Joe: What's going on, guys? Joe McCall, Real Estate Investing Mastery Podcast. This will be one of the most important podcasts that you've maybe you've ever listened to in terms of real estate investing and understanding your numbers. So here's the deal. If you don't know your numbers, you don't have a real business. When I was in a mastermind, probably seven, eight years ago, I heard a guy say that and it hit me like right here I'm like, Oh, what are you talking about, man? Like, I've got a business. I'm making money. But you know what? Well, I kind of wasn't. I thought I was, but I wasn't. I didn't know my numbers. And fast forward three or four or five years, I discovered, Oh, man, I really don't know my numbers. And I was hit with a huge $520,000 federal tax lead. Not a bill, but a lean a judgment that was tied to my house houses, was tied to all of my personal assets, and the IRS was coming after me. And this is something that I've talked about before. My YouTube channel. Just go to my YouTube channel, do a search for IRS. Joe McCall, IRS. Yeah, it was devastating. It was a very, very difficult time for me. But it didn't just happen overnight. It happened because I was making a lot of money, but I wasn't paying my taxes. It wasn't intentional either. It's just like I ran out of deductions. I started making a lot of money. So I had this, you know, thing that was going on like this. And then all of a sudden I had a big tax bill. You know, I remember 50, 60 grand after filing two or three or four extensions, then realizing, oh, crap, I'm in a world of hurt here. What am I going to do? So I started paying off my old taxes and then all of a sudden my new taxes were due and I was making more money and all of a sudden I got a new $70,000 tax bill. And it just kept on building up, building up. And then after penalties and interest and me hiding my head in the sand and hoping and praying the IRS would go away, you know, getting tons of mail, solicitation from tax settlement attorneys and law offices and things like that, then having it attached to my house so I couldn't refinance, I couldn't get a mortgage. My credit was shot. Horrible. It just gives me the heebie jeebies thinking about it. And it wasn't because I intentionally was an idiot. I was just an idiot kind of on accident, you know, Like, I didn't know what I didn't know, except I read a book called Profit First, and I only read half of it. I don't remember ten years ago, but I didn't implement it. I didn't think it would apply. You know, I was just too busy to worry about. It is really what it was then when all this happened, and I'm sitting with the IRS agent in his office and he says to me, Joe, do you realize I could send you to jail right now? I could take everything you own, put send you to jail. And this is literally what he said to me. Send you to jail, put your family out on the street if I wanted to. Yes, sir. Sorry, sir. I need some help. I said I need some help. And I was almost on the verge of tears. I did cry when I got to my car, but like that put the fear. I almost had the fear of God. But not. No. They put the fear of the IRS in me because the IRS is the world's largest debt collector and they will go after you with a vengeance if you want them to. They can send you to jail. They can take everything you can from you. So anyway, fast forward after that moment, about a year and a half, I paid off all of my old taxes and I got current on my current taxes. Well, the first thing I did, and this is what the IRS agent, IRS agent told me to do, get current on my current taxes and then start paying off your old taxes. See, I couldn't claim hardship, which is everywhere. Everybody says you can just claim hardship. No, you can't, because then you have to lie until the IRS that you don't have much money and you have to show them your bank account. You have to show them the house that you live in, you I didn't want to lie to say I was having hardship because I was I was making good money. But anyway, I got out of it because I started implementing profit first. And that's what our guest today is going to be talking about with us. His name is David Richter. Had him on before he wrote a book called Profit First for Real Estate Investors. Such a good book, especially for you who are watching this. And you may be making some money or maybe you're realizing, oh, man, I don't want to make those same mistakes McCall made. I want to be better. I'm smarter than him, and you probably are. I'm sure you are. So the whole concept of profit first is you take the revenue that comes in, you immediately subtract profit. Well, most people do it like this. Revenue minus expenses equals profit. This reverses that. It's revenue, minus profit equals expenses. So you also there are some buckets in there and Dave is going to talk about this in a minute. So I'm stealing all this thunder. But he's patient. He's a nice guy. He's looking at me like, okay, come on, hurry up. But I got to tell you my story because this is really important. It's revenue minus profit, minus taxes minus your salary equals expenses. And guys, get this is so simple. When you figure that out, your business will always be profitable. Always. It'll always be profitable. So let me tell you again, if you don't know your numbers, you do not have a real business. So when I left that meeting with that IRS agent, when my pants were wet, like, Holy cow, what just happened? I hired a CFO. It wasn't David. I didn't know David at the time. I said to the CFO, who's now my operations manager and my bookkeeper, I said, Implement profit first. I read it again the whole way through. I said, I want you to do one thing, only help me get caught up. And my taxes kind of caught up on my current taxes and then pay my old taxes. And I did that in a year. It took me a year and a half to not only pay the 500 to $520000 tax lien, but then also the next $150,000, $200,000 that I owed in taxes that year whenever it was, Oh my gosh, that numbers they just freak me out and I'm getting heebie jeebies thinking about this. And so we did by implementing profit first. All right. Now, some of you can relate. Every time I tell the story, I get people that message me like, oh, my gosh, I thought I was bad. I owe $100,000 to the IRS. Right. And I've already filed extensions and delays and I thought I was bad. Then I get other people that respond to me. They'll say, Oh, that's nothing, man. I owed $2 million to the IRS like people that you know, and this problem is getting bigger and bigger. You just nobody knows about it. Nobody's talking about it. I was embarrassed and humiliated to talk about because here I am, a guy, you know, kind of well-known, maybe got the podcast on YouTube and I speak and, you know, and I, I have this huge lean on my property and now I don't anymore, thank God. But it's embarrassing. It's humiliating. But I could have avoided all of that if I would have listened to a guy like David Richter, who finally here he is. How you doing, David?

