00;00;09;21 - 00;00;31;07

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. First of all, you want financial freedom and you're not having it because most businesses are effectively not profit.

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Unknown

I said but the other two can't be achieved without financial freedom. You're making no money, and you're going to be able to go and do what you want and travel around and know you have to serve the business. And if if the business needs you 99% of the time and you're making no money. How can you ever have impact, right?

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Unknown

So we have to start off with the financial foundation. Hey, I'm David Richter on the host here of the Profit First Real podcast, coming to you again with Mike McCall. It's the author of Profit First, which I'm super excited because we've done a few episodes together. This is my first time meeting him in person, which is absolutely incredible.

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Unknown

He is a wonder at all things business because, Mike, you've written more than just profit. First. How many books in total have you written now? Ten business books. One children's book. Oh. Children's book. Tell me about that one. It's called My Money Bunnies and is a sneaky way, actually to teach adults about money. That's all. Because when you're teaching your child, this is how you manage money.

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Unknown

You got to do it yourself. You're held accountable. And it's probably first simplified even further for kids to do, which is very cool because we all need that. That's why we're even doing this podcast. That's why we're here today. Yeah, because a lot of business owners are not true business owners like they are more of the they're good at the thing.

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Unknown

A lot of people get into real estate and they're good at the deal. They can go out there, they can get on the call. They're really good face to face with the seller really identifying what's the problem here. How can I solve this problem? Do they need someone to just take a horrible house off their hands that they can never sell on the market, or do they need are they a retired landlord that doesn't want this property anymore or tenants anymore so they can go in there and do that?

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Unknown

But then the business end of things kind of gets screwed up a little bit. Oh yeah. You know, the biggest challenge is the way they see themselves, okay. So they see themselves as a master craftsperson. I'm so skilled. This is my talent. And it's a classic example is like a salesperson in an organization. They're so good at the craft of sales that the Rest organization says, well, you should be the sales manager, you should be overseeing the sales department.

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Unknown

And the salesperson themselves says, yeah, I'm so good at sales. Clearly you do this, but it's a whole different skill set, right? You're not selling the deal now. You're managing a team. And inevitably many of those people collapse in that role because it requires them to be different. Well, entrepreneurs have the exact same thing. And entrepreneur is defined as someone at hustles and grinds, sacrifices, family and friends, anything to make this business successful.

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Unknown

And therefore they lean into identity. And it's the worst thing for the business because now all you're doing is working in the business. So much so that you've become the linchpin. The business can't survive without you. So what I tell people, and it's very odd for them to say this, but like the next time you're talking to someone, they say, what do you do?

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Unknown

Do not say you're a business owner. Do not say you're an entrepreneur. I love those terms. But don't say that. Say you're a shareholder of a business and they're like, what does that mean? Well, I'm a shareholder in Ford. I owned some stock. When when the distribution checks, I don't like call for it and say, I don't deserve this money, I'm going to return it to you.

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Unknown

And I don't go to the factory to earn it. I say I'm a shareholder. I've taken risk. I've invest in your business. I hope it increases in value, but it may decrease. This is a reward to me. A shareholder is someone who shares in the profitability because they made the investment risk and gives strategic direction. I vote, you know, we should hire these people on board.

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Unknown

We should build the new building like the shareholders vote. That's what we do. So starting today, call yourself a shareholder, which is going to be very weird. Keep saying that until the day you actually feel it and believe it. And then when you feel and believe it, you'll start behaving that way. So it's that identity shift from either solopreneur even and entrepreneur business owner to more of a shareholder because they are actually a shareholder in their own business, correct.

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Unknown

Because they're the one obviously making a lot of the decisions. And at the end of the day, if there is profitability, a lot of people don't usually tap into their profitability. They don't even have good systems for the profit or anything like that. So it's taking that identity shift first and then taking it to the next level of now.

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Unknown

We needed the systems in place. So we are profitable. So okay, tell me about if they make that identity shift, what would be their next step in this journey. Well, first realize there's a little bit of gamesmanship going on here because to call yourself a shareholder and then be all in on that only when you still have a brand new business that's not going to work.

