102: Bookkeeping for a Profitable Bottom Line with David Richter
David Richter began his journey early on, like many folks, immediately after he read Rich Dad Poor Dad. He was still in college at the time, but that didn’t stop him from finding a value-add property he would live in and ultimately lease option after two years, in which he then got out of tax-free. The financial savvy displayed in this first deal would become an entire business for David just a few short years later.
Not too long after that first deal, he came across a startup real estate investing company that was just beginning to grow as he came into the team. With such a dynamic company, and one that was starting to produce large amounts of business, David found himself taking on a larger and larger role within the company. As the company grew its employee base, David jumped from seat to seat in order to make room for the folks coming in and in order to stay afloat.
Then it clicked. With all the new members in the team and all the transactions they do year-over-year, David asked himself, “Are we anymore profitable now than we were before?”
After an in depth analysis of the numbers, David found that the company, despite all the business they were conducting, wasn’t really walking away with as much net profit as they originally thought. And that’s where we meet David in this episode.
Up to date, David is the founder and CEO of Simple CFO Solutions, helping real estate investors large and small take control of their finances and improve their bottom line. He has conducted over 800 deals thus far, and has teamed up with Mike Michalowicz to write Profit First for Real Estate Investors.
Our takeaways from our conversation with David:
1) Payroll and overhead. A company (real estate or otherwise) and become really large but not turn a profit due to these two things. Without control and awareness of the financial expenses tied to payroll and overhead, any revenue produced can easily walk out the door the moment it walks in. This was the problem that David saw as he was beginning his business in helping real estate investors understand and manage their books. Surprising as it seems, business owners many times simply just didn’t know what the numbers meant, nonetheless strategize and execute accordingly.
2) Everything and everyone contributes to the bottom line. From the smallest role to the largest position, if you’re going to be a savvy business owner, you have to know when to hire out jobs and bring in new team members. As a real estate entrepreneur, you’re not selling information or running a virtual business… you need to know what you need, where you’re going, and what you want to do in order to turn a profit at the end of the year. And part of that entails knowing exactly what kind of entrepreneur you want to be and what kind of business you want to run. Do you like doing hands on work or do you prefer a more managerial position? Do you want to do one deal a quarter or 50 deals a month? Only then can you even begin to effectively plan and strategy for execution.
3) Hire for what an employee can do to make the business more profitable, not just to hire out the tasks that need to be done. Once again, everything and everyone contributes to the bottom line. Having someone else do a task that you didn’t make more money or save time from kind of defeats the purpose of having someone else do that task, doesn’t it? What David found was that business owners thought that as long as they brought in more people to do more work, that it would result in more profit. They’re not necessarily wrong in their logic, but it depends on the degree of work those hires would be doing. Did their output in results justify their wage? Remember, bottom line.
4) Steps to hiring a good bookkeeper: 1. Know your numbers, they tell your story. Have, at the very least, enough knowledge about your books and what the numbers mean so you can actually benefit from the services of a bookkeeper. 2. Ask if they’ve done real estate books before and/or if they invest themselves. 3. Ask for references and inquire about previous relationships and work. 4. Throw them softball questions and access their confidence. (According to David, anyone can get the basics of bookkeeping from the general education available, but with real estate, because it is so niche and can get complicated really quickly, it’d be wise to go with someone who really understand real estate bookkeeping, hence the need to ask for real estate bookkeeping experience.) 5. Set up your systems, timelines, and establish open and constant lines for communication
If David could go back and talk to his 16 year old self, he’d tell him, “Read all this stuff earlier… Really know what you want as a person.”
An unexpected benefit of real estate investing, David said, was the ability to create generational wealth that can be passed down.
A piece of advice David would tell his friends looking to get started in real estate would be to “Read as much as you can, get educated, and start making offers.”
David recommends using Scribd and Goodreads for all your reading and learning needs.
David recommends reading The Millionaire Fastlane: Crack the Code to Wealth and Live Rich for a Lifetime! by M. J. DeMarco to help you discern whether real estate is really something you want to do.
If you’d like to get in touch with David, visit: www.simplecfosolutions.com or www.profitfirstrei.net
Thank you to everyone that has reached out to us to connect them with our trusted real estate agents in their area! And congratulations to those who have even closed deals using our referrals! For those that didn’t know, we can help connect you with real estate investor friendly agents in your area to help you get started investing in real estate. We recently made some changes to our website that we believe will better suit you in your real estate investing needs. For more information, visit www.millennial-realestate.com and head over to the “Start Investing” Tab. Best wishes and see you in the next one!