David Richter helped scale a real estate company to 25 deals a month, and discovered it was quietly spending 26 deals' worth of money out the door every single time. In this episode, he breaks down why most investors are playing the wrong game entirely, and how giving every dollar a job in dedicated bank accounts is the difference between chasing deals and actually keeping the money.
Episode 31: Why More Deals Won’t Fix Your Money with David Richter
What if doing more deals is making your financial problems worse? Revenue, door count, and deal volume may look impressive, but none of them matter if the business owner is not keeping money, building reserves, or paying themselves consistently.
In this episode, Mike and Zach sit down with David Richter, founder and CEO of Simple CFO and author of Profit First for Real Estate Investing. David shares how working inside a company that grew from five to more than 25 deals per month exposed a painful truth: the business was spending 26 deals’ worth of money for every 25 it closed.
We dig into how that experience, along with similar conversations with investors at every level, led David to build Simple CFO. After seeing how basic financial clarity transformed one investor’s business, he adopted the Profit First framework and began helping real estate operators understand their numbers, protect cash, and stop living from deal to deal.
One of our biggest takeaways is that real estate investors are not merely playing the game of real estate—they are playing the game of money. Profit First makes that game visible by assigning every dollar a purpose through dedicated accounts for income, owner compensation, profit, taxes, operating expenses, and other people’s money.
You’ll also hear how Simple CFO evaluates a client’s current and target allocations, why reserves need their own protection, how owners can use AI and assistants to reclaim time, and why the simplest place to begin is one new owner-compensation account funded with just one percent of every sale.
“It doesn’t matter if you’re doing lots of deals if you’re not keeping any of it on the back end.”
“We’re playing the wrong game in our mind.”
“The nice thing about real estate—and the predictable thing—is that it’s unpredictable.”
“The only way you can fail this system is you don’t implement it.”
David Richter is the founder and CEO of Simple CFO and the author of Profit First for Real Estate Investing, a version of Mike Michalowicz’s Profit First system designed specifically for real estate investors.
Across 10 years in real estate, David played a key role in closing more than 850 deals spanning wholesale, fix and flip, BRRRR, rentals, lease options, owner finance, turnkey properties, and other exit strategies. That operating experience allows him to translate financial concepts into language real estate investors can use.
While helping grow one operation from five to more than 25 deals a month, David watched large sums of money come in and go right back out. After serving in roles across sales, marketing, operations, property management, project management, and finance, he found his calling in helping investors understand where their money actually goes.
Through Simple CFO, David and his team provide bookkeeping, Profit First implementation, tax support, and fractional CFO guidance. His mission is to help real estate investors gain financial clarity, build cash reserves, pay themselves consistently, and stop making money while feeling broke.
Learn more about David Richter at Simple CFO, get his free book and resources at simplecfo.com/gift, or email david@simplecfo.com
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For Borrowers & Deals – Get funding and support for your next investment
Cold Open [0:00]
The only way you can fail this system is you don't implement it. I honestly don't care what accounts you have. I do not care if you do a certain percentage or if you do a flat dollar amount into these accounts. The the whole system is designed to help you gain good habits with your money. So right now, if you're just having to come in and out and it's chaos out of one account, it's not serving you. If you set up the accounts and don't transfer money into them, that's not serving you. If you set up the accounts and you transfer money out of the accounts just because you keep overspending, it's not serving you. It's there to serve you in the way that it pays you consistently and it helps you understand how much you really have to live off of or your business has to live off of from the money that you make. Most people think saving money is the answer, but the truth is saving only gets you to zero. Join Mike and Zach as they flip the script from saving to earning. from zero to unlimited potential. Welcome to Save to Zero.
Host (Mike / Zach) [1:04]
Hey everybody, welcome to episode 31 of the Save to Zero podcast. We are here with David Richter. We've known David for a few years now. He's in couple masterminds that that we're in and he is the author of the book Profit First for Real Estate Investors. And if you're familiar with Ron, who episode we released a little while ago, it is a a a spin-off or or offshoot of that whole concept, so to speak, geared specifically to real estate investors. And David runs a company that also helps real estate investors implement profit first. David, thanks for coming on.
David Richter [1:44]
Thanks for having me, guys. I'm privileged to be here.
Host (Mike / Zach) [1:46]
So, tell us a bit about how you got got wrapped up into Profit First. what made you write the book and uh where it where it took you?
