00;00;06;14 - 00;00;30;06

Unknown

Welcome to the Profit First for Real Estate Investing podcast. Every week we bring you top investors and experts sharing how they create clarity, cash flow and consistent profit. This episode is brought to you by simple CFO. Profit first. Profit always. Let's go. Christina and David are back to help you with knowing exactly the numbers. As a CEO to look at.

00;00;30;06 - 00;00;56;27

Unknown

And this is to me, one of the most exciting ones, because this is one that I use with Christina on a very regular basis in our finance meetings. I believe this is something that it's very poignant to the CEO. What does that mean? It means that I want you to look at the numbers here, and you're able to make decisions, either a decision to dive deeper into a number to be like, oh, this is right way off.

00;00;56;27 - 00;01;14;07

Unknown

What's going on here? Or a decision to be like, hey, maybe we're not spending enough in this area and we're, you know, under what we were projecting. So I'm really excited about this. I've kind of kept the tabs name in the dark, but I'm going to have Christina go over it. I'm going to also, if you're on the podcast, you can listen to me.

00;01;14;07 - 00;01;32;19

Unknown

I'll do a running commentary on Christina's, what she shows, but we're going to actually show our dashboard so you can head over to YouTube the Profit First R-iI channel there where we do our podcast online there. And we could we do the video as well. So she will share her screen and I will do the running commentary again.

00;01;32;19 - 00;01;57;21

Unknown

So if you're just listening to this you can at least know what we're looking at. But Christina, I'm going to hand it over to you. All right. Happy to be here with you, this lovely Faraday. I don't know what day this will be released, so it could be a different day, but right now, it's Friday. All right, so if you listen to the first podcast, you may recall that we just talked about a dashboard that every CEO should be looking at.

00;01;57;21 - 00;02;19;19

Unknown

And if you recall we talked about the forecast in the budget. And those are different things that we update or targets and budgets that we update at different times. So this is the first the first sheet that we would actually start with. So let's say you come to us and you're like, I need help planning my year with with somebody with a financial partner.

00;02;19;19 - 00;02;39;26

Unknown

So we come in and we help you plan your year. And first we we talk about your goals. We talk about what you're looking to do, what you're and where you've been. Because, you know, we all want to have big goals. And sometimes, those goals outweigh a little bit of what we have the ability to do. Or we actually could do more and we don't even know it.

00;02;39;27 - 00;02;58;06

Unknown

And so a good financial partner would, you know, put that pressure on you and talk you through what you really can do and actually push you to do a little bit more if we know that you can. So this is a projection and cash flow sheet that we'll go over. And if you see the blue it's blue for a reason.

00;02;58;06 - 00;03;24;08

Unknown

Everything in our sheet is blue that needs to be completed. So anything that's not blue comes in directly from QuickBooks as we stated. And it updates every morning at 5 a.m.. So the blue is what you're looking to project out and what you're looking to do with a client. So, I know you're not looking at this. If you're not looking at the screen, you'll see that everything you'll understand that everything is blue because we are actually walking through this with somebody.

00;03;24;14 - 00;03;53;16

Unknown

So if your first section is your revenue, what do you have the ability to bring in to your business? And you have to look back at what you were able to do previously, and then what you're able to do now versus maybe, maybe new hires, new marketing initiatives, things that you know that you can do. So it's I kept it pretty simple on here over this is wholesaling assignment fees.

00;03;53;16 - 00;04;08;26

Unknown

And then some of these go out to a licensed real estate agent and put it on the market, because why not. You pay for leads to come in. And if you don't have the ability to wholesale or do it all yourself, you might as well do something with the leads and get some type of revenue off of it.

00;04;08;26 - 00;04;32;01

Unknown

So we have a lot of people that will send some of those leads out to an agent, and they get a referral off of it. That's barely any work for leads that you already have in your pipeline. So just a little tidbit there. So first you want to just kind of, fill out how many assignment fees, how many times do we think that we can do and what does that give us for that revenue for that month?

00;04;32;04 - 00;04;53;27

Unknown

So this is just basic of 200,000 a month. That's all we did is we just filled out $200,000 for January through December because we just kept it simple. And if you go back and say sometimes you can break it up and say, okay, how many assignments or wholesalers do we close a month and what is the amount that we close them for?

