Financial management is not something that every business owner was taught. If you learned it, you are probably an accountant or a CPA. Find a bookkeeper or a fractional CFO if you’re having money problems. If you want to scale, you need to do your finances properly. Join your host Sam Wilson and his guest David Richter as they talk about the importance of a CFO in your business. David is the Founder and Owner of Simple CFO Solutions. He is also the author of Profit First for Real Estate Investing. Join David as he goes deep into what he does in the business. Start managing your finances today!
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Profit Is Your Friend: Learning Financial Management With David Richter
David Richter, welcome to the show.
Thanks for having me.
The pleasure is mine. Can you quickly tell our readers a little bit about who you are so they have an understanding of who they are reading to?
I’ve got many years of real estate investing under my belt. I’ve done about 851 deals up to this point. I’ve built and scaled a company to about 25 to 30 deals a month that we’re doing outside of Chicago. I’ve done all types of real estate investing deals. I saw a huge need on the financial side of the real estate investing world. I created a fractional CFO company to help real estate investors and entrepreneurs with their finances and control something that I don’t think we are taught a lot in school or anywhere. I’m also the author of Profit First for Real Estate Investing.
I’m looking forward to hearing about your journey there. Can you tell us where did you start, where are you and how you got there?
I started by reading the book Rich Dad Poor Dad in college. It’s cliché but for a reason because so many people get started there. A good friend handed that book to me. In 2012, I bought a house, flipped it, fixed it up, rented it for a little bit, cash flowed and then moved into it. I at least optioned it two years later, had a super tenant and paid early. He bought me out. He exercised his option six months later and I got some tax-free capital gains because I had lived there before. That was a nice feeling. I was like, “I should do this more often.”
That’s when I started hooking up with an investor in the area doing about 5 to 7 deals a month. I worked for him for free for about eight months on nights and weekends like, “How can I do this? What are the systems? What are you doing? How can I help you as well?” From there, I came on board about eight months later, full-time. We grew from 5 to 7 deals to about 25 or 30 deals. I got to sit in every single seat, acquisitions, dispositions, project management and property management. We had everything inside of that company.
Your numbers tell the story of your business.
I was the utility man. Go in there, get this process started and move to something else. That’s where I saw a lot of the inner workings of a real estate investing company and got the love of real estate. I started building my portfolio there. That’s where I enjoyed the real estate investing game. I got to see it on a bigger level. At our highest point, we were doing over 300 deals a year between turnkey, fix and flip, lease options and rentals. I had some commercial buildings on smaller ones.
We were doing a lot of different things. It was a great learning experience. One of the last seats I sat in was the finance seat. I had braces at one time. I was a complete package of what you think of a typical finance person but I liked the numbers, those things and going after the deals. Staying in the financing made me realize how the money flowed from marketing to sales or renting the property. I have never gone to school for this or taken a course. I’d read all these Rich Dad Poor Dad, all of these different types of books on real estate investing.
Once I sat in that seat, it made it very clear how revealing the numbers were for the business and it told the business’s story. That’s where I got the love for numbers. At that point, I had built up a portfolio enough sold a bunch of properties that I had, moved across the country to where I wanted to live with my wife, family and closer to family. I started working with another investor there. The first thing I did was help him with his finances because it was the light bulb moment of I know this can help him. I started getting his numbers and books in order and transactions. There was nothing in place.
I helped him get to where he needed to be. He was able to take that knowledge and use it for himself. He leveraged it and said, “I can make decisions for my numbers.” He was able to refinance. He put several hundred thousand in his pocket for some of the deals he had done. He was like, “This has been life-changing.” That’s where I got the burden and mission to help real estate investors with the financial side. That was my progression from where I was, where I am and going. I was a real estate full-time then I sold everything.
I’m helping real estate investors full-time on the financial side of things. That’s where I got introduced to profit first and this whole system of managing cash as a real estate investor giving you control. That’s where I linked up with Mike Michalowicz, the original author of Profit First in 2020 and said, “There has to be a book for the real estate investing world around this concept.” That’s where I was able to secure the rights to the book and publish it in 2021. That’s been my journey in real estate investing. I’m helping real estate investors with the financial part of their business.
I love your process and how it is iterative. To be clear, you’re not doing anything on the active investor real estate side anymore.
Not this time. That’s where I’m looking because I moved down to Florida. I’m like, “I would want to buy down here a lot more than where I was in the past.” This is where I’m home-based. Probably in 2022, I’ll start buying again here. I’ve been putting my head down, trying to get this book out the door, this mission of not having to live deal to deal and live in the rat race.