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Unknown

Okay. So you can't you are going to say, I'm a shareholder and then you have what's the shareholder do? Will they make strategic decisions and direction and they share in the profit but they don't do the work. I don't work at Ford's factory. Right. But the reality is Ford has hundreds of thousands of employees, right. Your business may just have 2 or 3.

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Unknown

Right. So you may have to go back in there, but realize you were putting on a different hat. And I have a guy, I make him put on a different hat. It's actually a vest. It's a vest. So he's got a vest. That's it's a pink vest of all things, like a workman's vest. And I say, you. And the reason we picked that it's his least favorite color.

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Unknown

I said, when you're going to work inside your business, put this vest on to realize you are playing a different role. That's necessary. And you are not the shareholder. You are your employee number whenever you're an employee, this capacity and the second you leave and you're back to shareholder, we're taking that thing back off just to bifurcate those things out.

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Unknown

So what people have to realize is you are going to have to insert yourself in the business. But if you carry that one persona across all roles, you're you're going to kind of blend them together and see that as part of your role. This is a translation roughly from a book by Dodd Herman called The Alter Ego Effect.

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Unknown

And when he shared with athletes, did the most elite athletes is when they step on a stage or step on the field or whatever it is, that they see themselves as a different character. And there is usually a he calls a totem, but some kind of device. Martin Luther King, before he do a speech to get into the zone, would put on a pair of glasses.

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Unknown

He actually didn't need glasses. He put them on to show that his new character, Superman, would take off his glasses. And so what is the the character shift you make? And if you can make it a physical shift, also, you'll have that realization you're playing a role until you don't have to play that role anymore. So then a lot of entrepreneurs or real estate investors, they look at themselves, I'm a real estate investor, or I am a good deal maker.

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Unknown

Like I can go out there and get the deal. So that's usually their identity. Then if they add to it, the shareholder, but then they also have to think of themselves of like, okay, I am the shareholder, but then I'm also I work in the business. So when I do that this is who I am. But I'm also, you know, the connector, whatever.

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Unknown

As far as the real estate industry goes, I did want to ask, when you're managing your money, which identity do you put on? Is that shareholder or is it a combination of a couple shareholder? When I'm managing money, but when I'm doing work in my business, I always do work in my business, so I almost sound hypocritical. I have a new I'm actually wearing it right now.

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Unknown

This bracelet is a tool for me. When I'm on stage speaking, I will turn it like this, tighten it, and the silver parts are up and I call it stands for Eradicate Entrepreneurial Poverty. It's my life's mission. And so when I put this in, I'm like, okay, I'm going into the deep state, deep, deep, the deep, deep state, which is bizarre.

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Unknown

But right before I go on stage and when I'm done, I loosen up again and let it kind of flop around. Okay. So it's a it's a new it's a crazy pneumonic technique, but it's effective. We can play a role hardcore for a certain period of time. But if we play that hardcore role all the time, we become hardened around it.

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Unknown

So the shareholder role is another capacity of mine. And why? I don't have a mnemonic physically on it. I'll usually do it in a certain space. And I have two offices. You saw the one here. I also have an office down the road from here. I'll go in that space and and that's when I'm in that state of being a shareholder.

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Unknown

So I use space or mnemonics to trigger that. You got to add that label though. And for me it's the primary label. What's your primary choice. So you can say I'm primarily a deal maker and you're going to lean more into that. I say I'm primarily a shareholder who also speaks. Yeah, that's how that makes sense. So that way they can think of themselves what is going to get you the real end result that you're wanting.

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Unknown

Because if you just want more deals but you don't care about the money, then you're probably going to lean into deal maker. But if you care about, at the end of the day, your financial freedom like what everyone really wants from entrepreneur and from being a business owner is really that shareholder of being okay. I want the distributions.

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Unknown

I want to make sure that your life is getting better as you're building this business as well too, and that you are being a responsible shareholder of the money. And so that comes with being very intentional with that profit and making sure that you have every dollar named. And that's what Profit First is all about, making sure that you have a system in place.