David: I'm doing great. Thanks, Joe. Thanks for having me on.

Joe: That was probably one of the longest introductions I've done for a podcast, and I apologize.

David: No, don't apologize. That's your story. That's where you've been and where you've come from. So I enjoyed listening to it again because of the power that a lot of people can unlock with that.

Joe: I think a lot of people can relate. And yeah, if you can't relate now, you will relate later when all of a sudden you start making money and you forget about the important things of like setting aside some money for, you know, taxes for profit. Yeah. So we're going to talk about there's a book behind you and I want to let you all know you can get that book right behind David there for free. It's called Profit First for Real Estate Investing for Real Estate Investors. It's a book about real estate investing and implementing the profit first strategy. It was endorsed by Mike Michalowicz, right? This was the guy who wrote the first one, but you can get it for free right now if you go to Joe McCall dot com slash CFO, Joe McCall dot com slash CFO. David has a company that helps real estate investors like us get control of our money and implement the profit first strategy. So it's like having your own certified chief Financial Officer. That's what CFO stands for. It's like having your own Chief Financial officer. It's like having your own CFO. And David, you know, can somebody use your services who maybe only does one or two deals a month, maybe only does 100,000 a year, you know, if they're just getting started? Or is this only for the big boys, only the for the people that are doing like lots of deals.

David: So that question is a great question because I started this theme because I wanted the people that were just doing like one or two deals a month or 100,000 a year, just broken through to be able to have access to someone like this because all of their interactions in the past have been bookkeepers, CPAs, who have talked down to them or they don't know what the heck is going on. And it's like, here's someone who is a financial leader that will help you actually and guide you to profitability and putting more in your pocket. So I wanted to make it, you know, accessible for if you're just doing even a few deals a year, that's where now it's called fractional CFO. You get a part time. It's like having Ferrari, but like for 20,000, you know, it's like you get access to this person who's going to be a financial leader on the team. You know that you don't have to pay 200, $300,000 a year for, but you get that access to them that will actually put more money in your pocket because and I love what you said. You said, you know, you felt ashamed and all this stuff. We see that all the time, not just from the Joe McCall's of the world, but people do and want to do deals a month, think that they should know all this stuff, but no one has taught them. And you know what? We all talk about marketing sales like we need to get the money in the door, but everyone doesn't talk about the finances. But that's usually what's keeping people up at night. And it's like we just want to make sure that you don't have to stay up at night. Like you can take care of these tax situations and stuff like that. So I try to answer yes.

Joe: I remember so vividly. By the way, those of you watching right now on Facebook, please type in the comments. Just say hello. Love to see you and hear from you. We got Matt Andrews here. Let's see if I can show this. Matt and Alice. What's up, Matt? All right. So, like, I can relate and I understand memories are coming back of like going to bed late because I'm stressed out about how to pay the bills and robbing Peter to pay Paul and then getting up at like 3 a.m. and not being able to go back to sleep because I'm so stressed in a hot, cold sweat, wondering like, how am I going to come out of this? You know, because people just don't know what they don't know. And for me, it was hard to just admit that I needed help. This sounds like a and a intervention or something like that, right? But like it was I was too embarrassed to admit that I needed help. With my money and I still sometimes hard to do it, but I hired somebody like you, David, who's my who is my operations manager, who does this all for me. I say this all the time. Stop trying to fix your weaknesses. Outsource them because. So are you guys watching this? Man, you're good on the phone. You're good with sellers, you're good at doing deals. You're good with raising private money, dealing with buyers. You know, you're good with that stuff. But don't think that if you're not good at managing the numbers, then you're a failure or you just should ignore it. You've got to hire somebody to do this for you. And it doesn't have to be a full time CFO, doesn't have to be a full time accountant. You don't even have to have a full time bookkeeper, but you need somebody in your corner at least part time, a couple hours a week that can take care of the stuff for you so you don't have to worry about it. You can focus on your strengths, which is most likely most of you. Your strength is making money, doing deals, making money, not managing the books. Man. I remember at the end of the year I'd pull up all of my receipts that was in some kind of shoe box and all my bank statements and then give them to my accountant that I would see once every 18 months and say, Here, help me with my taxes and please file some extensions. And it was just a complete cluster. I now I just, you know, I'm dead. They didn't know what I didn't know and I didn't realize that, Oh, yeah, I got to pay taxes. I mean, I kind of knew that, but it did because I came from aw9 job, right? Is that what it's called? W-2 job to job. And like, they just take your taxes out for you, Right? And most of the time you don't pay any taxes because you pay too much. Or for us, we adopted four kids who had a ton of adoption tax credits, adoption tax. So it's like we'd have to pay taxes for a long time. But then all of a sudden now I'm working on my own, ran out of those deductions and making a lot more money. And I wasn't thinking about this concept of profit first. David So, so important. And I feel like I'm on my soapbox here preaching about this because if you guys are not implementing something like this, then I don't know. Even if I have a better toolset, then this profit first program, guys, you're going to get in trouble. I mean that seriously, you're going to get in trouble. It's going to catch up to you someday. And if you read the numbers in the stats, there is. And that's why the IRS is really starting to get bigger, because there are so many entrepreneurs, self-employed, small business owners out there that maybe only have one or two employees or no employees that are underreporting their income and they are not paying their taxes, hoping that they can slide under the radar and not be noticed. But it will catch up to you. So anyway, David, this is I am interviewing you, I promise. How did you get into private firms and what did you do to create a simple CFO?

