David Richter: Real Estate Finance Tips Every Investor Needs to Know

David Richter – Simple CFO (00:00)
ProfitFirst is one of the big components because we practice what we preach. So we also have our cash management system implemented inside of our own business because what that is at the end of the day, ProfitFirst is a simple cash management tool which most people have probably heard of even if you haven’t implemented, it’s the envelope method but for business

Michelle Kesil (01:52)
Hey everyone, welcome to the Investor Fuel podcast. I’m your host, Michelle Kesil Today I’m joined by someone I’m looking forward to chatting with, David Richter, who’s been making serious moves in the investing space. So really glad to have you on the show today, David. I think the listeners are really going to take something away from how you’re approaching helping investors with their cashflow management and yeah.

teaching them how to hold their money and be wise investors. So let’s dive into all of those topics.

David Richter – Simple CFO (02:28)
Thanks for having me and sounds good, I’m ready to dive in.

Michelle Kesil (02:31)
Amazing. yeah, first off, for those that are not familiar with you and your world, can you just give the short version of what your main focus is?

David Richter – Simple CFO (02:40)
I was in real estate, saw a huge need that a lot of people made money but couldn’t keep it, so I transitioned to the financial sector of real estate to help people understand where their money’s going. Because if you have clarity in your finances, you can understand and keep more money. So what I have now is a fractional CFO company.

We don’t just focus on the bookkeeping and the dollars and cents, we also focus on the financial strategy to keep more, to reinvest in the right places and to ultimately help the owner get paid what they’re worth. So that’s what we focus on now at our Simple CFO and that’s, I own that company with about 20 CFOs, over a hundred clients in the real estate space and just helping people keep more of what they’re making.

Michelle Kesil (03:24)
Amazing. Yeah, can you expand a bit on exactly like the type of product and service that your company provides?

David Richter – Simple CFO (03:30)
Yeah.

Yes, my favorite thing to talk about just kidding. So here we go.

So we do fractional CFO work. And what that is, is most people have heard of a CFO, a chief financial officer, but usually that’s like someone in an ivory tower in like, you know, a big corporate W two world, they might’ve heard that term. What we’re doing is we’re bringing the power of a CFO to the small business world. So being able to have someone that’s

They’re not just to tell you where all the money’s went, but like, what can you do with these dollars that are coming in? How can you forecast? Where are you going? So what does that mean practically? Practically, we do three things. We call it laying the financial foundation. Number one, make sure you have a good set of books and a good bookkeeper. Like you have to have numbers, you have to have a profit and loss of balance sheet. We’ll teach you how to read the financial statements and all that. So that’s number one.

Number two thing we do is implement Profit First, which is a cash flow management system, like knowing where every dollar’s going, because you want to get paid, you want to have cash reserves, you want to make sure you know where every dollar’s going. Third thing we do is a dashboard. We implement a customized dashboard so that way the investor knows exactly where their money’s going, but then also can plan. And it’s not just fly by the seat of their pants.

Let’s hope this works, let’s hope this marketing campaign works and like, let’s actually see where did the dollars flow from and to and did we actually make a return and we track all that through that dashboard and that helps the owner be a real business owner and track the business by the number. So those three things are like the tangible things we do and then recurring meetings with people and then we do bookkeeping of course and like all that if they need it but we can come in just as a fractal CFO and oversight of their bookkeeping and all that as well. So there you go.

Michelle Kesil (06:04)
Awesome, yeah, so what do you commonly see that people are missing or not fully educated on in terms of their cash flow management?

David Richter – Simple CFO (06:18)
Well, number one, I believe a lot of entrepreneurs, well, because this is just very typical that an entrepreneur is the deal maker. They love the deal, the hunt, let’s go make the money. And as long as money’s in the bank account, we’re gonna be okay. It’s like most, rallying cry of most entrepreneurs out there, even in the real estate space, doesn’t matter what space. But this is where we’ve seen a lot of people just, they don’t place any, I would say intentionality.

around their numbers or their money because number one, they haven’t been taught. Number two, if someone is teaching, they look like me, but they’re a lot more boring. And they say these words that are like going over our heads as business owners, like what are they talking about? Like just all the, okay, the assets liability, but how does this play into I’m doing deals and like where’s the money going? And why are you telling me my profit and loss says I made 70,000, but I have 7,000 in my bank account. So what I’m saying is just there’s a disconnect.

there’s a big disconnect between the entrepreneur who understands that if I know my numbers, I can make a change in my business versus like, someone else will take care of this. I just need to go do deals. So that’s one of the big things I see. The other I see is in the cash management piece. Most entrepreneurs manage their entire cash piece of their business by one big bank account where all the money comes in.

all the money goes out, they don’t know what their money’s for. Is it for profit or is that money in there for marketing or payroll or like they don’t have the clarity that a lot of them are seeking to make better money decisions. So I’d say that’s another thing I’m saying that just people are if there’s some small tweaks you can make that that way you won’t miss the boat and you’ll actually have the cash you’ll know where every dollar is going and you could start paying yourself.