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Unknown

So that's where being that shareholder, it sounds like you would be very intentional with the profit, very intentional the profit, because that's what shareholders need to do. There is most large corporations, a sign up that says our responsibility is to return money to the shareholder or earn money for the shareholder, shareholder dividends and stock valuation. That's the primary objective.

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Unknown

And there's some hate around that isn't the business's primary objective to serve the customer. You can't serve the customer unless you are profitable, right? Like it is the essence of the stability of an organization. So it is the primary focus. And what I love about large organizations, even though I don't aspire to have one, is the only way to become a large organization is to be financially responsible.

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Unknown

Yeah, they have payroll for usually hundreds of thousands employees. They have to do all these different things. And their number one edict is to care for the shareholder. So let's follow that principle. Maybe you aspire to have a large company or maybe not. But they figured out fiscal management and the edict is always the shareholder must be cared for.

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Unknown

So when you're putting that shareholder role on, you got to care for the profitability. You happen to be the exclusive shareholder in many cases. So you benefit from that. But it also brings stability to your organization and so forth. I always think it's funny that we set up these for profit businesses and then we're putting profit last. Like I think, no, I think we need to write a parody book called Profit Last and just tell all the stories about we should all those things I could yeah, we could get profit last the story of almost every business on this.

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Unknown

And then it leads into profit first. But so many people do that and they're not intentional with the profit. And that's where a system like this helps them to come to terms with that and then gives them actual steps to become intentional. That's why I love that. It's a system that's where I think rich dad, poor dad and like the Richest man in Babylon, all those have a lot of the same things because like you said, there's nothing new under the sun.

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Unknown

It's like these core concepts. And with what you did, though, it's more of the how to like, okay, pay yourself first, but here's how and how to be a good shareholder. Here's how. And I do think it's funny, we run these for profit businesses, but then we focus on profit last. But then we become unintentional nonprofits like, you know, like we push ourselves into that nonprofit territory.

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Unknown

And it's like, well, if you want to do that, you should just set up a nonprofit from the beginning. I know this is where if it's a for profit business, your profit can fuel your purpose, like it can fuel the other things in your life that you're wanting to do. And if you're profitable, like you said, you're taking care of your employees.

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Unknown

You're doing the things that really matter to you. But if you're not profitable because you've got the hang up, it's like, okay, let's take a step back. What are we really trying to accomplish with this business? Then I when I do speaking engagements, all survey and audience, and I always ask this question, I say, tell me the reason or reasons you started a business and prior to asking them on a whiteboard, I'll write it down and then cover it with like a sticky thing, you know, and then reveal.

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Unknown

I'm going to say, I'm going to guess the reason you started a business. Top number one answer is for financial freedom. People start a business because they don't want to worry about building number two. And usually they're very close is personal freedom. I want to have flexibility in my life. Do I want when I want? Third reason I want to have impact.

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Unknown

I want to serve community. I want to serve purpose of significance. My employees, our world, our globe. And I said, this is the top three, right? I say without finding, first of all, you want financial freedom and you're not having it because most businesses are effectively not profits, I said, but the other two can't be achieved without financial freedom.

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Unknown

You're making no money, and you're going to be able to go and do what you want and travel around and know you have to serve the business. And if if the business needs you 99% of the time and you're making no money. How can you ever have impact, right? So we have to start off with the financial foundation.

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Unknown

Yeah. And that's where even with what we do in simple CFO, that's what we call the first 30 to 60 days. It's laying that financial foundation, like you need to make sure that you've got a few key pieces in place. And one of them is profit first, knowing where every dollar is going. Being very intentional with the profit.

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Unknown

That way you can take money home and not feel guilty about it. You can make sure that you have your building financial freedom. You might not have what your ideal life is right now, but you can start getting glimpses of it by actually taking that profit out and putting it towards those things. I'll never forget your ice cream story right in your book.

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Unknown

Like the first ice cream that you had with your profit account was like $10 or whatever. It was like the best day in ice cream cone that you've ever eaten because it was your money. That's the funniest thing. So I've been doing sites around this of where do we get more joy? What's the thing? And so the question is, do things give us joy?