David: So I got started in real estate reading Rich Dad, Poor Dad, started with a company up in outside of Chicago where we were doing five deals a month. We scaled it to about $25 a month and I got to sit in a lot of different seats there. But I sat in the finance seat at one point and I learned and I learned how to read the numbers and what they really mean behind the scenes. And I realized we were doing $25 a month but spending 26 words out the door. So it's like, who cares? Who cares that we're doing all these deals if all of it is literally going out the back door and we can't give any raises, we're always stressed. We have a bunch of team members who can't, you know, function. It's like the owner is always stressed out. And so then we start going to masterminds and then I'd hear the same thing. Like they'd say, All we're doing seven figures.

Joe: But I'm glad you brought this up. And this year and you don't mention names because if you did, I would be in that list. Used to be rather you go to these masterminds, right? And you guys, everybody is walking around bragging about how big they're, you know, what is. And it's just a bunch of I can't say it, but like, you see like the behind this story, behind the scenes, you seen the numbers. Like, is it shocking to you how many talk a big game but really are not doing it? You know what I mean?

David: Back then, yes. Now I know it's like 97% of entrepreneurs that walk through the door have no idea how much is going out the back door and aren't keeping enough. Like that's what even killed me. If you ask me what got me down this road, it was realizing they're doing seven figures, but then they're crying at the bar because they're running out of cash. And I'm like, This is an epidemic. This isn't a discussion.

Joe: Where is it going? Like, I still have that. But now I have a fractional CFO as my operations manager. Whitney She's like, Yo, calm down. You know, I've got these buckets set aside for you. Every time money comes in, it goes here, it goes there. I haven't had to worry about taxes in a couple, three years. What, three or four years now? I guess it's been. Yeah, but thank God for people like you, David. I'm telling you, because it's not my strength, man. I don't want to learn that stuff. It just. It stresses me out and I'd rather ignore it. Well, okay, but better than ignoring it is hire somebody to just take care of it for you. All right, So you've been in the industry a long time. You've been to a lot of the big masterminds and everybody's bragging about how many deals are. On how much money they're making. But you're absolutely 100% right. You get a couple of drinks in them and or you get them on a bad day. Man, I know so many people like this, people that you know, that you've heard of, and they're like, I don't know how I'm going to make payroll next week. I don't know. I don't know how I'm going to. I've filed three extensions on my taxes and my new taxes are due, and I haven't paid my old ones yet. This can all be easily avoided. It really can. Okay. So, David, you see a lot of these guys. And listen, if you if I'm talking to you right now, don't get ashamed and beat yourself up. Guilt and condemnation. I mean, there's none of that here. I'm trying to say this, though, because it's not too late. It's not too late to know your numbers and figure this stuff out. And I want to encourage you again, here's this guy's book. David Richter is a great book called Profit First for Real Estate Investing. You can get it for free to Joe McCall dot com slash CFO. There's going to be a section in there, too, where you can book a call with David's team. I do make a small commission from it, but listen, I would be recommending this anyway because this is that important. Even David, even if I didn't make any money from it's not much, but like, it's so critical and important that you think about this. You know, go and get the book profit first and read David's book. Profit First Real Estate Investing. All right. Joe McCall, dot com slash CFO. So you saw this, a lot of this in the industry. You know, it's like it's some kind of I see this I was coaching one guy, you know, he was like bragging about doing 20 deals a month. And then when we were sitting down to them one on one where there was nobody else in the room and like, come on, show us your numbers. Really, What were you doing? What are what are you doing? He's like, It's insane. I bring in $200,000 a month and my expenses is like 198 a month, and that's not even counting my salary. The guy was like, I am so stressed and freaked out. What good does it make? What good does it do to make $1,000,000 and only and only keep one or 2% of that? It's a big giant pain in the butt. So you decided to do something about it? Yeah. God. And you've been helping a lot of people now in the space. I bet you're seeing a lot of lives change.

David: It is. That's what kept me going this time. And, like, why? To get this message out? Because even though I look like the numbers guy, like my background is entrepreneur and real estate investing, and that's where it was. Like Profit First spoke to me. It spoke to me of like, I can make this simple. I can make this something to where this can change a person's life because then they'll know what are they making, spending and keeping, and how they can actually keep more of what they're making without being this financial guru or having to learn the P&L balance sheet. Like, that's what I love about this system too. It deals with what you deal with on a daily basis, the cash. And it's like, here's how to just manage what's going through your fingers so you can keep more of it. So that's what really attracted me to the whole profit first concept and why I love teaching and getting it out there and could tell you story after story. Literally today I did a podcast with someone else on Profit First REI podcast and they said this simple CFO and the profit first methodology saved our lives. And I'm like, I wasn't even looking for that. But they said that because they were headed down a bad path, they had no idea what the numbers were. Had no idea how much in debt they were. They had no idea how much they were actually spending. But they said as we did more deals, we increased the marketing and then we were just on a very bad collision course because then once the deals dried up like nine months ago, we had no idea, like if we would have been on the same trajectory, we would be out of business today. And I'm like, This is why this is why I do this. Why I have to get this message out, because you don't have to make money and feel, bro, like you don't have to do that to yourself. So that's why I'm really just trying to get this out there as much as possible.

Joe: So good. Tom Krol's in the house. Sup, Tom.

David: What's up, man?

Joe: Hey. All right, so let's talk about what profit first is. Will you break it down? What does it mean? And here's keep it simple for us, okay?

