Why Cash Flow Matters More Than Deal Volume in Real Estate Investing

David Richter (00:00)
In my early twenties I was part of a real estate company where we’re doing about twenty-five single-family doors a month where we were doing fix-and-flip, turnkeys, rentals, all of the above. And we were doing about twenty-six worth of deals worth of expenses out the door each month. So that sucked. So who cares if you’re doing three hundred deals a year, if you’re spending more than that to get it to come in? That really opened my eyes that it really doesn’t matter how many deals you do that determines your wealth.

Scott Bursey (01:57)
Welcome back to the Real Estate Pros Podcast, powered by Investor Fuel. I’m your host, Scott Bursey. And pros, if you’ve ever felt like your business is bleeding cash despite being profitable on paper, today’s guest, David Richter, is your new best friend. He’s the founder of Simple CFO and the brilliant mind behind the industry-shaping book Profit First for Real Estate Investing. He’s helped countless investors stop the chaos and start building actual wealth. David, welcome to the show.

David Richter (02:26)
Thanks, Scott. Thanks for having me. I’m excited to be here.

Scott Bursey (02:28)
It’s just wonderful having you here, my friend. And if you could give us the short version on how your career started and where your focus is now.

David Richter (02:37)
Yeah. In my early twenties I was part of a real estate company where we’re doing about twenty-five single-family doors a month where we were doing fix-and-flip, turnkeys, rentals, all of the above. And we were doing about twenty-six worth of deals worth of expenses out the door each month. So that sucked. So who cares if you’re doing three hundred deals a year, if you’re spending more than that to get it to come in? That really opened my eyes that it really doesn’t matter how many deals you do that determines your wealth. And that took me on a journey, on a journey to where I discovered Profit First. And I really discovered that you need a system to keep the cash.

And that’s really what springboarded me into the Profit First and into starting Simple CFO, because I didn’t want anyone else to go through the pain we had gone through. Because I’d also seen it not at twenty-five deals a month—but I worked with another guy that was doing one deal a month that was in the same boat. I’m like, it really doesn’t matter how many deals you’re doing if you don’t have a system to keep the cash. So that’s really what I wanted to do and wanted to help people with in the real estate industry, because I had been in the—I’ve been in the industry for about—now, how old am I? Okay, I’ve been in the industry probably twelve or thirteen years at this point. And you know, I’ve just seen a lot of people like that. They make money, but they feel broke and they don’t have any system to help them get out of that, and they just think more deals are gonna solve the problem.

So that’s where I went into Simple CFO about—I started that seven years ago, and then a year into it, I had already read Profit First and I love the system and started implementing that with our first few clients. And then I reached out to the original author, Mike Michalowicz of the original Profit First book, and asked him if I could write the book for the real estate investing industry. And that’s how I got that deal done. So that’s why today we work with about a hundred real estate investors on a monthly basis, between the CFO level, bookkeeping, taxes, that sort of thing. Because a lot of people just don’t have someone good in their corner telling them, “Okay, here’s where the money’s coming from, here’s where it’s going to, here’s how much you can keep,” and really helping—helping them build a business that they like and that they like waking up to and that actually provides them the cash to do what they want to do.

So it’s been about, what, seven years doing this and about, I don’t know, it was about 10 years doing the real estate industry as well. Because I started my first deal in like my late teens when I bought a house, you know, like off of HUD back in two thousand eight, nine, you know, like back then. So it’s been a long journey, but now I love what we do and really helping people keep more of what they make.

Scott Bursey (05:01)
Wow. What a—what a unique wave. And thank you for highlighting that. That’s awesome, David. You know, what really caught my attention about you was the way you’ve been able to simplify complex financial systems and make Profit First not just a—a book concept, but a living, breathing strategy for investors. You know, you’ve turned the chaos of cash flow into a clear roadmap for so many.

David Richter (06:14)
Yeah, I would agree that it had to be communicated. I think that’s one of the strengths that I have personally, not just in our business but myself, is taking something that’s more complex and making it simple. That’s why it’s even called Simple CFO. But honestly, at the core of it, I’m a very simple person. Like, I need it to where I can understand it. I think that’s why when I first read Profit First, it hit me like a lightning bolt of like, “Shoot, I wish we would have had this when we were doing twenty-five deals a month.” Like, if we had a system like this in place, we would have kept a lot more cash. We would have been able to really build a business that had a great net profit margin. Like, we would have been a healthier business overall and it would have been a much better experience. And you know, I—we could have saved the business honestly back then.