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Unknown

And the answer is yes. Sometimes very short periods of time. You get that new car, sometimes a little bit longer. But most acquisition of things do give us a surge of joy. So I said, okay, what gives us the most joy? Is it the new car is the new house? And the answer is it's all basically the same, as long as there's no guilt associated with it, because that's the Joy destroyer.

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Unknown

So when I got that ice cream for for ten bucks, that was the full profit account. It was the best freaking ice cream of my life. Yeah. And because there was no guilt associated with it, when I got my first car with the profit account, it was the most joyous thing because the car was my possession. But the car I bought prior to that, I had debt associated with it.

00;13;52;26 - 00;14;13;04

Unknown

It was joyous for a second because I had this, but then the overwhelming responsibility to find a way to pay for this was burning me. And that was not joyous. So it's not the thing you get. It's the freedom you have once you've acquired it. There's no responsibility beyond the acquisition of it. Yeah, that's so good. And there's a book out there that's real good from Morgan Hazel, the Art of Spending Money.

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Unknown

And he's like, if you buy anything, then you will be as joyous as you are before you buy that thing, usually like because of your expectations. So yes, it will increase it for that, but that's because you've allowed it to as well. And a lot of people just we don't manage our expectations, right. Especially in the business. How many times do we expect like, oh, I just got this big deal.

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Unknown

Just close all I'm going to feel great because and then the money's gone a month later or a week later. Yeah yeah yeah. And then they're like, what's happening here? Why don't I like my business as much as I think I, I should have or would have, you know, getting into this at the beginning and a lot of people just don't understand, if you're intentional with that profit, you can have 100.

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Unknown

If you can have the systems in place, you can have those things on the long term. And now you don't have to worry about the money because that's really you don't want to worry about the money as a business owner. Correct? I know business owners that are literally taking home millions. So we talked about one of these episodes.

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Unknown

It's not about what you make. It's about what you take. Yeah, there's another step. It's how well you manage what you take. So I no business owners truly taking home millions of dollars a year. And I've never seen such stressed people because they put so much burden on themselves. And I know business owners are taking home $50,000 a year, which, by the way, is the average earning of an American is 50,000 a year.

00;15;26;25 - 00;15;45;26

Unknown

And I see people making 50,000 years that are extremely happy because they've managed their money. I've now put terms to it. So there's this term financial freedom that exists. And how it's roughly defined is that you never have to worry about bills, do whatever you want, and there's no financial worry associated with that. That's financial freedom. But the reality is financial freedom is a moving target.

00;15;45;27 - 00;15;58;28

Unknown

Yeah. You and I can take and say, let's go to the beach for a week and just hang out, bring our families and stuff will be fun, and we have to worry about the bills, which we can say, let's go to the beach in the Caribbean on our private jet. Yeah, exactly. Not worrying about the bills. It's financial freedom.

00;15;58;28 - 00;16;17;24

Unknown

But there's a certain point for both of us that we won't be able to do that without financial stress. That puts us in a downward state. So financial freedom is inaccessible because it's a moving bar. There's another term financial independence. And how I define it, it's financial independence is where money doesn't control you. You control and assert authority over money.

00;16;17;25 - 00;16;39;02

Unknown

It's where you know, whatever dollar is doing and what you have available to do with it. It's working within your means, but it's by asserting authority and control over it. And so I believe every business owner needs to achieve financial independence, and it's available to anybody at any income level. And once you do, your joy factor is now addressed, at least from the financial aspect, because you're not worrying about money.

00;16;39;02 - 00;16;56;28

Unknown

You know what you have to work with. Then as you earn more money, that's a wonderful thing. It can give you access to so many more things. But gosh, if you don't have financial independence in place, you'll never achieve any form of financial freedom. I love that and I love that you said control, because I think that's what Profit First brings to at least the cash flow management piece.

00;16;56;29 - 00;17;12;04

Unknown

It's like making sure you have control of your money, because if you don't control it, it's going to control you. And the feeling you get from that is confidence. Like you don't have to be chaotic and squirrely brained anymore. Like a lot of entrepreneurs, you could be very confident in where the money is going, where it's coming from.