00;04;53;27 - 00;05;18;03

Unknown

So let's say we can close ten at $20,000. And that gives us the 200,000. So a lot of these can be backed into and done on a, you know, separate Excel just to kind of basically walk back into what you do. And if you can give five leads a month and get 4000 off of referrals, then that gives you an extra 20,000 for really not doing any work, but passing it on to someone else.

00;05;18;05 - 00;05;45;13

Unknown

So you just walk into what your total income that you can actually make every month is so very simple. Kept it at 200 000, and if the forecasted income becomes 220, because you got the 200 assignment fees and referral fees of 20,000. The thing about this sheet that you'll actually see, and I'll say it, because if you're watching it, you'll see why don't these two numbers match?

00;05;45;13 - 00;06;05;20

Unknown

So we have total forecasted income. And right underneath it we have total income. And what happens is it's going to always keep your forecasted number because that's what you put in there from day one. But once it updates from QuickBooks it's going to pull in what you actually were able to do that month. So pretty key because that that kind of serves as your budget.

00;06;05;23 - 00;06;24;09

Unknown

We have the budget on a different tab, but it also serves as your budget because you can see the difference that you the difference like you didn't bring in the 220 and why not? And then it gives you something to talk about with your financial partner. So that's that's the first step figuring out revenue and what you're able to bring into your company.

00;06;24;11 - 00;06;42;10

Unknown

Yeah. Let me just jump in there. So on this one that we're looking at why are we doing this? We want to know if we're good at projecting what we really think will happen. So I don't care if it's wholesale, if it's rental income, if it's fixed and flip income, this is where and you are going to mark these a little bit different.

00;06;42;10 - 00;07;01;17

Unknown

Because if you can't see what she's going over, one of the sections at the top is revenues. Like what are your different areas that you're going to have. So if you do like assignment fees and you do, you know, double closed wholesale and you do fix and flips, you're like, you're going to have different things at the top of this dashboard that you fill in, depending on the exit strategy that you have.

00;07;01;23 - 00;07;22;16

Unknown

And then the corresponding expenses against those exit tragedies are going to be below. And we'll talk about that. But this is really about do you know and are you good at projecting what you're really going to do in the business. Because that is a CEO skill. A CEO skill is being able to not just look at today or yesterday, but be able to also plan out for the future.

00;07;22;22 - 00;07;47;17

Unknown

That's what this dashboard tab at the top here is a special helping to see if, even if you're not good at it right now, it is a skill that you can build though. So this tab is also helping you build that CEO muscle of okay, I maybe for the last six months, maybe you've done a projection or you haven't done a projection so that there's not and maybe it's not gone very well with your projections.

00;07;47;20 - 00;08;04;14

Unknown

Okay. So that's a skill that okay. Over the next six months, can we get better at it as well. Because now we're going to see okay what did this last period. What did we project versus what really happened then at the very top to Christina, I don't know if you were going to mention this. I like how you have the cash balance.

00;08;04;18 - 00;08;26;18

Unknown

And the cash balance is not a blue number. I'm going to say blue numbers for the things that you have to fill in manually versus like a gray number or a white number on this board where it pulls in automatically from QuickBooks. So at the top we're seeing the cash because cash is different than your net profit. So it's nice to have that cash balance of what you're actually having cash in your accounts.

00;08;26;21 - 00;08;45;23

Unknown

So you can just see what's the cash balance at a glance. This is really to help your project and to help you make sure at a glance you're not going to run out of cash as well too. But this is where you're more flexing your CEO muscle of being able to project forecast out, to say, what can I predict the future and how close can I get to that?

00;08;45;23 - 00;09;05;03

Unknown

So just wanted to throw that in there for this top section. Yeah. Well thank you for bringing that in. I was going to bring it in. But my my first note is what you can bring in and then talk about things that hit cash that people may not see that they actually hit cash. This is very important. But first everybody thinks, what can I bring in?

00;09;05;03 - 00;09;22;25

Unknown

What can I do? They don't think about where they're at right now. Yep. And it's really important to think about where you have been and what you have the ability to do. And and the next step would be what what it cost you to bring that in. Like what is your direct cost of bringing that in. Well, let's and this is very simple.