Michelle Kesil (08:03)
Yeah, that’s so valuable and important. I love that you found this gap and wanted to support people through it. So what has been the key to keeping your business running smoothly?

David Richter – Simple CFO (08:20)
Well, I’m gonna be biased here and say

ProfitFirst is one of the big components because we practice what we preach. So we also have our cash management system implemented inside of our own business because what that is at the end of the day, ProfitFirst is a simple cash management tool which most people have probably heard of even if you haven’t implemented, it’s the envelope method but for business

where…

The envelope method, have different envelopes, you’re intentional with every dollar in your personal life and like once the dollar bills are out of that envelope, you don’t have any more for that category of expenses. Same thing in your business, only except you’re not just categorizing every expense, you’re actually going to categorize some things that you like as a business owner, like profit and owner’s pay. And then this one I don’t love, but it’s a peace of mind account, the owner’s tax account. So we actually set up physical business checking accounts and…

For us, it’s been so eye-opening. Like, I can’t imagine, for the last six years, if I just had one big bank account, all this money coming in and out. Because let’s think about it. If I was a typical real estate investor who got money from, like, let’s say a private lender, and they sent me the full purchase price, the repairs, and all the holding costs from purchase until the property’s gonna close, so they sent me this big wire.

Well, I’ve got my money to run the business in that one big account, but then I get a wire from a lender and now I’ve got this huge like six figures plus maybe seven figures if you’ve got multiple deals going and I feel really good. Like, yes, I’ve got tons of cash. I’m going to be okay. But a lot of that cash is earmarked for a project and like same in my industry as well too. If I get money from outside sources, if I get deals like whatever it might be like we have to separate out the money so I don’t have a

inflated sense of false security. Like, I have all this money in the account and so I can just spend whatever I want to. Well, especially in real estate, like a lot of that should be earmarked for deals. And like in any industry, like there should be specific items you’re spending that money on that’s in your account. So now if I can just separate that out, that’s helped run our business. It’s honestly as the owner, like I definitely look like I should be running an accounting firm, like I look like the bookkeeper accountant, but my background is real estate investing.

So as the entrepreneur and the business owner, it saved me a ton of headache and a ton of just like, know where the dollars are and I know for off track or on track or like if these cash balances are getting bigger or if we have enough reserves, like if something were to happen and we do actually have to have a we have a down period or something. So I would say that’s one that’s brought me a lot of peace of mind is just having a good cash system in place. I will say as a secondary,

for helping our business run smooth. We also run on a business operating system, the book Traction and EOS and all of that. That’s helped us with like the bones of the business and help run our meetings internally and giving people the outlets and helping us build our culture and all that. So I would say that’s a big, big close second. But number one is definitely keeping the money in order so I don’t have to worry as the owner. And then number two, it’s like the bones of the business. Those are two systems that have really helped us.

Michelle Kesil (11:59)
Yeah, absolutely, that’s so important to track. So let me ask you this, what are you most focused on solving or scaling next?

David Richter – Simple CFO (12:10)
For us, we started, I love this question, because for the last, I’ve been in business, this will be while we’re recording this, literally the business is turning six this year. For the first five years, we did not offer bookkeeping and in the last, I would say year and a half though, we did offer bookkeeping but just internally to our own clients. For the last six months, we’ve started offering bookkeeping outside of just our core clients. So this is where,

our core, I should say, CFO clients. So this is where we’re opening up that side. And we’re just seeing that so many people need just a good starting point. Like they don’t even have a fighting chance because they don’t even have anything in place. They either have spreadsheets, but they’re not keeping up with them. have napkins, you know, like they’ve got a shoe box full of receipts. So that’s one thing we’re definitely focused on is getting them clarity so they have the numbers. So that way they can take advantage of what do these numbers mean or having a higher level conversation, you know, down the road.