People forget that at some point, there becomes a trade-off where you’re like, “I can invest in real estate but I’ve also got an active business going here.” If your active business is holding more promise and it’s making money, it’s like, “I can only focus on so much.” It’s 1 inch or 1 mile deep. I’ve talked to several people in that position where you go, “It’s tough.” You see the value in real estate but you also see the value in the services that you’re providing to real estate investors. Talk to us about that. Give us 4 or 5 things that you see practically, everybody that comes through your door is doing wrong or could be doing better.
We see that a lot of investors have one big bank account where all their money goes in and out and it doesn’t give them any clarity. They think, “I have $100,000 in there. I can spend $100,000 on this next marketing campaign.” Without even knowing is there a profit in there? Am I not going to be able to pay myself? Is there tax money in there? Is this other people’s money inside of this big bucket? Unintentionally creating a Ponzi scheme sometimes in the real estate investing world, which taking the money that’s in there and that might be for projects then using it for the things but those were money that should have been for something else.
That’s one of the biggest things that we see that creates a lot of stress around the owner from not knowing. They don’t control their finances or business when they’re running like that. Another thing that I see too a lot is that, the one bank account and we haven’t been taught anything on the financial side, a lot of people avoid the financial side of their business. They’re like, “I’m the deal-maker. I’ll go and find the deals. I’ll go do the deals but this finance stuff, I can delegate and abdicate that to a CFO, CPA or bookkeeper.” They don’t look at their numbers at all.
They don’t know what’s going on in their business if they’re making or losing money. They just know, “I keep running out of money. What is going on?” Until it becomes a great enough pain, a lot of people don’t look at that financial side of their business to see what is going on. That is what puts a lot of people over the edge of like, “I have no idea what’s going on. I don’t know if I can make some money out here. I can spend this and the money that’s in the account.” That’s another thing avoiding it.
Unless you are an accountant or a CPA, no one’s teaching financial management to business owners.
No one’s teaching financial management simply to the business owner world, unless you are an accountant or a CPA like, “You didn’t get this training?” No one gets this on this side of the investing world. That’s where it’s like, “Here is a simple system to help you and manage that cash.” Those are two of the biggest things. Another thing that I see a lot is investors stealing from themselves. If you have a couple of different entities, a rental entity or flipping an active entity. It is robbing Peter to pay Paul. I see that all the time between entities or from yourself too.
Let’s say you’ve got several different bank accounts but you’re taking from one to fund the other. We have to make sure you are profitable and you have money for what you need and not like, “Something else came up. I got to go take this out.” We’ve got to have some system to do this or you’re always going to be living on that edge feeling like, “Deal to deal here. I don’t know what’s going on with the money.” That’s something that I see a lot. Those three things over and over again are things that come up with a lot of business owners that we see.
It doesn’t create financial strain in their business but it creates a lot of stress, headache and heartache in their personal lives because their wife, spouse or business partners are asking, “What’s going on with the money? Do we have money for this?” It’s like, “I have no idea what’s going on. I get these reports but I have no idea what they’re telling me or if they’re right. I see this money in the bank account so I think we’re okay.” There is a system and process to get you in a better frame of mind there.
A lot of these can be problems you could experience at any level of entrepreneurship. At what point in time does it make sense to bring somebody else, a third party on board to help square some of those things up?
If you’re starting, one of the first hires to take off your plate would be a bookkeeper. A base-level bookkeeper that can at least handle the transactions. That doesn’t even have to be super expensive. I’m not talking about you need a high-level CPA that’s on your staff, a CFO or even a fractional CFO like we provide. If you’re starting, unless you are trained and that is your highest and best use, which usually isn’t then you need a bookkeeper to take that off your plate as soon as you can. Maybe even from your first deal because if you’re making $10,000, $15,000, $20,000 or $50,000 on a deal, use $500 of that to get the books done for the year to make sure you’re getting that.
Bookkeeper, when you’re first starting to take that off your plate, doing the higher-level things like going out and getting the deals or making the connections and finding those people. From there, once you do deals consistently whether would that be rentals, a bunch of doors that you have under management or if you’re actively investing, that’s when to look for maybe a potential fractional CFO, which is a part-time CFO to do high-level financial business strategy with you. What do the numbers mean and say? You have to have someone held accountable like the bookkeeper and the financial team. It’s like getting someone there who can help you financially because it’s probably easy to find or take some of these other things off your plate like the operational duties if you’re doing them if you find the right person.