David Richter [1:55]
That is a story that's for sure. So, I read Rich Dad Poor Dad in college cuz a friend gave me that. So, that was the game over to thinking differently. I started in a real estate company in my early 20s and that company scaled to about 25 deals a month while I was there, but we were spending about 26 worth of deals out the door every month, too. So, it's like who cares? we're doing all these deals but not seeing any money at the end of the day. That's what really opened my eyes that it doesn't matter if you're doing lots of deals is if you're not keeping any of it on the back end. Uh also, I was very honored to go to different masterminds then in my early 20s when they were exposing me to a lot of this stuff. But once we got one-on-one with people, a lot of people too were like, "Oh yeah, in front of the group we're doing great. We're doing millions of dollars." But then same thing behind the scenes, they're just like, "Oh, you're in that position. So are we." like we don't know where our money is either and like oh okay so it's not just us thankfully so that really opened my eyes to like this is an epidemic and I wish I could say oh I found profit first and I helped that first company and we turned it all around well that's not what happened I actually moved from I was outside of Chicago living there I moved to the Richmond Virginia area started working with a guy Rich Lennon and he was doing about one deal a month and was pretty much in the same boat and it's like what is going on it doesn't matter if it's one deal a month 25 deals a month. If people don't have some of these controls in place or just some of these simple systems to track the money and to be able to have it, you're not going to get to where you want to go and keep the money that you want to. So, I helped Rich just get some clarity in his numbers. He had a bad bookkeeper, someone who wasn't doing the numbers and the accounting and all that. They like had no business doing what they were doing and just helped him get all that cleared up. And he told me like, "This has been life-changing after just a few months." Cuz he's like, "I can pay myself. I know where all my money is now." I mean, he was able to refinance, put like several hundred,000 in his pocket and just lots of good things happened. And this was right before CO, too. And then CO happens. He's like, "Yeah, I'm really thankful." Cuz he was sitting on lots of money at that point and was like, "Yeah, now I don't have to worry about what the market's doing and I could pivot." And he said, "This has been life-changing." That's when Simple CFO was born. I had a good mentor of mine hear that I was starting simple CFO and he reached out to me and said you should read the book profit first if you're going to help people with their finances. I was like okay that sounds like a great book title and then I read that book in one evening and said boom this is the system that I want to implement from day one with every single person I ever work with. So that's how I got introduced to Profit First, how I started Simple CFO. I just saw a big need in the marketplace and then the book obviously it just opened my eyes to this is a system that can work for an entrepreneur that isn't geared towards like the accounting brain or the numbers person. So it just really caught my attention like this is something really good that can help people from day one.
Host (Mike / Zach) [4:45]
Interesting. So, you had the idea to start simple CFO first and then profit first kind of came as the framework that you were going to use to run your business.
David Richter [4:55]
Exactly. Some people Yeah, I'm glad you caught that. Some people think like, oh, I was just profit first and then I started simple CFO, but no, it was the the need of people just having clarity in their numbers because so many people just don't know simple numbers in their business, much less like complex ratios and things like that. So that's yeah, it just opened my eyes that a lot of people just need business basics on the financial side.
Host (Mike / Zach) [5:17]
So let me ask you a question, David. Do you have a background in accounting or finance?
David Richter [5:22]
Nope. I went to college to be a teacher for secondary education. So that's where I get to teach today. I get to teach about
Host (Mike / Zach) [5:30]
that kind of align, right?
David Richter [5:32]
It does kind of align where I ended up. But no, cuz a lot of people ask cuz number one, I look like an accountant. But number two, I I don't have that background even though I own the business. You know, it's an accounting business basically. It's simple CFO where we do actually today we do everything. We do fractional CFO work, bookkeeping, and taxes. So, but yeah, I don't have any. I just like working with people. I like leading. I like systems. I like being able to put lots of people that are way smarter than me on the team and have them do their thing. and I just like going out there speaking and put, you know, being able to get the message out like I'm doing here today. So, no, I don't have much of a background in the financial world.
Host (Mike / Zach) [6:13]
No, I think that's interesting because you hit on something that I think makes a a lot of entrepreneurs not do something.
Host (Mike / Zach) [6:22]
And what it is is they think they have to go to work or to school for all these years to learn something. But the problem is as an entrepreneur, as obviously you know and Zach knows,
Host (Mike / Zach) [6:33]
there are too many some things to do.
Host (Mike / Zach) [6:36]
Yes.
Host (Mike / Zach) [6:36]
So it's it's who, not how. You've got to get somebody in the seat. So here you are the CFO of a company teaching people how to manage their finances correctly. Uh and you're not an accountant. No, you hired the who.
David Richter [6:54]
Yeah, exactly.
Host (Mike / Zach) [6:55]
To do it and you lead. Um, very interesting.
Host (Mike / Zach) [6:58]
There's too many hats to wear. Pick that up. That's brilliant. I love it.