So that’s definitely one thing we’re focused on. I’m also a big component proponent of focus. So for me, I’m not trying to do a ton of different things or go outside my lane. So I’m still, we’re still growing the fractional CFO side and hiring great CFOs on our team and then bringing in great clients that want to feel more like a business owner and keep more. So it’s just the consistency of spreading the message, letting people know we’re out there, letting them know we can help. So that’s really what we’re focused on is the CFO services and we’ve added.

bookkeeping so we’re just going deeper with our client base.

Michelle Kesil (13:40)
Yeah, and when it comes to growing your client base and finding those new people that would benefit from your service, how has that journey been? That’s the right word.

David Richter – Simple CFO (13:52)
called has been a journey. Journey is the right word for it. ⁓ Yeah, because

at the beginning when it’s just my it was just myself and like one virtual assistant, which that guy loved to death. He’s been with me for 10 years. This is where when I was first getting sorry, I was still speaking and I was just randomly going to groups and over the years, it’s evolved that it has been a journey because it’s like I’ve been part of masterminds. I’ve been part of events. I’ve gone and spoke at places I’ve gone on like these

There’s some investing trips where they take cruises. So you’re literally locked on a ship together and like that’s where you can network. So I would say number one, out of all the things that I’ve done over the years, the number one thing has been our network, like being able to do stuff like this, just the podcast and getting the message out and being able to help others and just like open their mind that if you’re making money, you don’t have to feel broke.

So number one would be network. Number two would be speaking like in person or getting invited to a place and

That way, that’s really helped. will say, when I wrote the book, Profit First for Real Estate Investing, that helped me get the other things like the affiliate partnerships and the stages because that brought a level of authority to the marketplace. And I did, I wanted to bring this piece because it’s such a foundational piece and it can be so simple that an entrepreneur could go out there and see immediate results and to start keeping more. So that was another thing.

on my journey that really helped was writing the book and getting authority out there as well. Now, I will say, we’ve tried Facebook, Instagram, like all of that, and like paid ads, paid ads for me have not been great. It’s been like a one-to-one return. So it’s like, that’s where we’ve taken, I’ve gone on so many different rabbit holes in the marketing world, but it is, it’s constantly testing what works, but we always keep what’s working running in the background. If you ever hear some of the like the,

big speakers in the real estate space, they say like focus on one thing, like get really good at one marketing channel and then expand out from there. And it’s like make sure you still have the one marketing channel that consistently works, but then you can start to try and implement other things in place. And we’ve really honestly in our business in the finance world taken that advice and ran with it as well. So we keep those things running and then we start to say, what are the trends right now? What is something that we could do, you that could help people.

outside and then thinking outside the box. Like lately, one of the things that we’ve done outside the box is we’ve offered training to specific groups around. Like, you need to, does your student base, your client base need to learn about the profit and loss, the balance sheet, like simple cashflow methods, like things that you might not teach if you’re teaching them how to get the deals and get them closed and get the money in the door. Do you need another piece that’s okay, the money’s in the door, now what do I do with it? So that’s really been beneficial to a lot of the groups we’ve spoken to because

That’s usually training that they’re not offering to people. So that’s been a creative thing we’ve done recently as well.

Michelle Kesil (17:26)
Can you expand on that piece of like what people could do with that money?

David Richter – Simple CFO (17:31)
So what they can do, like do you mean the piece of if the money’s in the door, what they can do with it? So if the money, you’re, first of all, you gotta put revenue in first position, so you gotta make sure money is coming in the door. But the first thing I would do is what I was saying with Profit First, I would have a system that’s intentional with that money. So instead of it being wired to one big bank account, I would have it a specific account called income, where the money is wired into, into your business.

And then you have other accounts set up and then you transfer from income to those other accounts like the profit. Like I was saying, the owner’s comp account, the taxes, and then another one would be operational expenses. So when it comes in, you’re telling your money where to go versus it comes into one account and it’s just all going in and out. And you’re like, what the heck is going on here? I have no clarity. I would have a very specific system like profit first in place. So, you know, a dollar comes in and a port, you know, a certain percentage goes to profit.

Certain percentage goes to my pay as the owner, certain percentage goes to the tax account, and certain percentage goes to the operational expenses to keep the business running and growing. So that’s what I would do and recommend is once it comes in, your intentional with every dollar.

Michelle Kesil (18:41)
Yeah, that’s super important. So can you share a little bit about the book that you wrote? Like what’s the main focus of it?

David Richter – Simple CFO (18:47)
Yeah.