That financial portion is usually something entrepreneurs don’t get the training on or a mastermind and learn about systems operations marketing. That would be like, “If I’m doing deals consistently, I might need a part-time CFO to know what’s going on with my money in the past, where am I and what can we do for the future without completely blowing up?” If you want to scale, you don’t want to scale yourself right out of business. It’s like getting yourself to that level when you’re doing deals consistently or have built up a portfolio of 10, 20 properties thinking about bringing someone higher level on to help guide and manage that process.
Most of us understand what a bookkeeper does. That’s pretty self-explanatory. You got twenty properties. You’re growing. What does a fractional CFO do for you besides look at your numbers and say, “This is where your money is going?” Walk us through that.
Most people do know bookkeeper or CPA. CFO is probably the one most people don’t know or have heard with corporate executives. I always compare compared to a hospital. You’ve got the bookkeeper who does the transactions. They do the day-to-day. They’re the nurse. They come and check in on me every day. Make sure things are good, your chart is up to date and everything is going well. The CPA is more the specialist like, “Do my taxes. Save me money on taxes. Do the tax planning and tax preparation. This is the one area that I’m good at. Let me get that done.”
The CFO is more like the doctor to say, “Let me look at the chart and interpret it for you. Let me make sure you’re not only good with what is going on but let me tell you the general health of your business and general health plan. Let’s make sure you’re healthy. If you want to get better and grow, here is how you grow. Here are the steps that you can take and make sure that you have not only a handle on your numbers of where they’ve been. Let’s make these decisions together. If you want to hire a new person, what is the return going to be? How are we tracking? What are we tracking weekly together? What KPIs, Key Performance Indicators, to make sure that you’re on track and healthy financially and making those decisions together.”
If you want to scale, don’t scale yourself right out of business.
They’re like the doctor making sure that everything is on point. They might need to recommend you to a specialist like a CPA and make sure they are working in tandem with them or to a nurse. Make sure you have the best nurse in place and hold them accountable to ensure that your overall health is good inside your business.
Thanks for breaking that down for us. Talk to us about your business. You had this great idea. You saw a need in the market. How did you grow your company and scale your idea?
The system to help entrepreneurs with their finances is so simple. A lot of people wanted to work on this side of things because this wasn’t your typical bookkeeper or CPA. This was talking to them plainly about their finances. Very quickly I was like, “I can’t help as many entrepreneurs as I want to if it’s going to be me.” Very early on in my career, I said, “I need to have smart people around me and bring on more CFOs on our team.” I did. I started looking in some of the groups that I was a part of, some CFO-type groups, groups on LinkedIn and then also the Profit First Professionals network that I’m a part of with Mike Michalowicz. It was another place like, “I need to partner with some good people here to provide more to other people.”
We get requests all the time. Seven people are coming through the door. They were like, “I can’t do this on my own.” We have twelve CFOs on the team. We put together a certification process for our business to certify these CFOs. They have to have a background in finance. It’s bonus points with coaching, financial coaching or financial business training. We take them through our certification to show them how to teach the system, implement it and get the owner more bottom-line profit. We put them through The Rainier for a certification process then they come out on the other side, helping with our investors and the people we work with to increase that bottom line profit.
Once we had that certification process in place, that was the game-changer for us because we’ve got twelve active with clients and helping them. We’ve got about fifteen going through our certification. It’s a process to see who is a good fit for us, who fits in with our core values, our vision, making sure they get the proper training and then having them on our team and helping those investors. It’s been a journey because we’re about a tenth of where we want to be. We’re scaling up for sure and want to be 100 CFOs and work with about 400 clients in different individuals. We see how much of a need this is in the real estate investing space. That’s where our target trajectories are.
What was the conversation like selling the first CFO on the model?
I’m pretty passionate about what I’m doing. I have a pretty clear vision of where I want to go, how this helps entrepreneurs and how I’ve helped entrepreneurs in the past too. That first conversation with the CFO was pretty easy. I said, “Here is what I’ve done. I have 10 people that I’m working with and all 10 are getting more cash in their accounts. They are taking vacations, seeing the light at the end of the tunnel and getting control over their business finances. Do you want to be a part of this? Here is what I can offer. You don’t even have to take on ten as I have. Take on a few upfront.”
What I’m looking to do is take on more than ten. “Let’s see how this goes with you.” That first conversation with them was pretty easy because I was like, “This is how it’s helping people. This is what we’re doing. Do you want to be a part of this? Do you want clients that you can be a part of their journey as they grow, scale and become more profitable?”
I love your seeing the hole in the market and going, “I can serve this need.” You’re doing something that adds value to the bottom line. You’re not selling a widget that somebody throws away in twelve months. You’re doing something that has a meaningful impact on people’s health and mental health and all-around life in the long-term.
