and said, Hey, I love profit first. But I think there's a lot of nuances in the real estate investing industry that I would love to, I would love to help navigate help, you know, like, we've helped navigate this with our clients and what we're doing, I'd love to help, you know, any investor because like, the sooner an investor can get this system in place, the better they have more money, they will have, you know, like, the more they'll be able to accumulate actual cash and be in control of their finances. And he was like, Yeah, let's do it for the real estate investing, because I know that, you know, they're buying assets. And you know, it's just like a different setup than a service based business, which the original profit versus kind of more set up for something like that. So that's why I wanted to write the real estate investing version, because it had been my background up to that point for like, eight years, like, I've been in the trenches in real estate. And then I saw, I saw the life changing, and the business changing of implementing a system like this, because like you said, so many people get caught up in like, let's scale, let's do a bunch of deals. But then at the end of the day, they don't have any money, or they're spending more than what they're bringing in. Right? It's because it's because most people are scared of the financial side. We don't get training on the financial side, like we do the marketing sales operations. Like there's no one just saying, you know, here's a simple system, we might when we hear keep more money, we're usually that's usually someone that's a tax person, a CPA that saying, like, here's how you can save on your taxes. Here's how you can set up trusts or self directed IRAs or whatnot, which is great, you should do that. But no one I didn't see anyone really talking about how do you actually manage the active cash in your business as it's coming through? And what do you do with it? How do I make sure we are healthy financially so that way I can invest in like self directed IRAs. That way I can take trips, vacations, whatever I want. So that was kind of like the catalyst of starting this and just seeing so many businesses being transformed by the system and then seeing what the actual benefits were on the other side like them being in control their business vacation Like accomplishing why they started their business. So that was a big reason why I went to Mike and wanted to write this book.
Sean Thomson 10:07
Yeah, and I think it's phenomenal that like you said, people just like they get caught up in just doing the volume. Yeah. And you start spending more to get to more volume. And that just like a vicious cycle, especially in real estate, I think real estate's a bit of a unique business in that respect, where, you know, if you have a brick and mortar business, you're your circle of influence is just your neighborhood and who you're gonna sue and things like that in real estate, you can kind of scale those things with advertising and marketing. So you spend more, spend more, get more get more, but it's kind of it's kind of relative to what you're doing. Right. So carving out more profits is critical. And doing that. Let's talk about some of those those specifics in the book that are that you use as a framework for helping people. What are the things I saw your presentation, but what are the things that you kind of map out for everybody? In first steps to get this going?
David Richter 10:56
Yeah, so the actual steps of profit first, first, let me give you there's two real parts to Profit First, there's first the mindset, and then there's the actual practical steps. So let me give you the mindset first, because the mindset is, it comes down to a formula, we're real estate investors, we love our formulas. And we've been fed a bad formula up to this point, sales minus expenses equals profit, meaning I make a sale, I pay everyone else and their mother. And then what I have leftover, hopefully, like you said, we could be doing 1000 deals, but maybe it's 20,000. At the end of the year, you know, it's like $20,000, it's like, no, that's what we've heard over and over. And we get into the habit of paying everyone else first, keeping ourselves last, just being stressed from deal to deal, you know, like, it just gets very, very, you know, very discouraging as a business owner. But the formula, the profit first formula is sales minus profit equals expenses, meaning I make a sale, I take my profit first. And then I have the expenses leftover for what I need to spend on the business to grow it or to whatever it might be for the other people in there, whatnot. So that formula is all about having profit be first, the first thing that you think about, because you should be if you're in business, you're not Snapchat, you're not Facebook, you're not going to go billions of dollars in debt, and then hopefully make a profit on the other side. And we need to eat as entrepreneurs, we need to, we need to have money now and not be stressed out. So you need to pay yourself first. And that's what that whole formula is about making sure you are a healthy business owner. And as you get in the habit of being profitable on every deal, and as a company. So that's where the problem with that though, is that like, I feel like we've heard that so many times from other places like Rich Dad, Poor Dad, like you should be paying yourself or the richest man in Babylon, a portion of all I have is mine to keep, you know, like we've heard those messages. As real estate investors, we get bombarded with some good messages, too. But that's why I love profit first. And what I want to go into here is what the practical steps to make it a system that you as the entrepreneur no matter if you're doing one deal 1000 deals if you're doing big syndications with Shawn, or whatever, this is something that no matter where you are, can help you manage the cash inside the business. Because if you can manage the cash, you feel in control, you can take the vacations you can be paying yourself, you don't have to be living in the rat race. That's the whole point of this system is that you are profitable on every deal and make profit a habit inside of your business instead of the other way around and making that and hoping and praying you have a profit at the end of the year. So the steps first step, real simple. You need to know two numbers as your first step. Before we go there. Sean's got Shawn.