00;09;22;28 - 00;09;41;29

Unknown

If you can type in anything in these revenues. So if you want to start flipping houses, you can literally type in flip income and do if I sell one every 90 days, then you just put every 90 days what you're going to make on a flip. So it's very easy to manipulate it and add things in and whatever you need to do and actually see.

00;09;42;01 - 00;10;00;22

Unknown

Well, if I was able to flip a house every three months, how would that affect my revenue? So there's so many different ways we'd be on a call for two hours if I went through all of them. But that's why it's specific to the CEO, to the business, and your financial partner understands you, understands where you're going with your business, what do you have the ability to do?

00;10;00;22 - 00;10;24;10

Unknown

And then we can start really forming your projection. So to to go back to keeping it super simple, when you when you have assignment fees and wholesales in your business, one of the biggest things and usually the only things that you will pay for is commission. Because you have someone that's sitting in your office that is making commission off of that wholesale that they just we're able to close.

00;10;24;13 - 00;10;44;05

Unknown

That's pretty much the biggest thing I've seen whole tales or some wholesales where like they'll go and repaint and there'll be some costs, but that's very, very, very rare. There's a usually whole tails or they'll do an ovation or, you know, there's a we'll go a lot deeper for that. So I've added just basic cost of goods sold.

00;10;44;06 - 00;11;04;23

Unknown

You can put commissions cost of goods sold under what they pay. And this is a calculation if you're looking you can see the calculation. It's 19%. If you know what you pay out in commission it's going to be that that amount every time. If you pay bonuses, let's say every quarter you pay an additional five. You want to capture that here.

00;11;04;28 - 00;11;24;01

Unknown

So we don't want to forget about those things that happen maybe every three months, every six months, because that's going to hit hard or even a one. You're not going to realize it. Yes. It's kind of like your personal. Yeah, budget. Right. Because you're like, oh, well, I get my hair done, I go shopping and get a new outfit every six weeks.

00;11;24;01 - 00;11;40;23

Unknown

I get my hair done every eight weeks. Like, you still have to put that in your budget because that is money that you are going to use. And then you might look at it a month or two down the road when you start to get short in cash and you're like, well, what happened? So these are very important things that you need to look at month to month.

00;11;40;25 - 00;12;06;09

Unknown

And then when they get referrals, they pay commission off the referral, which is lower. But from the salesperson that it's it's provides the referral. So you still have commissions on those referrals as well. So and then I you know, I get in the habit of writing notes just because the reason we made the forecast blue and the dashboard is so we can write notes so we can write cost of goods sold in parentheses.

00;12;06;09 - 00;12;26;25

Unknown

You can write commissions, you can write bonuses, you can write anything in this dashboard. So that's the cool thing about it. You can literally just put what you what you want. You can put four times 20,000 in revenue. So it's it just gives you the ability to type in there. So when you go back you know exactly why you projected this number.

00;12;26;27 - 00;12;48;07

Unknown

So it adds up all the cost of goods sold. And again, same as the revenue. You'll see your total forecasted cost of goods sold on here. And then your total cost of goods sold is what actually hit during that month. And it's going to go through. And that's the reason that number is bold too. If you're actually watching this on YouTube, the numbers bold to bring your eyes to.

00;12;48;09 - 00;13;09;11

Unknown

This is what I was able to accomplish this month, right? And I love that because here's where a dashboard saves you time, especially if you're using something like what we have. We can pull numbers in automatically right from your right from your financial software. So that way it comes into here. And you can see in black and white, literally in the bolded numbers here.

00;13;09;11 - 00;13;38;00

Unknown

What did you actually do. And then above that is that forecast. And that's where you're really having the test. How good was I at projecting this forecast of okay, whether it's the cost of goods, revenue, the expenses, whatever it might have been, but that is an added benefit of having a dashboard that connects automatically to these financial softwares, because then you can do whatever you want to for your forecast, but then you're going to see in black and white, what did we actually do from the numbers that are inside that software?