David Richter [7:02]
I think it's been a boon rather than, you know, like something that's dragged me down over the years as I've reflected cuz I I will be honest with you, when I first started, I would walk into a room total imposttor syndrome. I'm like, what is going on? What am I trying to do here? But I knew I could communicate simple things that were complex and make them simple. And back then that was really helpful on the financial side cuz a lot of people like I have no idea what's going on. And I'm like I can at least help you understand what's going on. So thankfully I had a lot of good people pouring into me like that mentor that called me and other people in my life. Uh I have great parents too, you know, like I I really can't complain about a lot of things in my life. I've had lots of great people pour into me. So thankfully I took all that and was able to actually help people from day one.
Host (Mike / Zach) [7:50]
Well, yeah. And the thing is what I find is anytime I hire an accountant, a bookkeeper, they're used to doing things a specific way and they try and shoehorn each of the three businesses that I've had into the way that they do it.
Host (Mike / Zach) [8:07]
Yep.
Host (Mike / Zach) [8:07]
Your experience as a real estate investor and if I remember correctly, you've done you were in 10 years you were involved in 850 deals altogether. None of which made any money apparently. But
David Richter [8:18]
right 800 of those
Host (Mike / Zach) [8:21]
sounds good, right?
David Richter [8:23]
Yeah. Exactly.
Host (Mike / Zach) [8:24]
But the point is that you're able to explain to them in terms that are going to work for the people that they that they're teaching because now they understand the inside. And I think to be able to come from that perspective is actually gold.
David Richter [8:40]
Yeah,
Host (Mike / Zach) [8:40]
I really do. That's fantastic. Um
David Richter [8:42]
yeah, I could relate to people a lot. I honestly I'd been through a lot of what a lot of people go through and I had been at a higher level and I'd been at a level that a lot of people attain to in the real estate you know like one deal a month lots of people can get there so I saw it at scale and I saw it at a smaller level so yes it's helped me relate a ton to this space and I tell people I was building simple CFO for like eight years before I really launched it because I was in the real estate space really learning the lingo understanding what goes through people's brains you know at these different levels and these seats and uh also with a company that scaled that big, I got to sit in different seats too like marketing, sales, you know, transaction coordination, I was in the financing, I was in property management, project management, like all these different things. So, it gave me a lot of great insight to how a business runs in a real estate side and it really helped launch Simple CFO.
Host (Mike / Zach) [9:34]
That That's cool. And we'll spend a bunch of time talking about Profit First specifically, but just first before let's like with your Simple CFO business, like take us through You know, you said you spent what, eight years building it before you actually launched it. Like, how did take us through that journey with with how you started and and where it is today?
David Richter [9:52]
Well, I say that where I was in the real estate world for eight years, not even knowing I was going to eventually build Simple CFO, but it was learning while I was in that company for about 5 years where we scaled it that big, you know, learning all the different ins and outs, but then also learning what the real pain points were for real estate investors on the financial side. So once I saw that in that company, then I saw at the masterminds and events other people had that same issue. Then when I moved across the country and the guy that was doing, you know, like a little bit less than everyone that I had been working with before has the same issue. I'm like, this is just an issue for everyone then. And not a lot of people were talking about it and you because the let's be honest, the financial side usually isn't the sexy topic that someone puts on like a bulletin or a title card.
Host (Mike / Zach) [10:36]
People are losing money. They really don't.
David Richter [10:38]
Exactly. Yeah. they really don't want to talk about it. And so that's when I said, "Well, I want to be different." And I think this is something people really need. Like they're really hurting and this is something that is so core to a business. It's like I know even the book title Profit First, like we're running for-profit businesses and we're putting our profit last, you know, and like I told uh Ron and Mike years ago like I'm going to write a parody book called Profit Last because of all the stories I could have, you know, like from the people that I've worked with either personally or with the company that I have now. But when I started Simple CFO, it was from that really those meetings with Rich and helping him get off the ground when he said, "Hey, you know, like I want to I want to be able to know what I'm making and know the numbers." And once we got that in place, he said, "This has been life-changing. I wanted to give people that experience." But when I first started it, it was just me, a virtual assistant. But here here, okay, here's a little bit of a secret. When I first started Simple CFO, there was a guy from the first real estate company that I worked with doing all those deals that was heavy into the systems and operations of businesses and like he helped us implement EOS from the book Traction back in that first company. So when I first started simple CFO, even with one virtual assistant, I was running like a level 10 like leadership type meeting every week where I forced myself and my virtual assistant to have like an on the business meeting versus an in the business, you know, just always just talking about the issues and everything. So that helped me a lot because as we started to grow because about 6 months into it, we had enough clients where I was like, I can't do this all. One of the clients brought a potential CFO to me. He was like, "Hey, this is someone I know in this space. I think they'd be really good." So that was how the first CFO got introduced to me was from a referral. Then from there, it was really growing the business and having the structure of EOS in place and starting to use more and more pieces of that as we scaled up to today we have about 2530 people on staff between CFOs, bookkeepers, admin, myself, and the leadership team. So it's really helped us grow into the company we are today. Now we've worked with over 500 different uh real estate investing companies and implemented profit first that many times. We started bookkeeping within the last two years in addition to fractional CFO which was all we did at the very beginning. So just lots of things have evolved over the years but it was really fin like you said Mike the who's not the how's and really making sure that we got the right people in place.