Sean Thomson 13:39
So I just want to I want to sort of review that. Yeah. So the the old way of doing this is, and the way all of us do it is we we go out we hustler business, and we do a bunch of deals, and then we pay everybody, everybody else. For a lot of people and then whatever's left over is what we get to keep exactly how most of us start our business. And we just because we're happy to be making any money, right? So the what you're what you're trying to tell people is, look, you need to figure out what you need to survive and be happy and thrive in your life, right and take that and then whatever else is left, that goes to everybody else, right? So you're thinking it's a mindset shift, where you're, you're conducting your business just like you normally do, but you're taking what you need first, and then everybody else gets what's left. Right, right.
David Richter 14:27
Because if you're not healthy, the business is unhealthy. Like you're struggling, everything goes down your decision making process, the way that you hire people, you're you're you're working out of fear instead of your purpose. So all decisions will be made around you know, like discouragement, like, oh, man, I'm not making enough though. We got to do four more deals. I got to get another deal right now. And then that deal comes across. It's a horrible deal. And you're like, Yeah, I think I can make it work. Then it turns into your horrible project. You'll lose $15,000 on and then it's like, oh, shoot, I should have never done that. It's just Yeah, This is where you have to make sure you get into this habit. Because as you grow and scale to, you want to make sure you're profitable as you grow and scale, you don't want to be putting fuel into a plane that's going down.
Sean Thomson 15:12
Yeah, I think that's the first step is that you have to convince yourself that it's okay to take your money off the table. Yeah. And then everybody else gets what's left, and you and you build your business based around those expense levels, not the other way around. The lot of times the expense levels just kind of or whatever they are. And they're not it's not, it's not part of the thought process. So I think that that first mindset shift is really the first part that people are going to have to get used to. So let's dive in. Now. Now Sorry to interrupt, but let's know that you go through for that.
David Richter 15:42
So the first step is figuring out what you need. Right? How do you do that? Like, I do a real simple one. And I go over this in the book, too. It's called an initial assessment, where you just literally get two numbers, what did you make in the last six to 12? Months, like however on? Like, if you've got more than a year's worth of data, then good do 12 months? What did I make? Then? What did I keep from that? So like, being very honest with yourself, for the last 12 months, let's just say you made $100,000, like your business did, let's just say you're just starting out, we use round numbers for simplicity. And then you did you took $20,000, at the end of the year, and through or throughout the year. So you paid yourself $20,000, you gave yourself 20%. So that's where you are right now. And then you need to look and say is that 20,000 enough to live on? Was that just the expenses that I had, but I didn't have any fun money or anything to do for myself was that like, barely squeaked by? Or was I suffering, like, I had to dip into my savings this year or whatever. But whatever you wherever you are, you need to be very honest with yourself of saying, This is what I really need, what are my true expenses for what I need as a human being, and where I am right now with a lifestyle and whatever's kids, you know, whatever, whatever stage of life, you're in, running that filter of saying, Okay, this is what I did for the last 12 months, I gave myself 20% of that, is that enough? If next year I make 200,000? Is 20%. Still enough? Is 40,000 Enough? You know, like, that's where you have to be honest with yourself of what do I physically need? And what percent is that of what I'm making right now. Because if you can get that baseline percentage of what your of what you need, then you're able to fill in the gaps around it, like what you need to in order for the business to keep running and what you need for like the taxes for the business or whatever it might be. But just getting those two numbers, what did I make, what did I keep, and what percentage was that that I had to that I did keep. So once you get that baseline, it's time to put the rubber meets the road now and you now if you've ever heard of the envelope system, so where you actually put cash money inside of envelopes