00;17;12;07 - 00;17;29;22

Unknown

Yeah, we talked about in the past yellow flags versus red flags, like knowing something's coming down the pipeline or something's off with your cash. So being able to be that business owner and that shareholder, that's really understanding okay, this is what I need from the business. This is how much I have. This is where the profits coming from and going to.

00;17;29;23 - 00;17;46;09

Unknown

And then knowing that that can buy your financial independence. I like how you said that because freedom is such a moving target. And it's like, yes, I love the urinal and it's like private jet versus just going there commercial. It's like, okay, there's both there. But for us, financial independence would be just hanging out and having that flexibility in that time and how we got there.

00;17;46;09 - 00;18;04;06

Unknown

It's like, okay, we live within the means of what we have right now. And I really like that because a lot of people start profit first and they think, oh, this is good for the business and the system. But taking that into your personal life and saying, okay, what what can I really do in order to make my life what I thought it would be, as when I got into being an entrepreneur.

00;18;04;06 - 00;18;20;25

Unknown

So being able to have that. And that's why I like what you said at the beginning, that shareholder mentality. Yeah. Like the profitability is that reward. There's a new term circulating and I'll probably bastardized it. It's called out loud budgeting I think. And what it is, is say you and I are talking about going out to dinner tonight.

00;18;20;25 - 00;18;41;25

Unknown

I'm like, hey, David, you go out to dinner out loud. Budgeting is saying, actually, I'm choosing not go out to dinner tonight because I don't have the money budgeted for it. It's saying the truth where historically, the socially appropriate thing to say I can't make it right. Other plans. Correct. Yeah. Which which allows us to have these excuses and not address the real thing.

00;18;41;25 - 00;18;59;19

Unknown

So it's a dance. And so out loud budgeting is as saying the fact and it brings confidence actually to both of us. Yeah. And I think that's what we need to do to be out loud about it. Maybe not with others initially, but at least in our mind saying I can't go because of financials. And then I think the next step maybe is being courageous about and saying, I'm not doing this because I'm not prepared financially to do it.

00;18;59;23 - 00;19;16;06

Unknown

And once you start becoming public, you realize you're not judged about it. Could you imagine to dinner? And you're like, you know what? I'm choosing not to this time because I just don't have the budget for it. I'll probably come back and say, well, hey, you want to hang out at your place? Like we'll find an alternative. It starts a negotiation for what's economically viable for for both of us.

00;19;16;08 - 00;19;49;13

Unknown

And I may say, thanks, David. I don't have enough money either. I just thought you'd like to go out. I rather replace some popcorn and enjoy a movie. So I think what we find is what we're afraid of being judged about financially. We won't be. And when you're courageous about it, it gives you so much more confidence. Okay, I love that being direct, being open and understanding and then knowing where that money is coming from going to then you can be directing like you also are opening the door, like you said, for them to be able to back out, but then to for them to be able to ask you a good question, like, okay,

00;19;49;14 - 00;20;07;05

Unknown

so do you really live your life by a budget? Like how do you do that and not kill yourself? You know, like so many people out there. So it opens up other doors to as opportunity to help someone else as well. So I love that suggestion. So from this episode, we really want you to think of yourself more of a shareholder in addition to the other hats that you're wearing.

00;20;07;07 - 00;20;26;29

Unknown

That's probably one you've never thought about before. Is being a shareholder in your own business that will help you shift that identity from just being this business owner to shareholder in your company, actually sharing in the profits. So that way when you set a profit first, you can actually take those profits and get towards your financial independence. So Mike, this is so awesome I love this.

00;20;27;00 - 00;20;42;26

Unknown

If you need help and you need help, implement it. And you could go to simple CFO. That's where we have our services to be able to, whether it's bookkeeping or CFO or taxes. Like we want to make sure that the finances aren't the main issue in your life and in your business, and we can help you set up those systems.

00;20;42;27 - 00;20;57;27

Unknown

Mike, again, thanks for being on the show, Spence. Right, brother? That's it for today's show. Be sure to subscribe, review and share this episode. If you're serious about financial systems and keeping more of your profit, visit SimpleCFO.com to take your free financial clarity call today.