Host (Mike / Zach) [13:04]
Let me ask why do you think it is that the investors fail to pay themselves first? Do you think it's just a concept they haven't thought of? Um, are they martyrs? What do you What do you think the reason is? Ah, why don't they pay themselves first?
David Richter
Well, Well, I have when I go out and speak to people, I usually say there's a root cause of a lot of the financial issues that people face in their real estate investing businesses. And I say that a lot of us are taught real estate, right? Like we are taught how to acquire a property and the formulas and all the different exit strategies that you can do. So, we think we're playing the real estate game, but at the end of the day, all of us as entrepreneurs are really playing the game of money. Like, that's really what it's about at the end of the day. It's just real estate's the widget, you know, that we have in place, but we're so consumed about more deals or more income or like more doors or whatever it is that we don't focus on. What really matters is how much are we keeping of that at the end of the day. So, a lot of people don't pay themselves, not because that's the root cause, but because the root cause is we're playing the wrong game in our mind, and we think more deals solves the issue. And when we do that, we usually don't have enough extra to pay ourselves because we're just pouring everything back into the business. We're doing everything we can just to keep it going or keep it growing, but we're sacrificing everything else on the altar of just scaling and growing versus what does health really look like in my company? how much should I be taking off the table? What could I realistically do? And we get, you know, in over our skis because we build it in, we build some bad money habits into our business when we don't have good systems that protect us and protect that money. So, I think a lot of people don't do it because they're martyrs. They do it because I think we're taught a lot of times like just scale, just grow. Like go on Facebook, right? like any Facebook guru or person or a Grant Cardone, whether you love him or hate him. I hate some of the messaging. Like the 10X, I think you should only 10x if it doesn't just completely rip apart your family and like the things that matter to you. It's like we have to be very careful about how we grow, how we scale. And I just think a lot of people are playing the wrong game. They're playing whatever their industry is or their exit strategy versus no, you're playing the game of money. So we have to protect that first and then we build the deals and everything into that versus you know a lot of people have it backwards.
Host (Mike / Zach) [15:30]
Okay. So can you kind of give us a 50,000 ft view of profit first for real estate investors so that they can get an understanding of how it would go working with some with a firm such as yours?
David Richter [15:47]
Oh yeah. So, profit first at the very base level, like there is a how part to it. That's what I liked about it when I first read the book. It wasn't just Rich Dad Poor Dad beating me over the head with pay yourself first or like the richest man in Babylon, a portion of all you have is yours to keep. But it had those same concepts in profit first, but it says here's a system that you can implement, which is super simple. Well, it's the envelope method if you've heard of that where it's like you just give every dollar a name and you put different envelopes in your personal life like rent, utilities, mortgage, gas, whatever it might be. But in your business life, I want you to have business checking accounts and naming those different checking accounts certain things like profit or owner's comp or taxes. So at tax time, you're not running around like a chicken with your head cut off. So you're going to name every dollar that flows through your business and you're going to make it a system. And for the real estate investing community, if you listen to Ron, he might have talked about like the core five accounts, but I added another one for real estate investors called the OPM account, other people's money. Cuz a lot of times investors fool themselves because they have one big bank account with a lot of money they've gotten from private lenders or from people that send money to them. You it's all in one lump sum or for draws or whatnot. So, they feel really good about their bank account, but it's not all theirs. Some of that money should be earmarked for projects or properties. And if you have that OPM account, you can clearly see here's how much I have to finish all my projects. Here's my other accounts to run my business and to make sure we're keeping more. So profit first for real estate investing is to make sure that the yes that the owners can pay themselves that they don't have to worry at tax time, but also to protect them and their investors funds and those types of things like with the OPM account. It's just a very simple system from the bank account level. You don't have to be an accountant. You don't have to run a fancy spreadsheet or know these, you know, QuickBooks inside and out. All you have to do is know how to manage money because this is where we set up bank accounts and then we're running a system like this on a weekly basis. What does running it mean? It means that you're going to have an account called income where all the income or revenue comes into that account and then you're separating that money out of the income account and transferring it to the other accounts that you set up and you're telling the money where to go. Now, now you're responsible for putting some in the owner's comp account so you can pay yourself. And you're responsible from every deal that you do. You put a little bit in the tax account so you don't wake up during tax time and you're like, where's all the money to pay the taxes? So, you now have more control over your finances versus if you don't have a system in place. This is why when you ask Mike like why don't people pay themselves, they don't have a system to pay themselves consistently. So, that's what we want to do with profit first.