That’s what really springboarded me into this and said, like, I have to make this simple, but I also want to communicate this to as many real estate investors as possible. So that’s why I wrote the book too, because I think Profit First was a good primer to the principles of money. But then a lot of real estate investors were asking, “How do I apply this to my business? Like, I’m fixing and flipping. And so I buy assets and they sit on my balance sheet forever and then I sell them. Like, how do I actually manage the cash flow during that process versus like just a widget?” You know, you buy and you sell a product very quickly and it’s just going in and out the door, or a restaurant—you know, you’ve got a bunch of inventory, but the margins are so small, but you’re trying to get volume in place, you know, whatever it might be. Where a lot of real estate investors deal with assets. And it’s like, “How do I manage cash flow from this perspective?” If I’m flipping, what if I have a big rental portfolio? What if I have a small rental portfolio? Like, how do I manage the cash that’s flowing through my fingers and apply the Profit First system?

So I do think that was one of the gifts that I was given from God to be able to say, “Okay, how do I make this as simple as humanly possible from this system that is already simple, but now I need to make it simple for the real estate industry.” What I tell a lot of people, Scott, is that I was unknowingly building my Simple CFO business for like the eight to ten years I was in the real estate world, because I got to understand real estate at a very deep level because I was a part of over eight hundred deals while I was a part of that company. So I saw how to do every type of deal in the single-family space. I was going to events and other masterminds at that time, even back then, like 10 years ago, 10 to 12 years ago. And everyone was—was having these same issues. So I knew it was a big issue. I knew we weren’t the only ones. And I knew I had to translate a simple system, especially for the entrepreneur who doesn’t love numbers, who doesn’t love the word finances, who doesn’t love to look at their bank account or doesn’t love to, you know, put up spreadsheets and all that stuff. I knew it had to be super simple for them to be able to keep more of their cash and really get what they want from their business.

Scott Bursey (08:54)
That’s awesome. And your passion just resonates. David, I’m curious regarding the Profit First methodology—what is the biggest strength you see in investors who successfully implement this compared to those who are just guessing at the numbers?

David Richter (09:11)
If they really implement it, it transforms them from a real estate investor to a business owner—someone who understands cash and understands money. I tell a lot of people, I think the root problem of a lot of business owners, especially in the real estate industry, is they think they have to be good at the real estate game. You know, like, “All deals—if I just get more deals, it’s gonna solve all the problems.” And I try to tell people, like, if they really understand it, and really when they’re implementing Profit First, what they’re really doing is becoming someone who understands money. They’re playing the money game, but they’ve never been taught how. They don’t know how to set it up and they don’t know how to execute.

That’s what I love about this system too, Scott, is that this works for any industry and any business because what we’re really teaching is principles of money and principles of how to be a wealthy business owner and making sure that you’re set up for the long term. This is why I love working with real estate investors especially, because you can do multiple exit strategies—like literally different types of businesses. You could do buy-and-hold on one side, which is a long-term strategy, which is something where you’re building real wealth and you can implement Profit First and also reap the benefits today of managing your cash and doing it well. But then you can also fix-and-flip or wholesale or—like where you’re selling the property, and you can have literally different exit strategies that are on opposite sides of the fence. And Profit First can still help them manage each side of their business so they keep more of that cash. Whether they want to keep more from the fix-and-flip side and they want to invest more into the—the rental side and like build a big portfolio and have a lot of equity and have a lot of cash flow, it’s like, this gives them that opportunity.

So that’s where I like to make it simple, put it on the bottom shelf and like—I see the difference between people who don’t have the numbers and everything. It’s just chaos all the time. They’re literally—what if they don’t have it in place, what happens versus like one being able to buy more rentals? They’re literally using their rental company to fund their fix-and-flip company. They’re like robbing from Peter to pay Paul. So that’s what I see a lot for people that don’t have a system for their cash in place—is that it’s financial chaos. They’re robbing from themselves. They’re robbing from the business. They feel guilty about paying themselves, where Profit First helps them become the business owner who knows the cash, who can pay themselves, who can reinvest in their business, and can grow their business and still be profitable.