for different personal expenses, like maybe your car payment, groceries, stuff like that, Dave Ramsey's made that popular other people have made that popular throughout the years personal finance people and but this system is kind of like that, but for business you open up the the second step is to open up physical bank accounts to help manage your money because I call the first three accounts the Golden Trio of accounts, because your business is an epic story. Because I like those big epic stories like Star Wars Harry Potter, you know, like those big ones that have the three main heroes they're always pushing the story forward for good like Luke Han Leia, they're always making sure at the end, that good triumphs, you know that that the light side over the dark side, you know, or whatnot. So making sure that in your business, your epic saga that you're living out, you have three main heroes, what are those three accounts to open first profit, owners compensation owners comp, then owners tax owners income tax, so profit owners comp owners income tax, those three accounts are for you, the business owner, to make sure you are winning, making sure you are actually profitable on every single deal, meaning I have a profit account, which I draw from every quarter because that account is specifically for their return on investment, the time Blood Sweat Tears of opening the business. So that would be an account I draw from quarterly to reward myself, and to make sure that I feel like my business is serving me that second account owners compensation is for you, the business owner for you to draw like a salary or distributions or like however, you're going to pay yourself consistently like a salary or whatnot. That's what that account is specifically for and how those are different. Profit is for the reward once a quarter the owners compensation is in a regular rhythm maybe weekly or bi weekly or whatever, that you pay yourself something. If you're sitting inside of a seat working in your business, that's to compensate yourself for the work that you're doing. Then that third account the owners income tax is making sure that the business is saving for your taxes at the end of the year, because your business is usually The one that's going to generate the profit and going to be the one that flows through to you. So instead of at the end of the year, you scrambling to do more deals, or, you know, buy this big syndicator, you know, like, get the tax breaks, and you're like, oh, shoot, it didn't close in time for last year. So now I actually owe taxes or whatever it might be, then you actually have an account that you're saving for throughout the year to make sure you have give yourself a buffer that you don't have to be scrambling come tax time. So that just puts a lot of stress on people's plate, then I also like an income account, which is just a holding bucket. That is what I like to call the control account, where That's where all deposits come into the income account. And they sit there until you transfer them to that Golden Trio. And the fifth account, which is your operational expense account, that Alpex account, where you pay all your expenses from that you already have set up. So that income account gives you control. Now, instead of having one the biggest mistake I see my investors make is having one bit one account where all money goes in and just toss in the cash sound inside their money comes in money goes out, have no idea what's going on. Oh, you know, like, it's Tuesday, or it's Wednesday, like, it sounds like a good day to spend more on marketing, you know, it's like, There's no rhyme or reason for using the money inside of that one big account. If you're separating out these accounts, then it helps you see, what do I have for profit? What do I have to pay myself? What do I have for taxes, then what do I have to spend on the business? That's what those accounts help you get an intense clarity of what is this cash in these accounts being used for. And that's why I like the income account to hold the money until you push it out to those other accounts. Then the third step is literally just knowing what percentage can you do for those buckets. And that's where I get into, there are targets to shoot for, that you want to shoot for. But starting where you are. That's why step one is saying what percent do you need right now of what you're bringing in, in order for you to feel healthy for you to be in control to spread between your profit owners comp owners tax accounts, and then what percentage can you live off of your business live off of and the operational expense account, because then every time a deal closes, you'll have the deal