Well, the main focus is profit first. So profit first was an original book by Mike Mikalowicz who wrote about the principles of profit first and really understanding where the dollars are going and giving like the bones of the profit first system. What I wrote was profit first specifically for the real estate industry.

because we’re a lot different than a brick and mortar business or a restaurant, know, or like even some online businesses or coaching or mentorship or anything like that. We are based with assets you buy a you buy a house and you either hold it and you rent it or you fix and flip it or you have a wholesale company, you know, like there’s so many different exit strategies. So what I wrote specifically was how do you adapt the methodology of profit first and the practical application to real estate?

such as if you have some of those core accounts I already talked about, I would add another account and call it OPM, other people’s money. So that way if you get money from a private lender, you don’t mix it in with all the other accounts to run the business. You have a specific account to run your rehab projects from if you’re getting private money. So it’s like some of those type things that I write about in the book to adapt profit first in the whole system to real estate because my background’s real estate and.

I saw all the ups and downs and what not to do and what to do and all that stuff. And that’s why I brought that book to the marketplace, because I saw how much it helped us and in different businesses. And then I wanted to bring that ideology and that practical implementation to a larger base of people, because we can’t work with everyone. I think at this point, we’ve sold over 15,000 books. It’s like I can’t work with 15,000 companies all at one time at this point. So it’s like I wanted to get the book out there to expand the knowledge and give anyone if they’re just getting started.

or if they’re down the road, at least a good place to start.

Michelle Kesil (20:36)
Amazing. Yeah. So what are like some things that you’ve learned from that like real estate journey that maybe some people early on, it would be helpful for them to know.

David Richter – Simple CFO (20:48)
Yeah,

one of the things I already mentioned focus in our business, in the financial business, and really, I will say when I was in the real estate space and I was part of a company where we scaled it up from about five deals a month, which was already a lot of deals, to about 25 deals a month. And we did a lot of different exit strategies. We were doing turn keys, fix and flip, seller finance, lease options, straight rentals. We were doing lots of different types of deals.

And honestly, it blew our company apart back then because we weren’t focused on what was the real money makers in the business. It was almost like, here’s a deal. What bucket does it go best in? And like, we’ll just share the resources with the different exit strategies. So then it just became too top heavy. We had to hire too many people. So I would say one of the biggest pieces of advice I would give my early self or like in that business in my early twenties and go into the leadership team to be like, we need to focus on like these two exit strategies that we’re really good at.

that are making us money because everything else is a distraction. Even though it’s making us money, it’s not helping us with our bottom line. It’s literally tearing us apart basically from the inside. So I would just tell someone, if you’re getting started, get really good at like one exit strategy, maybe wholesale if you don’t have a lot of money and you need to get that up and running. It’s like, do you need to wholesale to create the ATM machine? Or are you on the flip side? Maybe you had a W-2 career where you saved a lot of cash and you were in a high paying job.

and you have a lot of money, but maybe not a lot of time, well then it’s learning the rental game or learning syndications or multifamily and really understanding how to park your money safely in real estate. And it’s really understanding, go down one rabbit hole first in the real estate space, learn how to make money and to do it efficiently and effectively before you start spreading out, because I’m not gonna say you should never do more Asia strategies, but get really good at those and make sure you don’t take your eye off the ball of what’s bringing the money in.

Michelle Kesil (22:41)
Yeah, I love that. That is such valuable advice. Thank you for sharing that. So before we wrap up here, if somebody wants to reach out, connect, collaborate, learn more from you, what’s the best place for them to find you?

David Richter – Simple CFO (22:45)
Thank you. Yeah, for sure.

Yeah.

So if they go to our main website, simplecfo.com, we’ve got everything there, what we do, how we do it. We’ve also got like the book of calling, but if you’re part of investor fuel, I do have a specific link that gives you like a, my book, a copy of my book. If you want profit first for real estate investing, and you can find that at simplecfo.com forward slash freebies dash investor fuel. So if you want that it’s freebies.

So it’s simplecfo.com forward slash freebies dash investor fuel. If you want the book, the full download.

Michelle Kesil (23:28)
Amazing. Thank you so much. I really appreciate your time, your story and perspective. So thank you again for being here. Yes. And for those of you that are tuning in, if you got value from this, make sure you’ve subscribed. We have more conversations coming with operators just like David who are building real businesses and we’ll see you all on our next episode.

David Richter – Simple CFO (23:35)
Thanks, Michelle.