Scott Bursey (12:03)
That’s a powerful engine you built, but even the best-performing machines have room for optimization. You know, what’s most investors—what do they fear the most? You know, is it weakness or having less operational capital if they start pulling profit out early? How do you advise them to overcome that initial cash flow anxiety?

David Richter (12:26)
Honestly, that—that—that—I would say that is a problem, but I think the biggest problem is that we just have so many psychological hang-ups with money. Like, people don’t want to just look at their finances as a business owner. It’s just, “I look at my account and as long as there’s money there, I’m okay. And as long as I do more deals…” and they never want to face the real problems in the business. And I heard a statement years ago and I love this from a different mastermind I was a part of, and the guy got up and he said, “If you’re constantly fighting fires in your business, you’re the arsonist.” And I absolutely—that floored me. I’m like, “My gosh.” Because he said you’re a firefighter in your business and you need to learn to fire prevent and be that fire marshal. And I was like, that is such a great analogy of what a business owner needs to do with their cash. And like, you need to look at this stuff to be able to say, “Where’s the real issues?” Because I—you’ve heard that statement, right? Follow the money.

And a lot of people never look at their money enough to know where the root problems are in their business. So I think a lot of people are just afraid, and you know, when they first come in, just to look at their situation. Where am I really? Is it a good situation? Is it a bad situation? Should I keep this? We’ve had some people come on and hire us, and their first question is, “I want you to determine if I should stay in this industry or not.” Because they don’t even know. They are just—they’re just making sure that the bank account keeps getting filled, but they don’t know if they have a—a viable business or not and if it’s something that they want to do long term, if it’s not really giving them that return. But they’re very scared initially to have that—you know, like looking in the mirror at the truth.

And so we just tell people, honestly, everyone’s in this position. You are not in this alone. Like, some people will get on the call with me and I’ll—and they’ll ask me like, “Is this the worst thing you’ve ever seen?” And I’ll tell them, “This is the—this is not the worst thing I’ve seen this week.” Like, I promise, like, this is not the worst thing that I’ve ever seen before because so many people are in this situation. But honestly, Scott, this is not what you talk about in masterminds. This is not what you talk about at the after parties, you know, at those places and like with your buddies and with your friends. And that’s why a lot of people think that they’re going through this alone, but you’re not. And that’s where a lot of that—I say that first fear is just that fear of just being open to the truth of what’s happening behind the scenes.

Scott Bursey (14:40)
I love that transparency. Now that we’ve identified those friction points, I’m curious—where do you see the biggest opportunity for real estate pros to scale in this current market? Specifically by leveraging the cash flow data they already have.

David Richter (15:38)
Man, that’s like such a loaded question because of the way that I operate with our business. I would want to know what their goals are and like, is scaling really beneficial to them right now? If it is, then you need a system to make sure that you scale profitably because most people scale themselves out of business. I think now in this market, while we’re recording this in 2020—the middle of 2026—that this is a great market to capitalize on because a lot of people—the—the fake real estate investors—are jumping ship out of the marketplace. And the real estate investors that are business owners are taking more share of their market. We have some clients that we work with that are very big in the real estate space, and right now they’re doing incredibly well because they’re buying so much real estate up because some of the other people—you know, the people that just go up to the meetups for a few meetings and trying to get into real estate, or they’ve done a few deals, or they’ve done, you know, five to ten wholesale deals and they think they’re on top of the world but they can’t get another deal—there are—there’s a lot of opportunities out there right now.

But the thing that will separate the people that can scale from the people that can’t, I believe, is how they manage that cash. Because the cash determines their financial freedom level. It determines how much can they actually pour back into their business. I was at another event where a guy said, “I would rather you—you have to, in order to scale a business profitably, you have to grow from your reserves, not from your revenue.” So it’s like, this is where I want you to scale from what you have built as a good foundation of your profit, not just because you’re getting more deals in the door, so you think you can invest more, you know, like all of it back into the business. I want you to invest in the business, but we have to do it accurately. We have to do it in a smart manner. But the first thing you have to do is build a very good foundation for your money, for your cash, so you can very confidently, whenever you want to—that’s the other thing too, Scott, even if I would ask them too before they scale—do you have a business that has at least three to six months of reserves? Do you have consistent profit over the last 90 days, you know, of like between your last three months? What was your bottom-net, you know, profit? Are you running efficiently? What was your gross profit? Like, if you’re flipping, what was revenue versus gross? Meaning, like, how efficient are you at actually doing your flips and getting them across the finish line? Are you constantly going over budget? Like, there’s a lot of things that people need to understand that they need to fix before they go into scale mode.

