00;00;00;00 - 00;00;23;13

Unknown

Welcome to the Profit First for Real Estate Investors podcast. This series is the simple CFO Case Files, where our CFOs break down real client scenarios, financial systems and practical decisions from inside the business. Enjoy the episode.

00;00;23;15 - 00;00;46;20

Unknown

Hello, everybody. This is Christina Gutierrez, a simple CFO. Back with the CFO. Case files breaking some cases open, giving you some insight in what our CFOs do. And today, joining me again if you've been following our podcast is Michael. Michael, thank you for joining me today. Absolutely. Always a pleasure. So I'm excited. As if you didn't watch the first podcast with Michael.

00;00;46;21 - 00;01;07;01

Unknown

He is an amazing person. He serves and helps us in operations at a very deep level with CFO. He is crazy, does a ton of things. As a, really cool history that we won't go into, but has a really cool history of where he's come, where he's been teaches real estate classes. So look him up. I'm sure you'll find him.

00;01;07;01 - 00;01;25;22

Unknown

He actually wrote a book as well. So if you Google him, I'm sure you can find a bunch of information. But today we're going to talk about some specific clients that Michael Gillespie worked with in the world of real estate or business altogether. People come to us a lot and they feel like they're making money. They're like, oh, I know I'm making money.

00;01;25;24 - 00;01;43;05

Unknown

Money is constantly going through my hands. I'm making deposits into my bank account. If you flip houses, you're making pretty large deposits and it feels like you're making money. But then there's most people come to us and say, this is how I feel. But I also feel broke, and I feel like I'm not paying myself and I'm not able to take money home.

00;01;43;05 - 00;01;57;25

Unknown

So if you feel that way. Listen up. We're going to tell you a story about a client that Michael actually worked with that was able to turn around from that. I'm not able to track my money. I don't know how I feel. It's the same old story that we feel from people. So they come in, don't know.

00;01;58;02 - 00;02;31;20

Unknown

They put their trust in us. They were paired up, started working with Michael Glass B, and he turned around. He made him not actually feel broke. So before we get into the how. Take me back to that first conversation, Michael. Tell me, what did their financials actually look like when you started working with them? Yeah, I think it's a I think for most people out there who starting a business and I know we've seen it all the time, but when you're just now starting a business and you're so focused on generating income, the first thing that typically falls to the wayside is keeping track of your finances.

00;02;31;22 - 00;02;50;07

Unknown

So when he came into the picture, good. Yeah, I mean, Young Hustler, but he was he was he was making some moves. He was already making about $300,000 a year, top line, which is pretty impressive. You know, getting just getting started in the game. But when you look at his financials, I mean you couldn't tell it left, right, sideways.

00;02;50;07 - 00;03;08;24

Unknown

You didn't know what was going on. You didn't know how much you was actually keeping. He was doing things like taking owner distributions but deducting it as payroll. Right. Which for those who don't know, that's a big no no. Right. That's a big no no for compliance reasons. So he was basically coming in and saying, look, I'm making money.

00;03;08;24 - 00;03;29;18

Unknown

I can see the money coming in, but my bank accounts are bone dry. So he was like, just help me get clarity. And then we just took it from there. So is he keeping track of financials? Did he have good books numbers, or was that where his clarity was lost? That's where his clear was. No good thing was he did have QuickBooks at the time.

00;03;29;23 - 00;03;52;28

Unknown

So we had something which is better than most situations because, you know, you deal with some clients who have nothing, some clients who have only like Excel. But at least he had quit books. But it wasn't accurate. It wasn't accurate. So he was definitely that wanted. Not being accurate is one thing, but also without understanding how to read it is another thing.

00;03;53;00 - 00;04;11;14

Unknown

So as we know, profit and loss, that's for the taxman. It's the cash flow statement that really shows you what's in the bank account. And he he was oblivious to that. Yeah. Was a test about it or was he more overconfident? Hey, dude, I know I'm making money, but I really need someone to help me out. Or was he stressed?