Host (Mike / Zach) [18:30]
Interesting. It makes sense that entrepreneurs do that with their money
Host (Mike / Zach) [18:34]
because I think they do that with their time and you talked about not 10xing something uh without uh if you're going to blow up your whole family in your personal life that don't 10x it. It doesn't make any sense to do that. I think that's generally what you said
David Richter [18:48]
and I agree with that. I think it's interesting again that I think entrepreneurs are doing this with like I said with their time because well if I work just this Saturday if I put in a couple more hours and they are not they're getting to the end of the week or the end of the day and they're like okay when it comes to the money I have no money when it comes to time okay I have no time in bed now it's 10:00
Host (Mike / Zach) [19:12]
right
David Richter [19:13]
and they're never able to pay themselves the the joy of their family and whatever it is that they consider joy because they don't have everything portioned out by having it on um on a calendar. Wow. Oh man.
Host (Mike / Zach) [19:27]
Maybe I used to say uh maybe I've just come up with something a new book that we're going to come out with.
David Richter [19:32]
Yeah. Well, and it's going along those lines though. It's so easy to like keep looking at the next milestone and once I get there, then I'll be happy. Then I'll spend time with my family. But then you get there and then you move the goalposts and then you say, "Well, once I get there, then I'll be happy." and never definitely one of my favorite topics cuz I believe after running profit first it's this it's the principle or it's the habit in the seven habits of highly effective people put first things first that's really all profit first is for a for-profit business but it's the same concept with your time like do put the things on your calendar that really matter to you and if you're like well I'm running and gunning it okay well then that's a separate issue we have to figure out what really is important to you is this a season that you're in or are you stuck in this lifestyle style of hustle and it's like if we're stuck, we have to figure out how to get out. If it's just a season, we just have to know that we're going to get through it and there's going to be systems or people or processes on the other side that will take over for us. So, it's I love that, Mike. It's cuz that's really I believe over the last few years profit versus now not just permeated our business and the ones that we're helping but like my personal life where now I put the things on the calendar and like Mondays you know like date date you know morning with my wife when my daughter's in school and making sure that I have anything that's for my daughter's school is like on the calendar well out in advance cuz they release that schedule ahead of time so it's like I'm going to be there cuz it's on my calendar and nothing's going to make me miss this thing. So to me that's been a huge part of my entrepreneurial journey is one guy said one thing at a mastermind that totally changed my perspective. He said a lot of people start their businesses for their families but they end up doing it to their family. And I'm like oh my gosh you know like that really hit me between the eyes and so I've really wanted to protect that the things that really matter in my life. But the practice of profit first in the business has also translated into time into my calendar as well too. I like that because how many times have you guys all had weeks where you're like, "Man, I was so busy. I'd got all this stuff done and then you look and nothing you did actually move the needle,
Host (Mike / Zach) [21:34]
right?" Right.
Host (Mike / Zach) [21:35]
Yes.
Host (Mike / Zach) [21:36]
Exactly.
David Richter [21:37]
You felt good because you were so busy, but
Host (Mike / Zach) [21:39]
No.
David Richter [21:40]
Yeah. I've been there.
Host (Mike / Zach) [21:42]
Along those lines, let me ask a question, David. Along the lines of what Zach just said. you had a an assistant in the past as a successful business owner now who has 25 30 people uh on your team altogether do you have when you're setting up your tasks do you focus just on revenue generating tasks and non-revenue generating tasks you give to a VA how do you set that up I'm curious
David Richter [22:10]
that's a great question for me it's like what do I want to do and not want to do Like I I like protecting my energy too.
David Richter [22:19]
So for my assistant, I have someone that like screens email. Some of the things were also personal to me. Like if I knew I was addicted to something, like I was addicted to checking email for a long time cuz I picked up that habit probably in college and then into the first real estate company that I was a part of cuz I prided myself on like I respond right away and I'm but that wasn't healthy. Like if I'm checking email at 10, 11, 12 at night, like this is stupid, you know? So some of the things I had to get off my plate in order to protect the energy and just how I showed up to situations cuz it affected everything else. If I'm irritable, then if I'm walking from my office, which I work from home, into the, you know, the bedroom over there, I don't want to bring the baggage from here to there. So some of the things were personal to me of like that. Some of it is now. Yes, I just focus on if it's on my calendar, it's usually something like this or a connection or an affiliate or a referral or it could be a speaking opportunity or I'm traveling or it's internal meetings now. So, yes, my calendar has shifted a lot out of the dayto-day of like just doing things to either working on it or thinking time because I absolutely love the book The Road Less Stupid by Keith Cunningham. So a lot of the time I spend now is thinking about what to do and how to build this or like what's the best move for us right now and then having those internal meetings as well. So anything else that I don't want to do it's either well now with AI I'm either using AI plus my assistant or I'm just going to my assistant saying hey I need you to take this off or we need to figure out a process that's better because this is either eating up my time my energy or my mental capacity. It's interesting you say about the AI and your assistant. What Zach and I have started focusing on because we really started jumping into AI just like in March or April of this year, believe it or not.