But a lot of people think scaling gets them out of the darkness when it only puts them deeper into it, and now they can’t find their way and they’re like, “What the heck happened?” And that’s where—there’s a great book, *The Road Less Stupid*, where Keith Cunningham, the author, says, “If you scale cancer, the tumor grows.” And a lot of people have cancerous businesses where they’ve got a root-cause cancer where they don’t know what to do with the cash. And if they try to scale it, it only—it, you know, it only exacerbates the problems and makes them larger. And I don’t want that for them. So my first question would be like, “Are you ready to scale?” And if you are ready to scale, we have to have these things in place in order to be able to get there profitably as well too.

Scott Bursey (18:41)
David, if I’m hearing you correctly, cash is the fuel. Without it, you’re just driving blindfolded down the highway.

David Richter (18:47)
Yep. That would be a huge—yeah, that’s a great analogy. It is the fuel in the engine. It’s making sure you can get to where you want to go. Even if you have all the fancy bells and whistles and you’re great at acquiring deals and all that, that doesn’t matter if you don’t have cash at the end of the day. You’re not keeping the profit. You don’t have a net profit line. That’s what we were doing. We had a great— we had a great looking car, you know, like we had the turbocharged engine and everything, but we didn’t have enough gas to get it in there because we were doing twenty-five deals a month, but spending twenty-six thousand dollars worth of expenses out the door. So that’s where it doesn’t matter how many deals you do, it matters what you keep from the business.

Scott Bursey (19:21)
Spot on. David, let’s shift gears here. What’s the most dangerous threat to a real estate business’s longevity that comes from ignoring their financial structure, aside from just running out of money?

David Richter (19:34)
Oof, besides running out of money, because that’s the number one reason businesses go out of business according to the SBA. Go figure, right? They run out of cash. But I would also say too that if you have cash, it gives you opportunities, meaning not just the opportunities to pounce on something, but to be able to also pivot when you need to. Like, if you have to do something different, I want you to have some breathing room. But also, that’s also a good thing to learn from events and masterminds and things like that. Like, if you’re part of Investor Fuel, the great power of being in a room like that is you can see ahead of time what might happen in your marketplace. So I think that’s another way of staying ahead—is getting around other people that understand the market at a macro and micro level and getting around those people to rub shoulders to make sure that you’re not missing something. Because that’s probably one of the most powerful questions as a business owner you can ask—is, “What don’t I see?” And that’s another thing to be able to, if you go to groups like that, they can help you see the things that you’re not even aware of.

Scott Bursey (20:35)
That’s some powerful stuff right there, David. You know, for a team of pros listening, how do you suggest they align their acquisition or ops team with the Profit First mindset without blocking their growth drive?

David Richter (20:49)
If they—that’s one thing. I never want you to turn off the growth engine, but I never want you to grow so quickly that you cannot keep the money you want to. So it’s like, that’s why knowing the numbers is so important. How many deals do we need to do on a monthly basis, and you need to go and attack these and get these deals in the door? But if we go over this, we have to have a plan of like, “Okay, if we’re out scaling and outpacing ourselves, what are we going to do?” Because I don’t want to hold back my acquisitions team. At the same time, I also don’t want to scale myself out of business. That sometimes, too, the owner literally has to take a hard look at their business and say, “I need to right now right the ship.” So I might have to turn off the acquisitions engine for just a little bit because I have 36 projects on the board. And like, if I take any more, I literally will be failing everyone. I’ll be failing the contractors. I’ll be failing the buyers, the sellers—I’ll be failing the whole business here. That’s where looking at it from an owner’s point of view—and this is why, Scott, it’s so important for them to have some type of dashboard or numbers in place—something that the owner can make decisions from very simply and easily. So that way they can make those decisions, because I want their acquisitions and their operations to keep running, but I don’t want that to run them into the ground as well too. So we need to make sure that they’ve built a good solid foundation before they start scaling out the door.

Scott Bursey (22:10)
I love that framing. And David, where would you like to see your operation in twelve to twenty-four months?