00;04;11;15 - 00;04;37;20

Unknown

Like, I have no idea. Beyond stressed, beyond stress. He was a younger man. He had less hair on his head than I do. I was younger than me. He was. If you're watching this podcast, you're not some serious stuff. Yeah, some serious stress. Now, he was stressed out. The interesting thing about his is, you know, with every client, I always, always, always ask, what's the dream, what's the vision, what's the why.

00;04;37;23 - 00;04;56;22

Unknown

And he didn't have, you know, being a young single man, he didn't really have a lot of responsibilities. But he was very adamant about look, man, this is for my lifestyle. Like this is I'm tired of stressing. I want to be able to enjoy the life to his to his kind of vision. And, you know, it's a lot.

00;04;56;23 - 00;05;13;03

Unknown

It's very hard to do when you can't pay the bills. And, you know, some people do it by going to work making very low income, and some people work for themselves and just keep going to digging the ditch deeper and deeper and deeper. And he was the latter in that situation. Yeah. So he came and he knew something was wrong.

00;05;13;03 - 00;05;32;09

Unknown

So how did you diagnosed him? Like what was your original diagnosis to him? Yeah. So I always asked him what I thought. You know, I always ask, what do you think the issue is? I let him I let him speak. But when we get really down to we broke down the financials. We went through our expense analysis, our Cogs analysis, our revenue analysis.

00;05;32;13 - 00;06;00;06

Unknown

We went through all of that. And we realized a couple of things. But two of his biggest expenses were marketing, which is pretty common. And employees. Right. So he was chilling out money left, right and sideways. But his his profit margin on his deals, they were thin, but they were also all over the place. Right when we to a lot of times we like to say, well the average deal is $10,000, whatever it is.

00;06;00;09 - 00;06;22;07

Unknown

But his average was probably ten. But I mean, sometimes you walk away with $1,000, sometimes you walk away with $25,000. So there was no consistency. So we couldn't say, oh, just close four deals a month. You'll be good at an average of 10,000 now for deals. Might barely get him fit right. So once we broke down what was going on, we were then able to compartmentalize.

00;06;22;07 - 00;06;48;25

Unknown

There was essentially three issues at that point in time as employees, the way that he essentially acquires, deals or finds them with marketing, and then how he's processing or running the deal, and then we just prioritize those in a tactile. It sounds like you went to his marketing and what he was looking. It's like some things that people wouldn't look like, look at, like they figure, oh, it's a cash problem, it's a revenue problem, it's an expense problem.

00;06;48;25 - 00;07;07;10

Unknown

You name those. But I think one of the most important thing that you're named was going back to your acquisition, going back to actual deals, marketing. What are they doing? How did you how did you figure that one out? I mean, because, you know, we're not just bookkeepers, right? We have goalkeepers. And most people will say, oh, I just need a bookkeeper.

00;07;07;17 - 00;07;27;05

Unknown

They figure out the expenses and that's where their they think their problem lies. But what's the difference between, like you as a CFO coming in and diagnosing the true root of the problem? Yeah for sure. You know, I like to tell people just going back to that statement of, you know, why can't my bookkeeper do this? If you looked at the accounting spectrum as a pyramid, I would say that bookkeepers are the base.

00;07;27;05 - 00;07;46;27

Unknown

They're the fundamental. You need them, but their their skill set or their purpose is primarily for making sure that the data is accurate. And then you kind of go up a little bit and let's say you have an accountant, like a tax accountant. Well, their purpose is to look at that data and report it to the IRS. So that means you've already made the money.

00;07;46;27 - 00;08;07;23

Unknown

You've already spent the money. They're just reporting it to the IRS. They're compliance. And then at the peak of the pyramid is the CFO. They're looking at the data. They're looking at the historic report, and they're helping you forecast outwards. Right. And as a CFO, when we're forecasting outwards, there's a and I don't know who wrote this for those for all my book nerds out there, I know y'all know them.