come in that money come in, and then transfer to those accounts. And that's something that doesn't take much time, the most amount of time is setting up the bank accounts, like during this process, like that's the most amount of time you'll take because once you've got the bank accounts set up, once you know roughly where you start out and percentages for those accounts, once a deal closes and comes in and you have money in that income account, you're just pushing it and transferring it to those other accounts. And getting in the habit of being a profitable business. One of the things that always comes up is like David, that's a lot of accounts like what in the world, you know, like what do I do, I always tell people, if you're uncomfortable opening a ton of accounts, at least open one account, call it profit and transfer 1% of it. So that way you get in the habit. It's not just about the bank accounts, this system, that is the system to help you and to get you into the habit of being a profitable business and bringing that mindset and formula sales minus property because expenses into fruition. But more importantly, is just getting into the habit. So if you can say I'm going to open a profit account from this podcast, because David inspire me to do this, I'm going to open an account and transfer 1% Just start to get into the habit of saving money and making an actual cash profit set aside in another bank account. So that way, it's not touching what you're using to fund the operations of the business. I also, if you if you like this system, and if you're like this would provide extreme clarity, as a business owner, and as a real estate investor, I would also recommend opening up an OPM account other people's money. So that way, you're not mingling, if you get private money, or you know, if you're doing big deals, like you're not mixing in your finances, and what it takes to run your business or your profit with the finances of someone else of like if they're lending to you. So I always say separate that out, make sure you've got a separate account for those projects or for that big project or whatever. So that way, you're not mixing that in with your with your what you're doing to actually run your business. So that the simple steps are one know where you are, and know where what you need number to set up those accounts. And then number three transferred to those accounts from every single from every single next income that you get. So that's what you would do in order for you to get into the habit manage the finances, because this is also teaching you I can manage now from my bank accounts because like how many business owners have managed from their bank account right now versus looking at their QuickBooks or accounting system or whatever, where this is a simple system that I haven't talked about balance sheets, I haven't talked about financial statements or profit and loss or whatnot, talking about your cash being able to see it very clearly. So those are the steps for profit first and really helping you get into that habit of being a profitable business owner and fulfilling what we've heard from Robert Kiyosaki and all these other places. and helping you get to why you started your business?
Sean Thomson 25:04
What exactly like you said, so once you get the mindset shift of saying, Hey, I'm gonna take care of myself and everybody else Second, you need to you need a system or a catalyst to make that possible, right. And the bank account system is what activates that, right? So if you're still operating out of one bucket, you're going to easily fall back into, I've got to pay all these bills, what's left, right. So unless you're taking that time, and carving out your part first, and finding a way to, to make that happen, it makes it so much more difficult to stay with that program, especially when you get busy in your business. And you're trying to you're trying to do deals and get things done. And so I think the account system, but that's why I wanted you to talk about I think the account system makes it possible for you, once you've made the mindset shift makes it possible for you to maintain that and to keep that throughout your business throughout the year. Right. So it's it's more complicated, but at the same time, it's, it's the one thing that's going to give you the catalyst to make it possible to have what you need. Right? So I like that, that idea of doing it that way. So let's kind of talk about I guess maybe some of the some of the things that you want people to kind of take away from the book itself and and and once they kind of start doing these things, what is it that you that you're hoping people would get out of it?