00;13;38;02 - 00;14;00;02

Unknown

Yep. Definitely. That's I love it too. And then, you know, like we we nerd out on a little bit and I'm like, oh look how close we were able to get. And I know we do that with simple CFOs books like I'm like, wow, I did pretty good. We were only, you know, $100 off or $500 off. So it's it's nice to see that you did well, but you also don't want to be completely off.

00;14;00;02 - 00;14;19;03

Unknown

So that's why I say a good financial partner would really dig in and come up with really good numbers for you to, to go off of. And project good business is boring. So if there's something that's way out of whack, then that's what needs to be brought up. Like this is where if you're if you're like, well, I projected this and we were way off.

00;14;19;03 - 00;14;35;23

Unknown

We were like ten, 15, 20, $30,000 off here. Whether it was good or bad. That's the other thing, too. Just because you had a good swing does not mean you shouldn't look at those numbers as well, because now you're going to ask yourself a different question. It might not be how did we screw up? It's like, did we do something?

00;14;36;00 - 00;14;58;02

Unknown

And is it repeatable? So that way we can keep an extra 30 K or whatever it might have been. So that's why having this in front of you is should drive you two decisions. And especially if there's the wild swings, it's like, wait a second, what's happening here or in real estate. Very typical. Right Christine. For a property, get pushed back even if you're wholesaling, if you're flipping whatever it is.

00;14;58;06 - 00;15;15;03

Unknown

So you could have said well yes. Yeah. Right. So it's like this month it moved to the next month. Well that's very easily explained. If you have projections you're like, well I thought it was going to close here, but it actually closed here. So let me move that to when it actually closed. How close was I to that projection.

00;15;15;04 - 00;15;30;01

Unknown

And then it's like, okay, well if they keep moving back and you keep having to do that, well then it's like maybe your forecast will get better because, you know, I thought, you know, we were going to do X amount on this date, but it keeps getting pushed back. So really our average is whatever it is for you.

00;15;30;01 - 00;15;48;18

Unknown

So that just helps you to become better at being a good steward of the finances as well too. At the the helm of the ship. So there you go. That's all I have for this part. Yeah, because you start building in buffers, right? Because in real estate I feel like buffers. Our favorite word. Because. Gotta put buffers in.

00;15;48;20 - 00;16;11;23

Unknown

All right. So let's let's do a little accounting lesson. Right. Because so revenue minus cost of goods gives you your gross profit. And let's bring in profit first while we're at it because your gross profit is actually your real revenue because people think, all right, I made 200,000 this month, but I spent 39,000 to make that 200,000. Well, guess what?

00;16;11;26 - 00;16;37;09

Unknown

That $200,000 is not where you can actually fund your business to keep it going and have a run rate in your business, because that 200,000 is not fully 100% yours to cover operating expenses. So you have to adapt the cost of goods first and get that gross profit number, also known as your real revenue. And I like how simple profit first is that it literally calls it the real revenue.

00;16;37;09 - 00;16;58;00

Unknown

And I know David your profit first guru. So real revenue is super duper important for people to understand. And I know you can probably say a little bit on that one. Yeah. Well yes, I could say a lot, but there's a difference between fake revenue and real revenue, especially in real estate. That top line income number is never going to be your real revenue.

00;16;58;04 - 00;17;15;09

Unknown

Even if you're wholesaling. There's probably something like commissions or something that you paid out. Now in a fixed flip, it's really easy to know if you sold a property for 500 000, but like 300 000 in into the purchase price plus repairs. But you made 200. Well, 200 is your real revenue then. And that would be on your gross profit line.

00;17;15;09 - 00;17;41;00

Unknown

So you want to make sure that you actually make your business around the gross profit number and not the revenue number. This is why also, okay, if you've heard the the statement, you know, revenue is vanity, profit is sanity. Well, that also applies to this. What we're talking about right here. The revenue number really is vanity here because the gross profit is your real revenue of what you get to allocate and transfer into your profit first accounts.

00;17;41;00 - 00;18;00;28

Unknown

And that's what really matters for your business and what the, the cash and the lifeblood is of that business usually. So that's where if you've ever heard that statement, here it is in black and white of why it's important for you, the owner, to understand that. Yes, definitely. And that gives you your gross profit, which also you have a gross profit margin.