00;08;07;25 - 00;08;32;27

Unknown

But we have lead measures and lag measures, right? The idea is there's something that we do that's going to lead our results, and the result is what's trailing behind everything. So when we talk about sales specifically, well, sales are great. And people think that sales may lead revenue. That's true. But what leads sales. So how are we marketing?

00;08;32;28 - 00;08;53;12

Unknown

What about the phone calls? What about the sales script? What's our closing conversion rate? All of these other things that we tend to forget about. So as we dissect each problem right, we kind of look at what has the biggest impact without going too far down the rabbit hole, what has the biggest impact. And then we track down the lead measure to those things.

00;08;53;12 - 00;09;17;21

Unknown

So once we found those three things employees, marketing and profit margin, we went to the lead measure, which was sales and then how they're going about their sales. So now you've diagnosed the problem. We know what the problem is. What were some of the immediate changes that you made? Immediate changes was first thing that we did was we dove into.

00;09;17;27 - 00;09;38;24

Unknown

So the employee the employees caused a lot of issues. So we look into the employees first and foremost. And here's why. His employees were conducting most of the sales. So there was a big issue with consistency of sales and everything else that was going in on that end that stemmed from employees. So we started looking at his employee turnover, which was high.

00;09;38;26 - 00;09;56;27

Unknown

Now, guys, I mean, employees are the most expensive, one of the most expensive line items. But I mean, his turnover was high, I think, don't quote me on this, but I believe like in the first nine months he had already rotated 18 people like that's aggressive. That's aggressive. Right. And it always cost to get new employees in. Exactly.

00;09;56;27 - 00;10;13;17

Unknown

It's just time. So we ran the numbers. We ran the numbers. I took his hourly rate, figured out how much time he invested. Then I looked at all the onboarding fees for the softwares and the systems, and then realizing that train up ramp up for an employee if even if they're in sales the first 3 or 4 weeks, they're not selling anything.

00;10;13;18 - 00;10;36;11

Unknown

So that's all overhead with no revenue. And I started showing them that. And what we ended up finding was we burned. I think it was somewhere around $24,000, give or take. We burned that amount just on hiring people that year. So long story short, what we did was we focused on his hiring process. First one, his screening, his interviewing, his reviewing, making sure it was the right fit.

00;10;36;12 - 00;11;03;15

Unknown

We got predictive index involved. We started doing more of those things, which started bringing the right butts to the right seats, that then we can focus on improving their sales ability and in the process. Quick pause from the episode, I've exciting news that's expanding the world of profit. First for real estate investors. You may know that years ago I wrote the book Profit First for Real Estate Investing, endorsed by Mike McCown, that has been read now by thousands of real estate investors.

00;11;03;15 - 00;11;31;04

Unknown

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00;11;31;04 - 00;11;52;12

Unknown

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00;11;52;14 - 00;12;27;28

Unknown

That's PFREI workbook.com. Just like profit first for Real Estate investing workbook.com. Grab whichever matches your business or you can grab all 3PRE workbook.com. Go get them. Make more profit. All right back to the episode. That's smart because you know to like when you when you're constantly specialty sales because that's your first contact. So yes if you if you have all these green salespeople that you think know what they're doing and now you have all these leads, you literally are burning, now you're burning marketing dollars because, yes, we don't know if they're handling them.

00;12;27;28 - 00;12;59;16

Unknown

Right. That's exactly right. That's exactly right. Yeah. Okay. So that's the first change. And obviously who had him start taking his distributions correctly. So that wasn't his role. Yep. Did he have any pushback or resistance when you were trying to make these changes. Or was he all over it a little bit of pushback? Because I believe, you know what what ended up happening is if if you remember his his specific goal and objective was lifestyle driven.