Host (Mike / Zach) [24:10]
And what we focus on now is AI first, VAS or assistants second, and us last. If it comes to us, it's got to be high level revenue generating. That's the goal. We're still working on it. I still do some dumbass stuff that I shouldn't be doing.
Host (Mike / Zach) [24:28]
Sure.
David Richter [24:29]
But I I I am focusing I've just hired a second assistant and uh more as an ops manager and I'm giving him some higher level stuff and I gave him his first test uh last week and he came back with something. I was like, "Okay, I may have hired the right guy."
Host (Mike / Zach) [24:46]
Nice.
David Richter [24:46]
And what I did, you talk about who not how. I didn't go on Fiverr. I didn't go on online jobs ph. I hired a recruiting firm from South America to find me somebody from South America.
Host (Mike / Zach) [24:58]
Yeah. Yeah.
David Richter [24:59]
And it cost me 4,500 bucks. They give a six-month warranty. Well, I'm going to work this guy for 6 months and see what happens. But it's worth every penny. Talk about who not how. Man, I saved myself time. So, what are some of the signs? And I think I know what you're going to say. The main one is that someone can look at in their operation, in their finances to say, "Okay, I need to get on the phone with David with simple TFO to figure this out." Well, first, if there's nothing to look at, you know, like they can't even find something. Yeah. Like if you're still doing napkins or receipts or Excel even, you know, like I would say that's a good starting point. Another is if you have stuff but you have no idea what's going on in there. Maybe you do have a bookkeeper but like either everything's a mess, it's not up to date or it might all be up todate but you do not know how to ask the right questions to see if it's up to date or if it's actually accurate. That's another uh reason as well. But then not just on the bookkeeping side, if you have great books even or not great books, but you don't know how to manage the cash, if you don't feel like a master of your money, that would be another one to reach out to where if you feel like I'm making money, but I feel broke or I'm making money, but where did it all go? It's going into this swirling vortex of doom or like, yeah, like you said, we're doing x amount of deals per month, but we're spending more than that. That's another big warning sign when people reach out is that they're feeling that pain of like, okay, there has to be a better way to manage this so that way I actually have money at the end of the day. So, those are a couple of the big ones. Obviously, on the tax side, if they haven't filed their taxes or they think that they're paying too much in taxes because they don't have a good real estate investing person on their team that actually understands the real estate side of things and the tax code and all the things that that can afford them to be able to write off. So there's a couple things that are key triggers, but yeah, like you said that you already had guessed that first one. If you if you can't find anything or you have no place to start from, that's a good time to reach out, too. So just out of curiosity, I know that you said that you have for all intents and purposes the envelope system, but you do it with uh checking accounts.
Host (Mike / Zach) [27:12]
Yep. How, if they're putting a certain amount away from each dollar of revenue that comes in, if I'm understanding this correctly, how do they how do they all lot for because you're you were in real estate 850 deals. How do you how do they all lot for oops or you know you open a wall and you find out that there's something there that needs to be changed but they had certain amount that was allotted and now they found out that they're into this you know they got to do a a $50,000 foundation that they didn't expect. How do you how do you help them fix prepare for oops?
David Richter [27:49]
Well, the nice thing about real estate and the predictable thing is that it's unpredictable. So you know going into it that everyone's going to run into these things. So, the system usually can take care of that. There's a couple different ways depending on the person that we're working with. It might be in their system of bank accounts. They might overfund the opex account, the operational expenses, and just keep a buffer in there, maybe a month or two extra, whatever it might be. They might have a specific reserve account just for the business where these are the oopsies or these are the investments that hey, this is too good to pass up and we need to be able to jump on it. Kind of like an investment/reserve account. So, we just take care of this with people that especially if this is something they know pops up. A lot of times, usually an account can take care of that. Let's just have a dedicated account for the oops or for the investments or for the opportunities that you know are going to pop up cuz I what I don't want them doing is always shuffling money from the accounts for what they're for. Cuz like profit, I want you to have a profit account to be able to have fun and to be able to do the things with your family or whatever it might be. If you have like some big goal that you wanted to do whether it's personally or professionally like profit is there like why did you start this business where I don't want to be taking money from there. I don't want to be taking money from the tax account to be covering the oopsies because I don't want at tax time for there to be an oopsie in the tax account. So, this is where I want you to have either an account dedicated or we overfund some of those accounts so that way there's padding in there so that way they know like, okay, at least if something pops up, I don't have to worry about, oh shoot, is there enough money in my operational expense account?