00;18;01;05 - 00;18;20;16

Unknown

And that margin is key to because you want to maintain your margin. Those are in percentages because as your revenue goes up, your cost of goods is going to go up as well. But your margins should stay the same up to a certain degree until you reach over that point. We won't get into complete accounting talk, but they should stay the same.

00;18;20;22 - 00;18;39;11

Unknown

So your margin is so, so, so important to keep near that upper percentage. You shouldn't be spending a lot on wholesale. So you should say at that 8,090% margin most of the time. Yeah. And if you're scared of the word margin all margin is is like a margin on a piece of paper. You know, it's like the outside edge.

00;18;39;13 - 00;18;59;11

Unknown

It's the it's the buffer. There's that word again right. That buffer of what is my percentage of what I made versus what I spent in order to get this deal done, you know. And what's the higher that percentage of gross profit you know, of like what you actually were able to allocate from the actual revenue that was in there.

00;18;59;13 - 00;19;18;10

Unknown

Obviously the better it is. And this is where we see a lot of fixing flippers who have very small gross profit margins are usually very inefficient at their flipping business. They don't they know things go over there, not on budget. Maybe they got taken by a contractor, you know, like all this stuff that goes into a small gross profit margin number.

00;19;18;10 - 00;19;40;01

Unknown

And that's where sometimes we have to sit at that number to be like, hey, we could do as many deals as we want to, but if this gross profit margin is at least healthy, then you're just going to be spinning your wheels wondering where all your cash is because you don't have any margin, because so much went into getting that property sold that you have no money left over, even, you know, even if you say, oh, I got a bunch of money back because I put it in here.

00;19;40;02 - 00;20;01;01

Unknown

Yeah, but you don't have a healthy business because there's no gross profit margin, because you were very inefficient getting it across the finish line. So that's where just another red or yellow flag to show you of like, okay, are we off track on track of actually having a business that we like? Yeah, definitely. That's that's actually a good a good thing to note.

00;20;01;04 - 00;20;19;15

Unknown

All right. And then expenses we talked about I was just going to say that I could contribute. Yes. Like sometimes I, I know the math stuff sometimes. Oh man. If you ever see me like, if you're watching this on YouTube or you've ever seen me in person, I totally look like the math guru. But I will tell you, Christina is the math guru.

00;20;19;16 - 00;20;34;04

Unknown

We we're having our level ten this morning in the US system and she's like, I love geometry. So I'm like, this is great. Like, this is why she's the CFO. And she was a little bit embarrassed there. So I'm going to embarrass you a little bit here. But this is why she's so good at the CFO seat, though.

00;20;34;10 - 00;20;56;08

Unknown

That's why the CEO most CEOs there are some out there, but most CEOs are not going to say I love geometry, like I love numbers or I love how they interact together. I love that I could put this in here and then I it spits out over here, what you're wanting to see is bottom lines. So that's where I want you to see what goes into it, from the numbers and from the dashboard and how we get there.

00;20;56;09 - 00;21;13;19

Unknown

But this is why having a financial partner, someone that's really has your back, that loves the numbers, that loves this type of stuff, to get into it, to say this is what we need to look at, even though it might feel good that you have cash in the bank, we don't have a great gross profit margin and you will go out of business if we keep it this low.

00;21;13;19 - 00;21;32;28

Unknown

So we have to get this up. So it's those types of things that someone like Christina brings to the table that is exceedingly valuable. Definitely. And so for the forecast for your expenses, these are all overhead. This is what it takes to run your business whether you make another sale or not. So you're paying for advertising and marketing.

00;21;33;02 - 00;21;57;19

Unknown

You're paying your payroll. You're paying for other software expenses, any education insurance, there's always legal and professional, any office expenses. So there's there's going to be like different expenses that you can't just make a business and not have an expense. Even if you make a business and have a website and email, you still have that expense. So you're always going to have expenses that you have to pay whether you make a dollar or not.

00;21;57;20 - 00;22;20;07

Unknown

So that's that's tough. And that's why I go back to cash being so important. Because if you have an off month and you can't cover expenses, then you're draining your cash. And if you have another off month, then you start to drain your cash because you have to make up for it. You have to afford these expenses. So all you're doing when you're not making revenue, but your expenses are still occurring, is draining your cash.