00;12;59;18 - 00;13;19;07

Unknown

But I'm a firm believer sometimes you have to sacrifice niceties of life in the beginning in order to get what you want. And so as we tried to really squeeze down what he took from the company to only his necessities in the beginning, as we then focused on how to rehire and blah, blah, blah. He has some pushback there.

00;13;19;10 - 00;13;41;26

Unknown

He had some pushback there because obviously he was very comfortable and in his lifestyle. But after being very, very, very persuasive after really driving him up a wall, he finally conceded. And and then what we did for that is we basically said milestones. What we said was like, look, man, let's make it a 30 day challenge. At this rate.

00;13;41;27 - 00;13;57;18

Unknown

He did it. Then we bumped it up a little bit for the next 60 days and then for the next. So we kind of made it a game, made an incremental. So it was a little bit easier for him to kind of swallow that pill and and approach it. But that was the biggest pushback was reducing his lifestyle in the beginning.

00;13;57;21 - 00;14;17;03

Unknown

Yeah, yeah. That's tough. And I guess people don't understand either. Like they come in and they're like, you know, they reach that pain point where they're like, oh my God, this has to change. And I think they get so worked up in their head they're like, I don't care what it is, but this has to change tomorrow without realizing, like you, you've been in this position for years.

00;14;17;05 - 00;14;40;23

Unknown

You know, some people lots of years. So you got yourself in that position and they took that long. And then we're supposed to be miracle workers would come in, we wave a magic wand and always better. So, you know, those baby steps helped, though, because if we came in and said, you have to do something unrealistic within the next month, everyone, nobody would be dialed into that because it's just it's too difficult.

00;14;40;23 - 00;15;00;10

Unknown

So we're humans like you can't you want to lose weight. You're not going to go to the gym for three hours a day, every day and cut everything off. You have to do everything in increments because it did. Nothing happened overnight. So if you do a baby steps in increments, like, you know, most people would have less resistance along the way.

00;15;00;12 - 00;15;15;01

Unknown

Everyone has resistance, but they would be more likely to like take a baby step. So like how you like make a game out of it or, hey, let's just get here, let's do this in the next 30 days. But I'm going to raise the measure. I want you to know I'm going to raise the measure. But yeah, this is where we're going to start.

00;15;15;05 - 00;15;37;26

Unknown

So we're small enough to where you feel like you've achieved it. Because for humans, we want to achieve stuff. We want to check things off and make it look like we're doing something right. Nobody wants to wake up and be like, oh, I didn't reach it again. Oh, I didn't reach it again. So. Oh, yeah. Yeah, that I think we're probably the hardest on ourselves, you know, and everything takes time.

00;15;37;29 - 00;15;56;17

Unknown

You know, I was just thinking when you were talking about the weight loss journey, I think my new my new slogan is. I'm going to be the, the pick for finance. I'm gonna be quick. I'm gonna give results quick. That's going to be my new slow. That's my new. That's my next tattoo. But anyway, yeah, I think we all, we all go through those challenges.

00;15;56;17 - 00;16;15;03

Unknown

We gotta have those small wins, you know, celebrate all wins. Celebrate those victories. So, I think that's important along the way for sure. Yeah, definitely. And with that said. So then how long did it take before you started? He started seeing the improvement. You started seeing the improvement. And things really started to make a difference to him.

00;16;15;04 - 00;16;35;11

Unknown

Yeah for sure. So in about three months, we started seeing a better quality of sales reps in the seats. And then we moved over to the marketing. And so like the marketing is just getting leads in front of us, like you just said. But we were tired of burning lead. So what we focused on was higher conversion rate along the process first.

00;16;35;15 - 00;16;57;15

Unknown

So sales reps started to do better. Conversion started to do better. We maintain the marketing budget. We didn't increase it just yet. And then we went and looked at the profit more so. So the conversion rate and the sales reps, that all happened in about five ish months, maybe 5 or 6 months. And then we started focusing on the deals themselves, what was going on with the deal as to why they were so variable.