Host (Mike / Zach) [29:26]
So, when a new client comes on board,
Host (Mike / Zach) [29:30]
Yeah. How do you set up their accounts all their individual checking accounts? H how do you set them up percentage-wise of dollars of revenue? How does that work?
David Richter [29:40]
Yeah. So, when we first work with someone, we do something that's called a financial clarity audit. We need to see all their books and numbers. So, like how clean are your books? How is your cash being managed right now? And what percentages are you currently doing? Because even if someone's not on profit first, they're still running their business by percentages. what you make is 100%. And then here's how you spend it. How much are you actually spending? Are you actually taking any off the table and paying yourself? Cuz some of the people we work with, they already come into it. They're paying themselves a W2 or they're taking draws, but they're random and inconsistent. So, we take that all into account. Here's what you're currently doing. It might be like, hey, you're spending 90%. So, 90% is OPEX and 10% to these other accounts to help you keep the money. So we start with what their business can really con consistently and realistically do right then. So if it's 9010 902 opex and 10% to the rest that's what we start with. That's what's called in the profit first world caps. Your current allocation percentages. You're currently doing these percentages. But what profit first also has in its system is what's called taps. Target allocation percentages. And it's set up in the all the books that are written out there for the real estate book or for the original book. There's a chart of depending on your business size. These is this is a good rule of thumb of where your percentages should be for the different accounts. So it it's giving you target percentages for a healthy business inside of the target allocation percentage like a little chart. Um and it just changes the bigger your company gets. So what we do with people when they first come on board, it's like, okay, you're at 90% opex. You really should be at like 60% opex based on how big your company is, we're going to build a plan for you of over these next few quarters. This is where we're going to change it from 90 to 60 and how many percentages we're going to try and bring down every single quarter until you get to some healthy percentages and then you're going to swing the other side to keep more of that money. So, a lot of these people come to us because they've had not so great habits in their finances with the business. So, we tell them it's not going to be overnight. Here's what you're doing right now. And as scary as it is, we can help you get to a better place, but we have to see where you currently versus where you want to be. And then being that accountability partner slash person, financial partner to say, here's how we're going to get there and I'm going to help you make those decisions during this time so you get to a healthy position. So that's how we do it when they first come in.
Host (Mike / Zach) [32:12]
What kind of objections do you get? Like when you tell somebody that, you know, the way they've been running their business for years is wrong and here's how much you have to put in these accounts. Like h how does that usually go? And
David Richter [32:24]
yeah, thankfully if they come to us, they're usually in a humble position already. Okay.
David Richter [32:30]
You know, like there's not a lot of people that come to us that don't have at least one glaring issue like in the finances. Some people, thankfully, there have been people over the years, but I'd say it's a minority. Probably 10% or less of the people we've worked with don't have any issues and just want to grow to that next level and need that CFO help. Lots of people come to us and they have some type of issue. So, they're usually coming and saying, "Help. I do need this help." And then they're a lot more open to to what we really teach. And I do a lot of times like whether it's myself, my business partner or someone else takes that first discovery call with someone. We're very open upront of like we're not just trying to implement a profit first system. We're trying to help you become wealthy business owners of like there might be some root causes here like you're doing the money game and like cuz I had a guy just a couple weeks ago. He said like for the last few years I did 20 deals four years ago and then 40 and then 70 last year. This year I'm on track to do a 100red deals. I'm like, "Great. How are your finances the bigger you got?" And he's like, "Uh, worse." I'm like, "Then can we agree you don't have a deal issue, it's a money issue." And he was like, "Yes, yes." Cuz he kept saying on the call like, "I want to do more deals and I want to make sure if we figure out the financial stuff, we don't take our foot off the gas." I'm like, "Okay, but do you see that that that line of thinking has literally gotten you into this position?" I said, 'If you work with us, you have to change that thought process so that way you can really understand what the root cause is and to become a person of wealth and to become like a wealthy business owner and how they think versus just thinking doing a 100 deals this year is going to get you out of it. So, a lot of times too, I we prep them upfront that if you're going to work with us, you got to be coachable and you're got to have you're going to invest money in us to get a result and you're going to have to think differently.
Host (Mike / Zach) [34:24]
If a listener were to take one action this week to improve their financial health for the real estate business, what should it be?
David Richter [34:31]
You mean besides reaching out to us?