David: At the simplest level, the actual implementation is the envelope system. So if you've heard of that, I don't care if it's from Dave Ramsey or other personal finance gurus or just from your grandma doing it at home, it's like you're literally giving every dollar a name that comes into your business, but not using envelopes. You're using bank accounts because Joe already gave the mindset. It's sales minus profit equals expenses, meaning I make a sale and I pay myself first, whether that's the taxes or myself or the profitability of the company. And then the expenses are still there to grow it, but then it has a system behind it. That's what drove me to profit first too, because Rich Dad, poor dad says, pay yourself first. A lot of those books say that profit first said, Here's how you do it. So it's like you literally set up bank accounts and then from every deal that closes, you take a portion of that proceeds from that sale and put it into like a profit account first or to your pay account or the tax account, like setting up accounts that serve you as the owner. And it's getting that in place first and giving every dollar a name and. Making sure you're making profit a habit from every deal that closes so you can be more profitable today and build that safety net from that next deal so you don't have to be in the constant real estate rat race of living deal a deal. That's what it is. At its simplest level, it is the envelope system and giving every dollar a name and just making sure that you're doing it consistently.

Joe: That's so good. And I was thinking about this, the buckets. You're talking about banks. And it reminded me, do you ever work with Relay Bank?

David: They're the only one we recommend now because they partnered with Profit first and actually became certified in the methodology to make.

Joe: Look at this Joe McCall dot com slash bank. Oh you can't see it yet. Hold on. Boom. Okay. There it is. Joe McCall, dot com slash bank. Here's a deal. I found them just a couple of weeks ago. David. I was like, Oh, what are these guys doing? Yeah, this is at Relay.Fi or just go to Joe McCall dot com slash bank. Go check it out. This is a bank that will actually implement profit first for you. Yes. And so you can set up different bank accounts for your different buckets, your different envelopes, and put things that, you know, a dollar comes in, you allocate a certain percent into that and it manages it all for you. There profit first certified online bank. So anyway, David can help you set all that up too if you want, but go check out Joe McCall dot com slash bank again. I do get a little referral commission from them, but not much. All right, David, I've seen some of the reports that you help investors make. Let me go back here. Okay? I'm back to live mode here. They're really, really good. They're very simple. It's a spreadsheet that says, all right, this is what you got, the money. This is the money you made. This is where you've been spending the money. And then we're allocating this because you can you walk through that process, can like you get into the details. I think it's fine for you to get into the details. Like, yeah, money comes in and you have a target percentage you put into each of these things. What are those different buckets? Right. So I'd walk through that. Would you please.

David: So when we work with people, like if you read the book, it's going to give you the general concepts and going to give you a leg up. Like you can become profitable right away just from getting the book and reading it. But then if you work with us, like we customize this to like, what are your specific goals? Because then we're going to set up the bank accounts. Like the first three, I would always open up. I call the Golden Trio. You know, it's like Harry Potter, Star Wars, You got those three main golden, you know, those heroes, right, Luke, Han, Leia and it's like profit owners compensation and owners tax like the three that.

Joe: Profit is number one, owners comp. That's your salary right?

David: That's like your salary. Profit is like icing on the cake that you take out. Quarterly owner's comp is like the weekly, bi weekly monthly salary you pay yourself. Then you've got owners tax to make sure that come tax if you pay taxes.

Joe: All right. So what do you do with what's left?

David: So there's OpEx. So then you transfer it to OpEx and then boom, you can grow the business. You've still got marketing.

Joe: So it stands for what, operational expenses.

David: So just growing the business.

Joe: So it sounds to me like when you do it this way, your business will always be profitable, correct? Always.

David: Always.

Joe: It can't not be profitable.

David: Exactly.

Joe: A dollar comes in. Let's talk about some of the percentages. What's the ideal target percentage? When a dollar comes in and percent goes to what percent goes to profit?

David: So if you get the book, there's an actual nice little chart because depending on the size of your business is like the targets that you should be going after. But if you're just getting started there at the very beginning, it says 5% to profit, 50% to owners comp, 15% to tax and 30% to OpEx. Because when you first start out and if you are especially if you quit your job, you need to be supported. And there's not many team members when it's just you out there, hustle and get in the wholesale. We stopped like you're out there just grinding. So that's why it's weighed more towards the entrepreneur getting more because you've got to put food on the table. But then as you grow the business, some of those percentages change. So that way you can start supporting team members taking work off your plate, but you're making more money, so you're just getting a a little smaller percentage of the bigger pie so that if you get that book, there's a nice pretty chart depending on if you're selling the properties or holding the properties. I give different percentages based on where you are.

Joe: So if you're at a place now where somebody is just getting started and they're already doing, you know, 500 grand a year, yeah, they're thinking, there's no way I can set aside 5% for profit. So you can start small, right.

David: Right, and that's where it that's a huge difference between targets and where you currently are in the book. It's the targets. But there's another thing called current percentages or current allocation percentages or caps that's explained in the book of where am I currently? Because a lot of people ask, this can't make me profitable right away. I'm not profitable right now. Like I'm eating my shirt. And they say, How can this help me? Well, it forces you to say, can I live off of at least 97%? Like to feed the business and can I do 1% to OpEx, owners comp and owners tax like making sure you start somewhere, even if it's as small as 1% to some of these buckets because that whole goal. The habit is the habit of building that margin and space into your business and becoming profitable from all those deals. So, yes, start where you are.

Joe: All right. So somebody else is thinking, well, wait a minute, 15% in the tax budget, I pay a lot more than 15% in taxes. Talk about that.