00;16;57;18 - 00;17;23;14

Unknown

And what was happening was he was a wholesaler. And for those who don't fully understand wholesaling, essentially it's just a signing of a contract. I find a contract for 100,000. I turn around and I sell it to you for 105. I as a wholesaler keep to 5000. So he was doing that. But what happened was he was so good at negotiating his deals that he was getting 35,000, 70,000 assignments, wholesale assignments.

00;17;23;21 - 00;17;42;25

Unknown

But when he would go to the closing table, all parties have to see the HUD or the all to statement, the closing statement, and they have to sign off. So when the sellers would see, dang, dude, you're about to make 75,000, they would go back or whatever the number was. They would go back and renegotiate with and the table at the closing table.

00;17;42;27 - 00;18;03;09

Unknown

Well, you know, you know how they'll get the HUD a day or two before closing. Right? And so it's not like right at the physical closing table, but right there, it's not to mess with your numbers. Exactly. Now, he was and I think most of us understand this as business owners. You're looking at well, imagine this. My bank account is empty.

00;18;03;11 - 00;18;21;21

Unknown

I have an opportunity to close this. You don't say right. It's like. Exactly. I have an opportunity to close this either at I wanted or expected 50,000, but right now I'm going to get 5000. I'm over exaggerating for this scenario, but that's kind of the idea. And he was so like, man, I gotta make this work, that he would just cave in for these reasons.

00;18;21;24 - 00;18;42;29

Unknown

For these renegotiations, I know that was really the key. So what we ended up doing is now that we identified that it wasn't the type of deals, it was a little bit of the sales, but it was really falling apart after it was already under contract. What we then decided to do was implement a double close. And so a double closes.

00;18;42;29 - 00;19;07;03

Unknown

He would go in in that same scenario, he'd buy it now. Now just put it on the contract, but actually purchased the physical deed at 100 000 and then turn around and sell it for 175. Now, in order for him to implement that, we had to find the funding, obviously, because he didn't have the cash. So we got him paired up with a transactional lender, somebody who specifically is like, I'll give you the full purchase, but I want it back in two weeks or whatever the case is.

00;19;07;05 - 00;19;29;11

Unknown

And so once we were able to cover that gap, we fixed that final piece. And of the profit margin, which took about nine months in total from start to finish, and within those nine months, he had already doubled his top line revenue. Wow. So really just doing a double closed rather than a wholesale is that mess with cash at all timing?

00;19;29;11 - 00;19;55;28

Unknown

Did it mess anything up it messed with? It messed with cash flow more than anything because obviously we got the money coming in. Now, the way the transactional funding works is the wire goes directly to the attorney. So that part's good, right? But oftentimes that process would be an extra 2 or 3 days longer now because you know we have wires, we have holidays, we blah blah blah, blah blah.

00;19;56;00 - 00;20;15;02

Unknown

You have some of those pieces. But it would take a little bit longer for him to see the cash. But the cash was much higher at that point in time. Okay. So significantly better. So if you weigh the pros and cons it's way better to do way to change. Okay. Yeah, that sounds like that sounds like a pretty good turnaround.

00;20;15;04 - 00;20;36;12

Unknown

Yeah for sure. It was great. He was a static. He was a static. And obviously it only kind of grew from there. You know that only took about nine months. But then the next following 12 months he doubled his revenue again. And he was making over 1.2 million. And at that point in time, you couldn't tell this man nothing.

00;20;36;12 - 00;20;59;07

Unknown

He was very happy. Yeah, well, that's awesome, because you changed him around. Well, the CFO, like, since we have systems or dashboards first, what we do with what type of our systems did you use? I know this is a great story. You didn't. You turned them around just being a great CFO. But what was it about simple CFO systems and process that actually brought relief and helped you manage the relationship better?