Host (Mike / Zach) [34:34]
As I was thinking, you know, was coming out, I'm like, "Okay, I set that one up." That's
David Richter [34:38]
Yeah, te that one up. Um, no. if they want to do something on their own because I tell people profit first is is finance 101. It really is like you do not have to be an accountant. You do not have to be a big uh bookkeeper. You don't have to go to any type of schooling for this. You don't even know how need to know how to use a spreadsheet for profit first. You just need to if you have a bank account and you've set one up before in your life before you qualify. So, what I would tell you to do is go out there and set up at least one other account besides the if you've got just one account and that's how you run everything right now. I would personally even in the profit first system, I wouldn't set up the profit account first. I would set up the owner's comp account first. I need to get you paid on a consistent basis. So, there is some type of consistency in your life because you might be thriving off chaos right now because you love it, but because there's no consistency. You don't even know how to handle consistency at this point as an entrepreneur. But I need to get you into some good habits there. So, that's what I would tell someone. One, one account, the owner's cop account, and at least 1% of all sales. Like, I'm setting the bar pretty dang low here. So, it's like one account, 1%. I just don't want you spending everything you're making and starting to get good habits. I've had people do that too, Mike and Zach, where I speak at this one event recurring on an annual basis. One guy the year before had said, "I listened to your speech. I set up the one account and then he came back to me that year later and he said, I still have that one account. I've just been putting a certain percentage from every deal into that account." He's like, "I've never had business reserves in the past really." and he'd been in the real estate world for like 10 years. He's like, I now have 6 months of reserves in that one account. He's like, I've never felt this peace of mind like for my business before. I'm like, thank you. Like, all you have to do is start with one simple action, the one in one, one account, 1%. At least put yourself on a better financial habit system.
Host (Mike / Zach) [36:36]
Interesting how um habits compound, isn't it?
David Richter [36:40]
Yes, it is. It is where you get addicted to it where it's like, "Oh, I actually like having money in my account. That's mine."
Host (Mike / Zach) [36:46]
Yeah. Interesting. What are some final thoughts that you could uh relay to people in terms of profit first and using the the bank account system and ultimately using that to help you in your personal life?
David Richter [37:02]
Yeah. The only way you can fail this system is you don't implement it. I honestly don't care what accounts you have. I do not care if you do a certain percentage or if you do a flat dollar amount into these accounts. The the whole system is designed to help you gain good habits with your money. So, right now, if you're just having to come in and out and it's chaos out of one account, it's not serving you. If you set up the accounts and don't transfer money into them, that's not serving you. If you set up the accounts and you transfer money out of the accounts just because you keep overspending, it's not serving you. It's there to serve you in the way that it pays you consistently and it helps you understand how much you really have to live off of or your business has to live off of from the money that you make. So, I would just get this system in place. Number one, then if you start to love this system, just like we talked about compounding habits, there are a lot of our clients that then take this system into their personal life as well. because you touched on that Mike. It's a lot of pe I honestly even put together for our clients like a little presentation and a little chart and a little spreadsheet for profit first for personal because so many people had started implementing it in their personal life as well too because all this is is a money management system where you are controlling your money instead of having it control you. So that's really what if you start this process and it works for your business, you can take it to your personal life and you can see it start working its magic there and really keep more inside of your own family or your own personal finances as well too.
Host (Mike / Zach) [38:36]
Okay. If somebody wants to get a hold of you, can you give us the information? And guys, we will put it in the show notes as well.
David Richter
Yeah, if you reach out to or go to the website simplecfo.com/gift, you can actually get my book, a download of my book, ProfitFirst for Real Estate Investing, the ebook and audiobook and a little profitfirst cheat sheet there as well, too. Uh, if you want the physical book, it's on Amazon, so you're going to have to find it there and you can order it. But if you want my book, you could go to simplecfo.com/gift. You can also book a call with us as well, too. If you're like, "That's me. I'm making money but feeling broke. I have nowhere else to turn to. I need help. Uh that's what we're there for as well to at least diagnose where you are and put you on a better path.
Host (Mike / Zach) [39:19]
For anybody who wants to reach out to David, if you know I I always trust but verify and I do a lot of verification. We interview people in advance before they come on the show. Nobody comes on blind. We either knew the person in advance or we interview them and there are people that we don't think are a proper fit. uh once we do a little research. For anybody who's listening to this, I've known David for a couple of years now and I know some real estate uh investors that use David are extremely happy with him. Uh one in particular I know who speaks your praises praises is Nick Lammana out of Chicago New York.
Host (Mike / Zach) [39:57]
He's amazing human
Host (Mike / Zach) [39:58]
and he has nothing but positive things to say. He's got a good podcast going. He's got a lot going on with his partner. Um, so guys, seriously, if you want to get your stuff in order so that you know what's in your pocket and then use it in your personal life, this is absolutely someone to use. Um, and FYI, I get nothing for saying this. Maybe he'll buy me a hot chocolate the next time we see each other.
David Richter [40:22]
There you go. Yeah, I have to do something. So, I appreciate that greatly. Means a lot, man.
Host (Mike / Zach) [40:28]
All right. This has been a blast, David. Thank you very much for your time. It's very much appreciated.
David Richter [40:32]
Yeah. Thanks for having me on.
Host (Mike / Zach) [40:33]
Thanks for coming on, David. Yep.