00;22;20;08 - 00;22;40;21

Unknown

So forecasting your expenses and getting them in a sheet and your forecast, your targets, projections, whatever you want to call it are normally just a summary. It's a very high view of what your business looks like. And then you can add things in. And that's what I love about this sheet again, is that you can just type anything in here.

00;22;40;23 - 00;23;02;29

Unknown

So if you if you want to hire a new person and you know that you need to hire them, say in May, then you put that hire in May. If you only travel one time a year and, you know, like like perfect example here. If you're looking in the travel bucket, it's $1,000 in March because I know that I'm going to make a trip in March that's going to cost $1,000.

00;23;02;29 - 00;23;23;14

Unknown

And you want to account for that, because again, that's one of the one offs that you're not going to see. $1,000 may not seem like a lot, but it can be. And the phone system that you'll see here, I put some of these things in here for an example. So like a $15,000 phone system that you have to pay annually, you cannot pay it monthly.

00;23;23;17 - 00;23;44;14

Unknown

That's a big expense. So you definitely want to make sure that you're counting for that expense in here because it is going to affect your cash. So, you know, aside from all the normal advertising marketing, I'm not going to go through all the expenses because, you know, because those are expenses that you just see every month and obviously take what happened in the past year or 18 months.

00;23;44;14 - 00;24;02;27

Unknown

I like to take two years, especially in real estate. So just make sure that you're accounting for everything and a good financial partner will ask you those questions, like the phone system. So when is that? I saw it last year. It was one month. Can you make it monthly? Can you spread it out so the cash is easier?

00;24;03;03 - 00;24;22;04

Unknown

Yes. No, no. Okay. Let's put it all in here. You're paying bonuses. Let's make sure that we are account for those bonuses of what it would be. Max. So if we hit the number in the revenue and this is what you would pay in bonus, put that in your forecast because that is what you would. You would have to pay if you met that number.

00;24;22;07 - 00;24;56;16

Unknown

That doesn't mean that if you didn't hit the 200,000 number and it's based on 5%, you're obviously not going to pay that same amount in bonuses, but you're forecasting it because we all want to get to the number that we're forecasting. That's why we're putting it there. So some of the things you can put on here and if you know it doesn't happen anymore, you you take it out if you want to and you write kind of notes like you're going to cancel a TV marketing source or you already have marketing, that's a total, but you're thinking about adding something to it, then you just add the line and figure out, okay, we're going to

00;24;56;16 - 00;25;20;19

Unknown

add it in August or September and put that in there because it's going to change what happens in future months. So just make sure you have enough information to build out the whole year, because it's so important to know what that year is going to look like. That doesn't mean it's not going to change. We know that as business owners it's going to change, but at least we have a good starting point and nice targets of what we want to get to.

00;25;20;20 - 00;25;40;04

Unknown

And you can always go back and look at your targets and say, wow, I really wanted to do that, but I'm not sure I can or but you know what? Now that I think about it, I'm gonna have to hire somebody else to get to that number. So then you can kind of think through where those targets started and start to build them out more specifically when you're halfway through the year.

00;25;40;06 - 00;26;08;04

Unknown

Yep. And that's where if you're on the podcast and you can't see what she's going over, we've moved from the revenue and the gross profit and the revenue and the cost of goods and all that at the top to now at the bottom of the expenses, and you're just filling all the expenses. So and the other thing is you can update this, but the first time you do this, like if you sit down and you go over this sheet with your CFO, or if you have this on your own, you're doing this one time at the beginning, and then you're tweaking it all on the journey, so it doesn't take very long.

00;26;08;04 - 00;26;24;26

Unknown

This is just something that when you actually go to review, you're going back and saying, okay, how close were we this month? What does the next month look like? Is there anything, like Christina said, is there anything that is coming up where there's going to be a big expense? We need to make sure that we like, if I'm going to buy a deal, then I know it's going to drain my cash.

00;26;24;28 - 00;26;41;28

Unknown

But then it's at the beginning of the year and my phone system is coming due, and it's like $15,000 for my phone system. But I need to buy this deal. Well, then maybe I need to go out and get private money if I wasn't going to before or get the bridge loan for the repairs, if I was going to do the repair or, you know, funding, whatever it might be.