00;20;59;14 - 00;21;18;06

Unknown

Here's the systematic approach to everything. Right. You got a chunk it down. We got to go smaller. We've got to make it bite sized chunks, not only for us as foes, but more importantly for the client. Right. They have to be able to understand it. So we go through our systematic process. We have our dashboard that we could follow.

00;21;18;06 - 00;21;38;10

Unknown

So it keeps us in sequence. And then the real bang for the buck is that it's profit first, in my opinion, you know, because now as the money came in. You know, it was now that you have visibility and money is coming in, how do we make sure you don't just go live that lifestyle and blow it all right in this situation?

00;21;38;11 - 00;21;57;06

Unknown

Yeah. Because they like this lifestyle. So that was the whole motivation. Exactly. So being able to have those buckets and say, all right, this is what you get to spend. And obviously we can increase it as time goes on. But we continue to make it make it a game. So, the profit first and the sequential process by far.

00;21;57;08 - 00;22;16;28

Unknown

That's awesome, I like it. That's a good story because that that's like a complete change around. But like even adding things to his business, changing things in his business, taking away. So that's like a but you put it it's not like you told him to go out and flip houses, or now you need to hold a parental. Like you didn't change the complete makeup of his business.

00;22;16;28 - 00;22;40;13

Unknown

You made minor tweaks. He saw more profit, more cash, and felt better about it all around. So sounds like he's. We don't work with him anymore, right? He walked away. He got what he needed. And yeah, I liked it. I like to yeah, I like to think of it as, as graduation. You know, he got to the point where he was able to bring in his own bookkeeper and some other things and, and rightfully so.

00;22;40;14 - 00;23;02;09

Unknown

You know, I, I like to tell my clients, I know I've done my job when you no longer need me around, you know, because you're able to buy it in house. So he graduated and he's on to bigger and better things. Definitely. All right, so before we end this out. What's what's one lesson from this story that every real estate investor, every person listening should take with them today?

00;23;02;11 - 00;23;31;05

Unknown

I think the biggest lesson for business owners to just across the board is try to focus on the one thing that has the biggest impact, but will take you the less amount, the least amount of time, right? The lead versus lag measures. Find the. You got a million things that you can do all at once. Pause. Think about if I could only do one thing, which one would move the needle furthest the most?

00;23;31;07 - 00;23;48;23

Unknown

That's my suggestion. That's what I like. And that that goes back to simple CFO our ways. We always say we meet you where you are. So we are big on finding that one thing that's most important that we can jump in doesn't mean we're not going to assess your books. We're not going to look at profit first for you.

00;23;48;23 - 00;24;11;08

Unknown

We're not going to take the necessary steps, but our ideas come in and attack that one thing to meet you where you are that we know that we can do for you, that will change your life. Day one. Because we really want you to feel less stressed. So if you feel that way, if you're listening and this story resonates with you and you want to work with someone with simple CFO, someone like Michael Glass, head over to fill out a discovery call.

00;24;11;11 - 00;24;27;22

Unknown

Get on the phone with someone. Just talk through it. Even if you want to talk through your situation, maybe it's not right. It feels right. It doesn't feel right and you don't even know. Give us a call so we can talk about it. Yeah. Thank you, Michael, for being here. I super excited to hear every story that you have.

00;24;27;22 - 00;24;48;19

Unknown

When we come in and talk about our clients. Case files are so important because it really shows, like actual work. What are we doing? How do people walk away? What does it look like? So thank you for sharing. Thank you for your story. Appreciate you being here. Absolutely. Thanks for having me. Thanks for listening, everyone. Thanks for listening to the simple CFO case Files on the Profit First for Real Estate Investors podcast.

00;24;48;21 - 00;25;02;23

Unknown

If you found this helpful, make sure you subscribe so you don't miss our guest interviews featuring other real estate investors and our Profit first chats with David Richter. If you're ready to bring clarity and structure to the finances in your business, visit Profitrei.com to apply for a free financial discovery call with our team.