David: So this is where it gets into the real revenue of the business. This is more of like what we're actually making. So if you wholesale a deal, well, let's just make it real simple. $20,000, you get the wholesale, but then you have your operational expenses. Right? And let's just say it's 30%. You do the towards that and 6000 goes back into the business, you know, and you and so now 14,000 is really what you're taxed off of if that's your net profit. So it's more like 15% of 20,000, you know, of the real revenue of like what you made of that property is going to cover like the 25 to 30% of your net profit. So that's how it's divided. It's more like the 15% off the gross profit versus taking in after everything because we want you to put it first. So it's like we have to put it off the bigger number and that's why you don't have to save as much on the tax side because it's off the bigger pie versus when it gets divvied up into smaller chunks.

Joe: Yeah. All right. So somebody is also looking at this thinking, wait a second, if I did this today, I couldn't I couldn't do it there. There's people that are like, I can't take any profit out. I can't because my operating expenses, my OpEx is already 90% of my revenue or whatever it is, Right?

David: Like, yeah.

Joe: How that's what do I do? What should I do? Just fold up shop and quit.

David: So that's where it's like we've seen people over 100% of what they're bringing in.

Joe: When we go, Oh my gosh, that happens so many times. They're borrowing money from their from their retirement account. They're borrowing money from friends and family just to keep it afloat. They're getting deeper and deeper and deeper into debt.

David: Exactly. So the first thing we have to say is, what are you really spending and what can we cut first so we can get it at least under 100%. But then we just say this first quarter it might be 97% to OpEx and 1% to the other three accounts, you know, like to your actual golden trio of accounts. Then next quarter, can we do a little bit better? Can you go from 97 to 92 and put some more towards the other percentages? This is a process. You probably did not wake up one day and say, I'm going to spend more than I make. It was a process. So it's like now we have to undo the Toyota. I am a Star Wars nerd, so it's like you have to unlearn what you've learned. So you have to say, okay, now it's from 97 to 92% OpEx, Now I can put more towards the actual fun accounts then the next quarter. Can I go from 92 to 87? It's just like trying to get better and better and leaner, but then more profitable as well too. But you can't. I've seen people try to go from like 100% OpEx down to 50% OpEx, and it's like it blows up the business internal. So like they start letting people go that were the hires that they shouldn't have let go or they start breaking their systems and process. It's a process to take it down to where it needs to be, but you get better each time and you get to keep more and more.

Joe: You know, I used to be a checkbook entrepreneur and I talk about this is my checkbook right here. What is a checkbook entrepreneur?

David: How are you living it? Check to check, you know, in like just making sure that the checks don't bounce.

Joe: Well, yes, But I'm also talking about whereas from the perspective I look at my bank account and I go, I got $20,000 in there to spend. All right.

David: Yeah.

Joe: And so I'm just thinking about what's in my bank. That's what I can spend money on without having any kind of clear direction on where that money needs to go. Yeah, that's a huge problem, isn't it, with so many people? Is are they just looking at their checking account balance? Who uses checks anymore anyway but money? And they're saying, Oh, okay, great, I've got some money in there. They're not planning for anything else.

David: Right, Exactly. That's where someone said this on the podcast. And I'm like, I'm still in that and using it forever. You have the one account set up and the black hole account money goes in, money goes out, you never see it again. And there's no intentionality with the dollars. If I have 20,000 a day, I'll spend as close to that. If I don't have it tomorrow, I'm going to put the brakes on and like maybe miss out on something I should have invested in. And it's like you. That's how we live. And that's where here it's like giving yourself a fighting chance does actually know where the dollars are going. And honestly, even if you are a checkbook or you look at your bank accounts on a daily basis, it's leverage. That's why I like profit first. That leverage is that it leverages what you already do and what you will continue to do. Because let's be honest, even if you were in QuickBooks and you wanted to be a savvy entrepreneur, you'll still open up your bank account more than a QuickBooks file. And it's like that's where it's taking the power of what you're already doing. And that psychology and saying, How do we utilize that to the best of our ability?

Joe: Well, that's why I like this Joe McCall dot com slash bank this this service with Relay bank because they can help you put them into those buckets like that and you can see it very quickly simply and easily there. But man it's so important and I know I want to ask you to why are the. Profit account, right? Like for me, it took me a while to figure this out because I'm like, Well, my profit is my salary. Like, I'm. I'm paying myself the profit, right? Why is it important to set aside 1 to 5 10% into a profit account?

David: I always ask entrepreneurs this. Why did you start your business? Why did you start it? That's where a lot of people sometimes just say, Oh, for the money or this or that. But it's like, What does that money represent to you? Time, freedom, relationship, you know, like being able to spend the time with who you want to go, where you want to do those types of things, whatever freedom looks like for you. And that's where, yes, owners comp is there to provide the lifestyle, but the profit account is there to fuel your. Why? Why did you start the company? It's for two reasons. That profit account. Number one, I want to feel my passion and that purpose behind why I started it. And number two, I want to give myself a shot in the arm for actually being a profitable business and saying, I have. I've been disciplined enough to put money aside into a profit account, and I want to feel that reward. So I don't always feel bro. So I don't always say I made all this money. Where the heck did it go? So it's for two major reasons in your business. It's to fuel your passion and purpose of why you started it, and also to say, I want to take this money out because I know it's not touching my apex, it's not touching my owners club, it's not touching a cow. And I can do what I want with this account. I could tell you a story after story of how people have used that profit account for bigger purposes other than themselves, or to spend more time with family or take big trips or move across the world.