David Richter 26:18
One of the big things is I dedicate a whole chapter to this in the book is reserves, I think investors, right? We are we are type A, we're dominant, we want to go out, we hate lazy money's, you know, money sitting anywhere. And I think we need to be comfortable as real estate investors having money that is available to us for what we want to right now, a lot of investors like oh, there's a new deal, I'm just gonna go take it down, you know, and I won't, and then hopefully I get the funding later, I'll make it work or whatever. And then that never happens, they get into a cash crunch. And like what was supposed to be a great deal has now caused them hurt heartache, you know, like headaches, and just cause more stress, where reserves really helped grow your business. This, this is about this whole system is about making sure that at the end of the day, you have what you need in order to not feel stressed about the finances, in your business meaning, and that could be different for people, you know, like they could have like, some people's tolerance might be one month, three months, nine months, 12 months of like, expenses that they have in reserves or whatever it might be. But the way that it helps a real estate investor grow is we use other people's money all the time. I mean, if you're in real estate, you're using good debt, you're using that debt to leverage into a cash flow asset or into like a, an active property like a fixin flip or something to make a return. So that's where if you have money saved up that shows private lenders institutional financing what at what not that you are a savvy business owner, by having those reserves and those reserves to also not just for the private lender side and growing it from that way. But like I said, it gives a gives the owner, the mental space to be able to think clearly and not have to be in fire mode, putting out fires all the time, or saying I have to get this next deal because we don't have anything reserves. And I don't know how I'm going to pay payroll next month, if we don't close another deal. It gives you that peace of mind to be able to make decisions based on what's best for the business. And not what is the biggest buyer that we have right now gives you that mental space to kind of like free that up, which is has been a huge, huge thing with the people that we work with. We see over and over again. One guy was wanting to scale scale scale scale his business, but then he got to the place where he's profitable now consistently, like quarter after quarter, building a good reserve like six, almost seven figures, like he's got a good reserve that he has. And now he's thinking, do I want to scale? Do I want to take some of the points that are the percent points that I'm allocating to profit and point and put it towards investing in a new marketing or into a new person or whatever it might be for him? He's like, or do I want this lifestyle business kind of kind of built now where I work, you know, maybe 10 hours a week, and I get to go on vacations with my family and all this and he's got the options now, do I want to scale my business? Or do I want to stay small and to squeeze more profit, but he didn't even have that option before. He was just in fire mode all the time. Like, like, I just need that next deal in order to close so I can just get to the next month. But now he's thinking what do I want to do with my life? What do I want to do with my wife and my children? You know, like, like, we can now choose to have this smaller business be more profitable and make sure that you know like, right when they're small, like my children, his children are small right now. He's like, I want to spend a ton of time with them. So I don't want to scale right now. Like he made that conscientious decision and said no, I want more time with my kids. I want to be there for them. He took them on a two week RV vacation this year like you He's just the profit per system has revolutionized his business and his thinking and being able to give himself the opportunity of, do I want to, you know, to grow, or do I want to stay where I am. So it's really in that mindset of the Prophet first, for real estate investors, I wanted to hit home, how reserves and how building these accounts, getting a profit account, getting an account to pay yourself, making sure you have reserves for yourself, is really freeing, and gives you the options that you always thought like when I start a business, I'm going to be able to take more time off, or I'm going to be my own boss, and I'm going to do this and, you know, like, I'm going to take these vacations, I'm going to travel the world, you don't get there unless you do what wealthy people and people that have a good system do. And that's what I believe this system does. That's why I dedicated a whole chapter of the book, after telling you how to put the system in place of like, reserves are okay, like just helping you see the light of what reserves will help you as an investor get not only monetarily, but like just feeling of, okay, I can make better decisions, I can do all these different things. So that's one big thing that I talked about, in the book that I want to really hit home to a lot of investors because I don't want them to get in the same position as 2008 and nine, and, you know, like, not have a system in place and be you know, squeaking by right now, then something like horrible catastrophic happens, you know, in the personal lives or in the world, and you know, real estate world, and then they're not able to they're, they have to give up their whole portfolio, you know, like the guy that I mentioned in 2008, nine that I knew personally did, instead of that, instead of not only not losing out in 2008, and nine like that, I want people to be able to capitalize and say, I'm now able to buy the properties at a discount, or I have the cash now to do what I want to do during a downturn or whatever it might be that they're going through. So that's why I hit this home over and over again. Now when I speak anywhere, and then also inside of the book as well to dedicate a whole chapter to it.