David Richter (22:17)
My operation? I actually love it right now. I have a nine-year-old girl and I have a wife that I love. And right now we’ve built the business to—pretty—multiple seven figures, and I have a great team. We have great clients. I think we do something that is honoring to our clients of like, helping them and uncovering where their cash deficiencies are. I just want to keep growing at a very simple pace, like ten percent to twenty percent a year, nothing crazy. I’m not looking to go to the moon. I’m looking to keep the schedule that I have. I have a great schedule where I can do stuff like this. But then this afternoon I could take a picnic lunch with my daughter while she’s out of school and like, do cool stuff like that. So honestly, the next twelve to twenty-four months, I want it to look like the last twelve months, because the last twelve months have been some of the best years or year of my business career so far just because of all the systems we put in place. Like, it’s finally paying off. You know, like, I—I’ve spent seven years getting to this point, and I want to enjoy my business as well too, and I’d love the next twelve to twenty-four months to look a lot like it does now.

Scott Bursey (23:16)
Absolutely. I couldn’t agree with you more. And for our pros that are listening and they’re saying, “Hey, this is somebody that I really like,” what would you like them to know first about your business?

David Richter (23:26)
About my business is that every single person that walks through our door, we do three things—calling it laying a financial foundation. Because like, this is the first springboard for you to know your numbers and to be able to grow to where you want to and keep the cash you want to. Number one, we make sure you have the right bookkeeping team, process, and person. Like, you have to have numbers in place—that’s what a business runs off of. I don’t want the gut feeling anymore. I want us to have data so we can really attack the real issues. Second thing we do is Profit First implementation. Like, you need to be keeping your cash. You need to pay yourself. You need to build reserves and you need to know how much you’re spending versus what you’re making. So it’s very clear where all the money’s going, and you have clarity on every single dollar that’s coming in and out. Then we build number three—a dashboard. So that way you can actually see every single number, and it’s built for the entrepreneur. So it’s not just something in QuickBooks that we go over, whatever. It’s built to say, “Okay, here’s what your money’s telling you. Here’s the decisions we have to make together. How do we want to get to this next level? And here’s what the numbers are telling us.” So those are the three things that I would just tell anyone who’s looking to do business with Simple CFO. We want to give that clarity, and that’s what we call laying the financial foundation with those three steps.

Scott Bursey (24:33)
Right there’s the trifecta. And David, you’ve really brought the fuel today, but we can’t let you go yet. You’ve given our listeners a lot of advice. What’s some additional golden nuggets you can leave with our pros here today?

David Richter (24:46)
Yeah. So Profit First is a very simple system. So if you want to get started on your own, it’s super simple. All I would do—the system behind it is like the envelope method. So if you want to do something where you’re starting to be a wealthy business owner, I would go out today, set up one account—one extra bank account—and just call it your keep account or something like that, or the owner’s cop account to pay yourself. And you just start, from every deal you do, you take either a certain percentage or a certain dollar amount from every deal and you fund that other account, because you’re building some muscles. You’re building some good wealth-building habit muscles in place and doing the reps of like, “I do a deal and I just don’t spend everything I make. I do a deal and I put some aside.” You’re building that habit of becoming a wealthy business owner. So that’s something I would tell them from this podcast. If they did that, their future self will thank themselves profusely because they’ll see and wake up one day and be like, “Hey, we actually have some cash set aside, or I can start paying myself guilt-free,” or whatever it is they want from their business.

Scott Bursey (25:46)
Awesome, David. And if our listeners want to follow your journey, you know, collaborate with you, what’s the best way for them to reach you?

David Richter (25:55)
Yeah. Well, how about I give my book, *Profit First for Real Estate Investing*. If you go to simplecfo.com/gift, you can get my book, *Profit First for Real Estate Investing*—the audiobook or the ebook there—and a Profit First cheat sheet. So that way you can at least see, okay, what are the first steps? What is Profit First all about? How do I keep more of this cash that I’m making? And that’s where I could give you that. So simplecfo.com/gift.

Scott Bursey (26:19)
David, thank you so much for joining us here today.

David Richter (26:21)
Thank you, Scott. I enjoy sharing this message a lot.

Scott Bursey (26:24)
And to our listeners, we appreciate you. If you got value from today’s episode, please subscribe. We’ll be filling your tanks with a lineup of elite guests just like David Richter, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.