Joe: Yeah. Or just become debt free. Pay off your house.

David: Or become debt free. Exactly. It's a wide range of what freedom is like.

Joe: Here's the deal, too. If you're debt free, you can you can live really nice on the hog. Is that the word phrase? High on the hog. You can live really high on the hog with just ten grand a month. Yeah, that may sound like a lot of money to some people, but with zero debt, that's like a luxury rock star lifestyle, really, If you think about it, for most people out there, right, for 99.9% of the world. Yeah. So having the foresight to see this and think about and plan for it and get somebody else to do it for you is so critical. Yeah. Talk a little bit about what was the question I had. It was so good. Oh yeah. Oh fiddlesticks. Okay. It was the reviewing your expenses. I had two questions. This is one of them. But like so many investors that I know and in business people, they have no idea where the money's going. And for me, I have like we do this almost once every couple of months. We look at all of my expenses and my recurring, specifically my recurring subscription expenses. And there's been months where like, holy cow, I'm spending what on that? Why? And so constantly cutting things off that I thought I needed three months ago, but I don't really actually ever even use anymore. Talk about the importance of that like and how that can really mess a lot of people up, can it, if they're not looking at where the money is going? Oh, I remember what it was. Don't let me forget OpEx reserves. When you talk about optics, the operating expenses reserves, because sometimes you'll have bad months. I mean, let's talk about like how do you cover that? Yeah. Also sometimes like we don't really look at our numbers until money's tight, right? And we're like, where the money go? Where am I spending? And then we look at it. But what if we could be more proactive and look at, okay, do I really need this $30 a month subscription? Do I really need this bad things? It's embarrassing. I was paying two or $3,000 a month on subscriptions and subscription services and things that I wasn't even using for like almost a year. And the bigger your business gets, the more money you make. You just kind of write it. I can't cancel that. I'll use it later. But then your or you forget about it. So talk about that, would you, please?

David: So many people don't know the simple numbers in the business. And that's where a lot of people just then give up or don't want to talk about it. It's the make, spend, keep. And are you making enough spending in the right place and keeping what you want and spending keep are so tied together it's not even funny because when you make money we always think, Well, I just made 10,000 more. That did not mean that 10,000 went into your pocket though. But when you have this spend that dialed in, whenever you cut something that goes right into your pocket, that's like 100% pay raise right there, like making sure that if you cut it, it can go to your bottom line. But that's not the truth with revenue, because usually revenue is filtered out by all those expenses. So that's where it's like it's very important to do that, number one. Number two, to have a system, that's where we tell people like, can you just do PR? And you if you just spit out, you know, print out your last order of expenses and market, was it profitable, replaceable or unnecessary? That's like a two hour project that could save you thousands of dollars a month. So it's like a $10,000 per hour task. We've had people we had a client last year who saved 50,000 a month by doing this. Like he cut that much in expenses. Well, less than 4000 a year.

Joe: That makes you feel a little better. Yeah. I cut out one time $7500 a month. Yeah, And leaks. Memories of things that I wasn't using. Now, you know, 75% of that was that big. It was like $4500 a month, whatever it was. But like, we just we get busy, man, and, you know, busy. When you're making money, everything's great. You don't you don't worry about that stuff. But all of a sudden, right when the bumps come and they will come, you're like, Holy crap. Like, right. And one of the things that relates to this that has helped me is the accountability. Yeah. Now everybody's in a different spot. But when you have a fractional CFO or maybe an operations manager or somebody else who's like, Joe, do you really need to spend $5,000 on that thing? Are you really going to use it? Is that something that what about this and this that's coming due soon? Right. So having this in right now, my wife doesn't work with me for me. With me because, you know, we have four kids and all that, but I could see maybe sometime down the future that if she was working with me, holy cow, man, I would not be spending all the money I'm spending on certain things because I'd have to justify it to her. That's one of the most powerful things about having a fractional CFO as well, is because now you've got somebody that's looking at your numbers not in a judgmental, critical way, but like asking better questions like, do you really need this? Do you realize, McCall, you're spending 80 grand a month in a you're off your overhead and the last three months your revenue has been going down and down. And if it stays at this current pace, your operating expenses will be higher than your revenue. What are you going to do? These are some things that maybe you should cut back on, you know what I'm saying?

David: And that's where a CFO should always be forward facing too. Meaning you told me, Joe, or you told me, you know, whoever's working with that CFO, these are your goals. The way you're spending right now are not going to get you to where you want to be. And it's like you have to make that connection to where a lot of entrepreneurs can't see that because it's all about, okay, I got to network, I got to bring the deals in where it's like someone else taking that step back and saying, With the trajectory you're on, you told me you wanted this freedom or more time with your family or you wanted to take these trips. And the way that the business is going is and the decisions you're making are not aligning with what you said the goals are. So are the goals off or do we need to adjust here and help you course correct for what you actually want out of life. So it's like those types of conversations.

Joe: Yeah, I have that all the time. My operations manager will say to me, Joe, you told me your goals were to pay off your house, be debt free, and have for me personally, I want to have 12 months in personal reserves for my personal life and six months of business reserves for my business, which is a lot of money. And then when I'm saying I want to buy something here, I want to sign up for this $5,000 program, she's like, okay, you can, but you said you wanted this, so what is it? But dang it, I get mad at her but like, dang it. Okay, I need to make a decision right now. So it's good to have that, isn't it?