00;26;41;28 - 00;27;04;04

Unknown

This just helps you also understanding in real estate. And I'm so passionate here because it's like so many people fail in real estate, not because their business fails, but because they fail at cash management, because they have deals and all their cash is out, and then all these things get piled up. But since they didn't know the numbers, they didn't know when these things were going to come due.

00;27;04;06 - 00;27;25;09

Unknown

Then they took the risk and it was too much for them at that point. So that's why we're showing you this. So yes, we want you to build skills and all that, but we don't want you to have the pain of going out of business as well where you're like, hey, just because I didn't know this, I should not have done these other deals or I should not have funded them the way that I funded them and should have looked for a different source or something like that.

00;27;25;09 - 00;27;47;28

Unknown

So just wanted to throw that out there as well. If you're if you're either watching this or listening to this, this is another big reason why you would even want to do a forecast is one obviously. So you don't run into the pain of going out of business because of cash flow management. Then secondly, is making sure you're also building the skill of knowing what numbers you can change as a business owner.

00;27;48;00 - 00;28;13;04

Unknown

And let me say one final thing, because this is the most important thing. And this is why I didn't talk about cash, but planning, planning what it looks like so you can be proactive in making a change. And the reason I added some of these things on here, and I really hope that you go and pull this up on YouTube, because you'll see when the net income becomes a loss and you have a loss, it's going to be in red.

00;28;13;09 - 00;28;28;22

Unknown

So even if you were to go through this on your own as a CEO of that red number, it's going to jump out to anyone and be like, oh my gosh, I'm losing money. So what is your first instinct when you see a red number? Oh no. Let me scroll back through. What's too high? What did I do wrong?

00;28;28;23 - 00;28;53;23

Unknown

What am I not making right? So you think it's a flag system? So you're thinking, oh, no. What happened? Why am I negative? So, you know, you want to make sure, like in the forecast, like it was only $39,000 that we were supposed to make, say, January, if you're watching it, if you're not, it's $39,000 of forecasted net income from January.

00;28;53;25 - 00;29;17;09

Unknown

What really happened was -100,000. So we don't ever want to see that. If it was negative on the forecast in January, we would have changed it, right? Because no one does a forecast to be negative. Now we know, hey, I have to pay this 3000 in January, but if I have enough cash to float it for January, I will be okay if I get there in February.

00;29;17;10 - 00;29;32;27

Unknown

But nine times out of ten, you're going to want to say, can I move this expense to another month? Can I bring in one more deal and just push for one more deal and just push everybody to do that? I mean, I had a client that was at 700 0001 month and I said, wouldn't it be cool if we could do a million?

00;29;32;27 - 00;29;48;21

Unknown

And I pushed him. I had a whole plan to put it up on the wall. Talk about how many you have to do. What's the average push for this? You have to make X amount of calls a week, and you have to do this and you have to do that. And and I pushed him and called him every other day to check on what he did.

00;29;48;21 - 00;30;06;04

Unknown

And he was able to hit 1.3 million for that month. So you put enough into it and you push yourself, you can do it. And that's what planning does. You're looking at it, planning it, and you know that you have to push a little hard and you cannot take your foot off the pedal. Sometimes we want to let's be honest, we're a business owners.

00;30;06;04 - 00;30;26;20

Unknown

We're crazy. We're busy, we're moving around a lot. And sometimes you think your team, you know, they're good, they handle it well, but all they need is that extra push. And I will say too, if you are looking at this negative number, there were just entries. And that's why it comes through as, as negative. So I want to make sure that this is really coming from QuickBooks.

00;30;26;20 - 00;30;46;23

Unknown

And this is actually a circumstance. So I want to make sure that that does happen too. When tax time happens and you do entries and they end up reversing in January or changing your books in January, but know why it's there so right. Don't don't go back every month and go, why was I -100,000. Let me pull apart that month.

00;30;46;24 - 00;31;09;23

Unknown

Make yourself a note that says this is what happened. I really didn't have negative cash. So and you have your net profit margin which again margins so important want to make sure that you're not killing yourself on your margins and have to put extra cash. Yeah I got one more thing to add okay. Because cash is so important.