Sean Thomson 31:59
Yeah, and I think that's what you said in sort of in a detailed level is, I think it's fundamentally, the flaw in an entrepreneurial ship is that people start a business to have that lifestyle to have that, that sort of that freedom to be with their families, or do what they want to do at the end up becoming a servant to the business as opposed to the business becoming a servant to them, right. Yeah. And the problem is essentially, in the finances, it's not, it's not that the business is flawed or anything like that. Because you know, you and I know tons of real estate guys. Yeah, just like you. And all of them are just looking for the next deal to kind of fill that funnel, right. Yeah. And I think if you take this, it's like you said, initially, it's the mindset shift initially to take what you want, but the reserves in our business, we have operational reserves, but I in my rental business, you know, in multifamily, you have tons of reserves, right, yeah. But in my single family business, I would have operating reserves and then I would also have capital reserves, right. So I anytime I had a broken, you know, air conditioner, something like that, I never worried about it, because I knew I had a ton of capital reserves, right, I could do a full remodel on any one of my properties at any given time, because I have money set aside for that I didn't want to stress about it when something went wrong. I know a lot of rental property owners that they carve that out, and they take that and they put it in their own pocket. And they don't put it aside for their properties. So then when something does break, a roof gets torn up from hail damages, or whatever, and the insurance isn't gonna cover all of it. They don't know what to do. They're like, what am I How am I gonna come up with $5,000 to fix my roof? You know, and so for me, I never wanted to stress about those things. I wanted that the business to kind of handle that. So having reserves is a big part of that. And I think it's just you have to decide do you want the business to serve you? Or do you always want to be serving the business. And unless you're structuring it this way, you're always going to be serving the business, and it's never going to be taking care of you. And you're never going to get really that freedom that you're looking for. And so structuring your finances properly, like you said, with having those, those accounts, getting your allocation for you first, and what your needs are in your life, and then making sure the business is set up with the reserves and the cash that you need set aside to handle those issues as they come up. And the last point you made there was, you know, in a downturn, you can either be the guy that loses everything, or you can be the guy that seizes the opportunity, right. And if you look at all the wealth creation in the history of the world, you know, the Rockefellers and all those guys, they made their fortunes when everybody else was having tough times because they had that money set aside, or they had that opportunity set aside. You know, so if you can seize on those opportunities when they come up in a downturn or problems or whatever everybody else is seeing, you know, if you're set properly in your business to be able to capture that stuff of change, it can change your future on a, you know, 1020 30 40x level, right? Yeah. So I think if you're if you're using these philosophies in the book and these financial philosophies in your business, it's It's going to do, you know, serve you. And it's also going to give you the opportunities not only to not devastate your business when things go bad, but also maybe take those opportunities to make them bigger. So, yeah, I think what you're doing is great. So this, that's kind of my two cents on the whole thing, too. And I the the fact that you have the book that lays out the framework that people can apply, it can change how they do their business, you know, because you get, as an entrepreneur, you get caught up and just making the making the thing work, right.
David Richter 35:27
Yeah, exactly. That's, and that's why in the book, too, because I know a lot of people listening to your podcasts are probably in the rental or the multifamily space, and I go into a couple of different accounts you should have, they're like, so that way you don't. So that way you don't like Sean was just saying there, if you don't have like a capital expenditure account, or if you don't have something to make sure that you have, you know, the reserves when something does go wrong, you know, like with a big unit or like with a bit you know, or even a single family house that you're renting out whatever it might be, you become the motivated seller at some point. Like if you don't have this system in place, and like, that's what I want to stop, like, you should never be the motivated seller, that is like selling a property to a wholesaler, because you don't want to mess with it anymore. I want to save you from that, from that heartache from that headache. And like just having some of this in place, solves so many of those issues that come up in business, and it solves it in a way where you as the owner feel more empowered. Now you feel more in control of your business of your life of your finances, by getting a simple system like this in place to just help you get to that next level.