David: And it's on the flip side too. Some people are scared of paying themselves what they're worth. So it's like, you know, that you can take that salary increase and that some people are scared to ask that or is just scared of like, am I going to tank the business? And it's having that extra view and that set of being like, No, you can take this much. We had a guy come in, had like six figures in a savings account. I was like freaking out because he didn't know, like, can I buy this watch for myself? It's like a $4,000 watch. And I was just making decisions and but just from scarcity and fear because he didn't know, is this going to take the business? If I do this, I'm scared of spending on myself. So it goes both ways. It's like you could be taking the business just because you're spending the things that you shouldn't be. That's not getting you to your goals or you might have the money there. Can pay yourself more, but just feel bad or guilty or don't have the clarity to pay yourself more. And that's where someone like an accountability partner like that comes in to say, No, you can do this, or Hey, these aren't aligning with what you said, but we need to get in alignment.

Joe: That's really good because I think to some of the worst decisions, business financial decisions that small business owners and investors make is when they're under financial stress and they're freaked out about where the money is coming from. Bank accounts at zero. What didn't plan for this? I forgot about this that this was due. So that's when you make bad decisions and you take on a deal that you shouldn't have done, you know, or you sell something that you shouldn't have sold. You took on the wrong customer, you took the you took a marginal deal instead of just being patient to take a really good deal. And that's what will get you in trouble. And it's a downward spiral. Talk a little bit about OpEx, reserves, operating expenses, reserves. How important is that? What do you recommend to people have, you know, in reserves? Yeah. For their operation expenses.

David: That's where we say how much peace of mind do you want to want three months, six months, 12 months, like we recommend six months, Like I want you to have more than what the averages average is when people say that is like one quarter, but I want you to have five or six months of that at least. So that way, if yeah, to bad quarters or the market tanks, you have enough time that no matter what you'll get, you're going to be okay like in the business. Can survive. You can survive. And people, especially in the investing world, like, oh, that's a lot of money to sit on. I could be using that for this, that the other thing and also not is only peace of mind, but it helps you grow to like banks want to see cash sitting and that you don't need their finances and financing in order to, you know, get a loan or private lenders or whatever it is. You just look better on paper. But also you get the psychological effect of peace of mind to of and like you were saying, people make bad decisions when they're under that financial pressure. It's because they're making decisions out of fear and not from their purpose because they're just in survival mode. They just feel like I just need to survive. And that's where op reserves can come into play to take to take on several different roles. Peace of mind and do you want to grow but not just have to use your own money all the time? Well, then if we have some reserves where you look a lot better on paper now and we can grow your company without having to be freaking out that the bank accounts always get to close to zero.

Joe: Man, I'm telling you to guys, the little things add up because you may not have six months of operating expenses and reserves and that may sound overwhelming to you. You know, if your overhead is 50 grand a month, you're thinking, I've got to have $300,000 in the bank. I'm not doing anything to cover my there's no way I can ever do that. But you start small, right? You start small. And even like the taxes and things like that. I looked at that. There's just no way. There's just no way I can do this. But after getting into a plan of like when we started implementing profit, first I started seeing, okay, there is a light at the end of the tunnel, right? I got current with my current taxes. That was a huge relief. Like, Oh my gosh, you don't have to worry about that. And then I also put myself on payroll, which was huge. So then I now that I was on payroll, I was getting taxes taken out of my paycheck every two weeks. My assistant was putting money into the tax bucket and I wasn't making any profit until I got that tax bill paid off. So not this zero was going into the profit bucket. I may be wrong about that, but like not much. I might have been doing 1% just to do something right. But like, I wanted that thing paid off. They put me on a five year payment plan to pay that off and I paid it off in less than two years. I was like, This has got to go. It's producing too much stress. I couldn't refinance my house. It's disaster anyway. Wow, So good, man. This is like, I hope you guys are feeling a little uncomfortable right now, right? Because so many of you are already you know what I'm talking about. And you're like, okay, Joe's reading my mail because this is where I'm at. And I listen. How many of you right now, I don't want you to raise your hand or comment, but like, how many of you right now are getting those debt collection letters in the mail? You know that sick letters from the IRS? I tell you something, when you get a thick envelope from the IRS, that is not a good thing. It's not It's just not is not a good thing. And when you're getting couple of them every month. Oh, what about all of the postcards and letters from the debt collection consolidation attorneys and the and the companies that will help you to claim that you can settle your tax debt when you start getting a lot of those things in the mail, it's not too late. I want to tell you it's not too late because you can get out of that. And again, the key is not just make more money, right? David, Like a lot of entrepreneurs and people that are we're good at making money and that's not going to solve our problems, is it? It's not just making more money.

David: No, That's where most people think. That's those that's the answer. But that's the root problem is that we think that the more money we make, the more we're going to keep. But we don't have the keep skill yet. And it's like it just is a it's an upward downward spiral because like the more it's like Keith Cunningham in his books, he says, the more you grow kids or, you know, the tumor grows and it's like you, you scale that cancer up, it's just a bigger tumor. And it's like the same thing with a jet that's going down. If you put jet fuel in a jet that's going down, you're just going to hit the ground faster and harder. Hits like don't want to do that. We want to take you from being able to say, okay, more money does equal more into our pocket because we've got a system for it.

Joe: Nice. And it's so because everybody's trying to grow, grow, grow, scale at all costs, right?

David: At all costs.