Money is personal. It doesn’t matter if it’s your business or personal finances. Being a part of that journey has been very eye-opening in how it affects people.
Thanks for breaking this down for us about your business. Let’s jump here into the final few questions. The first one is this. If you could help our readers to avoid one mistake in real estate, what would it be? How will they avoid it?
There are five stages of business that I’ve learned from my good friend, Eddie Wilson. He is the owner of the American Association of Private Lenders and has an incredible operating system. He talks about there are five different levels of business, startup, persevering, viability or profitability, scaling and then succession. The biggest thing I see with one of the biggest mistakes is that most people go from perseverance where a startup is when you first startup. It’s you grinding it out.
Perseverance is when you start adding people and try to get your bottom line to match your top line. You’re trying to get it to where you are at least trying to break even as you grow in scale. Viability is more when you’ve got actual profit for a sustained of time. You are in a healthy position at least 6 months, 2 quarters where you’ve got a healthy, at least 10% profit margin or profitability.
That’s where I see a lot of people trying to go from perseverance to scaling where they say, “I’ve got two people on my team. I want to take it to twenty. I’m doing five deals a month. I want to be doing 50. Let me pour everything into the business that’s coming in and we’ll get to that level and I’ll never have to worry about money again.” There are these stages. You want to go from perseverance, grinding it out to giving yourself that breathing room of profitability and say, “Do I want to be very profitable where I am, stay smaller and keep pumping out the profit percentages like going from 10%, 15% to 20%? Do I want to be more profitable or reinvest some of these percentage points back into the business and scale it up in a healthy manner?”
Having that mentality of like, “There are certain stages here and this is where I am. If I try and scale at perseverance then I might be putting fuel on a plane that’s going down. If I’m doing it from that viability or profitability stage, I can grow and scale as much as I want where I have this profitability. Otherwise, I’m going to go belly up.” That’s one of the biggest things. If you’re in real estate, you’ll go to a lot of masterminds. You’ll hear a lot of people what other people are doing but that isn’t necessarily what’s best for you because it’s not just about the deals. It’s about your lifestyle. Do you want to spend more time with your family? Do you want to go out there and change the world with missions?
You have to take that into account. When you’re not taking that into account and someone’s up on a stage saying, “I’m doing 100 a month. I bought my next 1,000-unit apartment building,” it’s like, “Where are you now? What’s good for you? Do you want to go to that next level?” That’s where we’ve seen. Once people have that profitability, it gives them the option. “Do I go bigger or better and get into a deeper profit?” That’s what we want. A big mistake is don’t go from that perseverance stage to the scaling stage without having some measure of profitability for at least a few quarters in a row knowing where you are.
David, if our readers want to get in touch or learn more about you, what’s the best way to do that? A follow-up to that is when does your book come out? How do they get copies of it?
SimpleCFOSolutions.com if you want to work with us or see what we do and how we match a CFO to put on your team there. My book Profit First for Real Estate Investing is officially out on December 7th, 2021. You can go to SimpleCFOBook.com, which takes you to different links there either to Amazon to buy it individually or book order links there. Even if you’re picking up a couple of copies for you and your real estate investing group then there is a discount that I can give through the book order.
David, thank you so much for your time. I do appreciate it.
Sam, thank you for having me.
Important Links:
- David Richter
- Profit First for Real Estate Investing
- Rich Dad Poor Dad
- Profit First
- Profit First Professionals
- The Rainier
- Eddie Wilson
- American Association of Private Lenders
- Amazon – Profit First for Real Estate Investing
- https://www.LinkedIn.com/company/simple-cfo-solutions/
- https://www.Facebook.com/thesimplecfo/
- https://www.Instagram.com/simplecfosolutions/
About David Richter
We match a fractional CFO with a small business owner to grow the bottom line profit, decrease the financial stress, and help give the confidence in the numbers to make faster, better business decisions so owners can live the life they want.
What is a fractional CFO? The CFO is the Chief Financial Officer and fractional means part-time. Most businesses don’t have enough revenue to pay for a full time CFO but make too much not to have a strategic financial partner (CFO) on the team to increase profitability and cash flow. A Fractional CFO is that partner at a fraction of the full CFO price tag.
If you’re looking for a strategic financial partner, I’d love to talk to you.
If you’re a fractional CFO, I’d love to talk with you as well if you’d like to serve more clients.
Specialties: CFO Services, Systems, Step-by-Step Processes, Productivity, Time Management, Scaling Profitably, QBO, Automation.