Sean Thomson 36:33
Yeah, and it takes time, right. So it takes time to kind of cultivate these, these this capital level, in your in your life in your business. So you want to start this process as early as possible in your business so that you're carving out those things. And what's the funny part about it is that it just kind of incrementally grows, right. So if you watch, if you if you if you stick to the system, you'll watch those accounts kind of get bigger your capex accounts and your optics accounts will just kind of sort of grow because you're consistently putting money in there. And you're utilizing it on a on a as needed basis. And you're not you're not tapping into it for you know, anything but that, except for required necessities, you know, emergencies, things like that. The funny thing is, you'll just sit there and watch those grow. And you're like, the more you can get that to grow, the more confidence you have in your ability to take care of your business. And I think it changes and and it's not you can't it's a lot of people think you have to fund those optics and CAPEX accounts just like all at once you have to put 100 grand in there today. Well, that's not true. You need to start with whatever you can and start to grow it to where it is 100 grand, or whatever, you need to make that work, right. And it could take a couple years before you're fully comfortable in that in earning that money and having it set aside. But if you don't start now, that that period never happens, right? So
David Richter 37:46
Right. And that's where I think this is a good point where most people say they want to be millionaires. But when they say they want to be a millionaire, that means they want to spend a million dollars, you know, or have a million dollars, where a lot of people are like, Well, okay, my business is making a million is that that's great. Or maybe you have equity, you know, I can big equity and have a million dollars. But like, unless you have that in an account, you know, you're not tapping into that you're not a true, you know, like, you're not truly having a million dollars just sitting around. So if you want to get to that point, this is like the first step. Like if you want to be able to become a true cash millionaire, this is like the first step to getting to be able to get where you are a millionaire on not only on paper, but like in the bank account too. So you can say confidently, I've got a million dollars, like I can go out there and do what I want or whatever that milestone for you. It might be 10 million, it might be for your first 100,000 Whatever it might be, that you want to get to this is like the first step in truly getting you to where you want to be. And like you said, Shawn, most people say they that start implementing this, like, I wish I would have started sooner. So that's why that's why I wrote this book, why I'm getting the message out because I don't want that anymore. Like no more excuses. Like now you've got the system, you've got the book, you've got step by step, there's no reason not to get it started. So that way you can have if you listen to this podcast right now, and you will listen to it a year from now if you implement the system, like just look at what happened to your bank accounts. Like you should see them grow inflate, and just starting getting into that habit of being profitable.
Sean Thomson 39:18
Yeah, and the stress in your life is going to reduce because you're no longer scared. Right? Exactly. But what you're no longer scared of what's possible around the corner because you now know that you can you can conquer it because you've got the financial wherewithal to do it. So yep. That's awesome. David, I appreciate I appreciate you coming back on and sharing the process with me I want to dig deeper into kind of the, the, the steps in the book that people can can expect to go through and and and implement in their business. And I really appreciate you coming to talk about it and everybody you know should be able to go find the book, where can they where can people reach out is it is available on the website or how can people get it?
David Richter 39:54
Yeah, you can go to simple CFO solutions calm and there's a tab for the book or if you go to simple CS A book.com That's where you can do you know, some book ordering, if you're buying multiple books, there's discounts there. Or if you're just, it takes you right to the link on Amazon in order to purchase the book. So simple CFO book.com If you want to just go there and order the book, and I would love to be on your journey with you and making sure that you make and keep more money.
Sean Thomson 40:21
And so it's available on Amazon to people go to Profit First for real estate on Amazon. Is that another good place to
David Richter 40:27
go? If they Yeah, if you type in profit, first real estate investing on Amazon, they could get it right from there, too.
Sean Thomson 40:33
Okay, perfect. Okay, good. Yeah. Thanks, David, I appreciate you coming on. And hopefully people take advantage of the book and get some lessons there and reach out to you if they have any questions. I'm sure that your your, your, your fractional CFO business as well. So people if people want to next level, their, their CFO or their finances, they can come to you for that stuff as well, too. So
David Richter 40:53
exactly. Because a lot of people are starting off before even square one, like they don't know where they stand financially. And sometimes it's just walking through getting those steps in order. So that way you can, you can know, okay, this is where we stand. This is, you know, like the steps that we need to take so, but I love to help people as well, you know, get to where they want to be financially.
Sean Thomson 41:12
Yeah, perfect. Well, thanks so much. It's great to talk to you again. And we'll have you on for the next book too.
David Richter 41:17
Awesome. Yeah, I'm sure I've got several ideas in the works now. So Thanks, Shawn. I appreciate that. Yeah,
Sean Thomson 41:24
perfect. We'll talk to you soon.
Abigail Thomson 41:26
Thanks for joining us for another episode of next level American dream. If you would like to learn more about what we talked about today. Want to contact the team directly or interested in passively investing and being a part of our deal room? Head over to our website at www.thomsonmultifamilygroup.com. Before you go please leave a review your comments help us create more episodes for you to enjoy.