Joe: And people don't realize the bigger your business gets, the smaller your margins get gouged all the time. So there's a cost to that. And I'm saying it's wrong to want to go big and scale, but you've got to be aware of sometimes when you make your business more complicated for your profitability, it's harder. I know so many guys who, you know, we're happy when they first made their first deal and we're happy to just make ten grand a month, five grand a month, and then all I want to do more, right? And then all of a sudden they're at 100 a year maybe, and then then 500,000 a year. They want to grow to 10 million a year. And they're working so hard to do that. But when you set in, if you really knew your numbers, you'd realize, holy cow, I'm working 70 hours a week to make 15% margins and I'm not making any more money personally, net profit at the end of the day than I was making when I was doing just $1,000,000 a year and working only 40. Hours a week with a lot less stress and hassle. You know what I'm saying?

David: And that's where I don't want people to stay stuck there.

Joe: Good. All right, so we should wrap this up soon. What are some of the things that they will learn in your book? Profit First for Real Estate Investing.

David: First, the how to leverage a system. Like how do we actually set it up? What is the psychological benefits? Like, what do you do if you're newer? And what if you do if you're a bigger company? Like I give How to mess this up too. That's one of the chapters, like some of the things that people will either make too complicated or if you've got a lot of entities or don't know what's going on. Yeah, I also teach in there the difference between how you look at this. If the end goal is to sell the property or to buy and hold it. I also teach about the OPM account, other people's money. So you don't run a big Ponzi scheme and how to make sure that you're leveraging that account in the real estate kind of stuff. Yes. Yeah, exactly. So there's a lot of that in the book, But that's why I want to I want to this book took me 18 months. I was one of the biggest projects of my life to get out the door. But if you're in the real estate investing world, it's like, here's my love letter. Real estate investing has treated me very well and like, I don't want you to go down or be doing a bunch of deals a month or a bunch of deals a year or even a few and feeling like you're broke all the time. So it's like it's going to help you at least get out of that mindset.

Joe: Yeah, I want to show you guys, too, when you go to this. Let's see if I can get this to work. All that's part of the page, but I want to show you guys. Nope, nope. I'll figure this thing. Here we go. All right. Do you see my website right here?

David: No, I just see us.

Joe: Oh, well, I got to publish it. How's that?

David: There we go. Now it could see us. And that. And the thing. And the website.

Joe: There you go. So when you go to. This is all this is. This is a new software I'm using. I'm trying to figure it out. Joe McCall dot com slash CFO, you're going to go to this page right here and you're going to get this book that David wrote, Profit First for Real Estate Investing and you're going to gain from this book, how to decrease your stress and anxiety centered around finances. Oh, my gosh. So important. Right? We're going to get clarity on your numbers. You'll know what you make. You know what you spend and you're going to keep it down to the panic. Just knowing is 90% of the battle. Just knowing, isn't it? You're going to learn how to start paying yourself a nice, consistent salary. Do you think maybe your spouse might feel a little better about what you're doing when you can do that? Yeah, Let me zoom in a little bit so you guys can see this really good, practical, easy to use cash flow management system. So you give. Talk about that a little bit. What are the resources you give them to learn the cash flow management?

David: So that's what we're talking about, the different buckets and how to divvy them up. And like if you want to know the specific percentages, like that's in there as well, too.

Joe: All right, good. Stop living on the up and down cash flow roller coaster. Create stability in your business finances. Because listen, guys, the reason why we got into this business is not to be stressed out and always worried about money and working 80 hours a week. The reason we got in this business, doing whatever we're doing real estate investing, is to find the freedom time, freedom to spend more time with our family or to do what we enjoy, what we love, and having the money problems stress you out is totally unavoidable. Maybe you find out, you know what? Maybe this isn't a good business because I'm not making enough money on it. Maybe I should do something else. But you don't know your numbers. You don't have a real business, and so many people don't. Okay, cool. Tools to keep and grow your wealth. Just put your information here. They'll will get this book PDF. It's got a foreword by Mike Michalowicz. It's the guy who wrote the original Profit First book. And then if you want this is important, you guys can schedule a no obligation financial health review call with David right now and they can just go here to schedule a call with somebody on your team, right? Yeah.

David: Yeah. We want to make sure that we're available and ready to help. If you're if you are feeling that pain. We know. We know that pain. I know that pain. That's why I set up this company. I want you to put more money in your pocket.

Joe: Mm hmm. Very good. All right. It's been a good interview. Appreciate you, David, so much. Appreciate it on the show. And I switch back. I think I got this E-Cam thing figured out. There we go. So. All right. Thank you for being on the show. If somebody wants to find you on social media, are you out there talking? Mostly podcast. You have a podcast, too, right now, right? Yeah.

David: Yeah. If you've go to simple CFO dot com, that's kind of like the one stop shop. We've got our podcast there, the link to the book, like if you want the print version, that type of stuff. And then I'm on Instagram as Richter Scale 91. I post there sometimes of when I go out and speak and try and get this message out there a lot more. You can find me on Facebook too. We have a we have a Facebook group profit first real estate investor. So if you're like me, I need questions answered. Where I do. I go live there every single Friday.

Joe: We got some comments here from friends. Vince Courtney what's up, Vince? He says the best in the business is David Richter. And then Vince Vance also says here the Financial Health Review call is invaluable. David's team gave me the clarity and thank you for the impact. That's awesome. At events. Yeah. Good guy. All right, guys, Again, got to Joe McCall dot com slash CFO. And if you want that bank information again, go to journal call dot com slash bank to get redirected to relay bank which can help you set up a if you already have profit first implemented you want to look at getting a. Opening a business checking account, bank account with a bank that will implement profit offers with you. Go to Joe McCall dot com slash bank. All right. Thanks again, David. Appreciate you being on my show.

David: Thanks, Joe.

Joe: All right. See you guys later. Bye bye, everybody.