00;31;09;23 - 00;31;35;20

Unknown

So we'll go right back up to what David was talking about earlier this opening cash balance. So everything you bring in and that goes out of your business is all what you're forecasting for. But your cash is the most important piece. Because if you don't have cash, you cannot keep keep moving your business along. So if you start at a good number, it feeds in what your cash is doing as you're filling in those numbers.

00;31;35;23 - 00;31;54;11

Unknown

So if you start at a high number, you have a bit of a cushion, which is nice. We want we want to have a bit of a cushion. Anybody that starts a new business, it's really tough if you don't have a cushion there, right. But as you go down and you get the net income, your balance sheet that you may not see, and this is another accounting lesson.

00;31;54;16 - 00;32;13;12

Unknown

Not everything is on your income statement. Things may hit your cash that you're not always going to see on an income statement. You may pay the principal off on a loan. You may put in money yourself, or take out a distribution, or someone didn't pay you like they thought you thought they were, and it ends up on your balance sheet as a receivable because they now oh you money.

00;32;13;15 - 00;32;31;07

Unknown

But the balance sheet tells you at the end of the day, where do I actually need to spend my cash? And the reason I put in the 15,000 again is because you can. Some people like to see it up in the income statement because they pay, they have to pay it, and they see it as a normal operating part of the business.

00;32;31;08 - 00;32;52;10

Unknown

And some people like it as just balance sheet, because you really won't see it if you bring it out monthly. So but that 15,000 is going to hit cash regardless of how you record it in your books, because I'm not going to go into full accounting, but there's different ways to record transactions in your book, so you just have to be careful of what you do.

00;32;52;10 - 00;33;13;21

Unknown

But on this balance sheet, you want to make sure if you want to pull money out of your business, you want to put that here. And if you're looking, I'm writing owner distribution. You should be paying yourself out of your business. You may not see that on your income statement. So if you want to take 150 out of your business every month, you want to add that because it is going to affect your cash.

00;33;13;21 - 00;33;39;00

Unknown

And I think that is very high up there for the reason businesses lose cash. I don't think owners realize how much they take out of their business sometimes. Or they say, I don't pay myself, but they just use the businesses funds for personal things and don't realize that it actually does add up. So those are very, very, very important things to look for that do bleed your cash.

00;33;39;02 - 00;33;56;19

Unknown

So there you go. This is the tab of projecting. And because a lot of people they hear that word and it's like oh I want projections. But this is the what do we really mean. And what does that really mean for you and for you? Just to recap again, you don't want to go out of business because you don't know where the cash is going.

00;33;56;23 - 00;34;17;11

Unknown

That's why she emphasized the balance sheet and making sure that you can understand if there's going to be a big expense, not taking the risk on a deal when you're not, when you're not going to have a bunch of cash then. So those types of things, becoming a better CEO and knowing what numbers to change ahead of time, knowing what the skill of being good at projecting as well too.

00;34;17;12 - 00;34;46;00

Unknown

So this has been awesome. So if you need someone like Christina in your life, I'm going to pull it up. The little banner here. Simple cfo.com. So you can go there if you want to at least have a call with our team. We do bookkeeping. We do the CFO services. We build the dashboard out for you. This is what we do on a daily basis is have calls like this to go over to these types of numbers, to help you understand where your business is, and to help it become a better business and you to become a better business owner.

00;34;46;04 - 00;35;10;13

Unknown

So I want to get out there and then I'll also do the QR code. If you're there on YouTube, you can see that as well. Just remember, at the end of the day, we want you to have a business that you love, that you actually provides what you want. So that's why we're doing what we're doing here. And Christina, thank you for going through this again and going through and doing such a great job of explaining what we're trying to get across to all the owners.

00;35;10;15 - 00;35;30;15

Unknown

You're welcome. I'm glad I can do it. I hope somebody got something out of today's podcast. Yeah, we always want to provide that value. And just remember, if you're listening to this make profit a habit in your business, not just an event you're looking for in the future. That's it for today's show. Be sure to subscribe, review, and share this episode.

00;35;30;15 - 00;35;38;22

Unknown

If you're serious about financial systems and keeping more of your profit. Visit to take your free discovery call today.