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You're listening to the Profit First for Real Estate Investors podcast. This show is all about helping real estate investors and entrepreneurs bring clarity and structure to the financial side of their business. In these sole episodes, we focus on practical financial strategies that real estate investors and business owners can actually implement, whether it's profit, cash flow forecasting or mindset.

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Unknown

The goal is simple to help you run your business with more confidence and less financial stress. Enjoy the episode. If you don't have cash reserves in your business, you're one bad month away from the entire business falling apart. I don't want that for you. No one wants that. I don't want that. I'll tell you a quick story. I met this guy at a mastermind a couple years ago.

00;00;47;08 - 00;01;03;01

Unknown

He came up to me. He was having some cashflow issues. He was doing a small real estate investing company, and he was teaching some people in his local market. He's actually making a big difference in their lives and like, helping them attain financial freedom. And he's like, I'm starting to grow my real estate business. I'm starting to help these other people.

00;01;03;09 - 00;01;16;17

Unknown

But he's like, I'm starting to have this cashflow crunch up and down, like one month. I'm doing great and I'm on the top of the world. The next month I'm like, where did all the money go? And so I told him, like, there's some good systems. I told him about Profit First, which I'll tell you about in this video.

00;01;16;20 - 00;01;31;14

Unknown

And it was just like, how can I help you? So I gave him some resources. I didn't really hear back from him, though, for a while. Then I met him again like last year at a different event, and I saw him and I walked up to him like, hey, how's it going? Have you got over those cash crunches?

00;01;31;16 - 00;01;56;07

Unknown

And he saw me. He's like, oh, man. Like I did this last year. I had some bad cash crunches. So when I had met him, that was like two years in between. And he said I actually had to make a decision this last year of either filing bankruptcy or letting go of all my staff. And he's like, I did not let go of, you know, I did not file bankruptcy.

00;01;56;08 - 00;02;13;22

Unknown

So he's like, I had to let go of everyone. I scaled way down. I'm not even coaching anymore. He said, and all because I couldn't handle the cash crunch and I never got the cash under control. He's like, I never had reserves. And to me, I was bleeding on the inside because I'm like, there is system, there are systems to help.

00;02;13;24 - 00;02;29;15

Unknown

If we would have, if you would have had a system in place for two years, you could have had good reserves. You could have weathered some of these storms because not everything's always going to be smooth sailing is not you know, entrepreneurship is not just that steady climb up a hill. It's that jagged turnaround going six ways from Sunday.

00;02;29;17 - 00;02;48;06

Unknown

It's like, I want to make sure that you have good systems in place to build reserves. To me, that is that profit first system. And I would have told him, like if I would have worked with him or if he would have worked with us, we would have done exactly these things. Number one, we would have made sure he knew his numbers like a profit and loss, a balance sheet like what cash profitability do we have?

00;02;48;06 - 00;03;08;14

Unknown

What net profitability? What's our balance sheet? What's the numbers? What are we looking at? Number one, we have to have clarity of what the numbers are telling us. But then I'd also implement the actual profit first system with him. Along with knowing those numbers I would actually set up what profit first is. Profit first is very reminiscent of Rich dad, Poor Dad, where he says, pay yourself first.

00;03;08;21 - 00;03;24;25

Unknown

Richest man in Babylon. A portion of all you have is yours to keep. Profit first just puts it in a little different way. It says for every deal you do, I put profit first. It's a whole formula. Sales minus profit equals expenses. I make a sale, I pay myself first and I have profitability and I put that in first position.

00;03;25;02 - 00;03;48;25

Unknown

Then the expenses are still there, but they're after I take my profitability off the table, then I grow from there. I grow once I have reserves in place and a lot of people put that backwards. They say it's sales minus expenses equals profit. I make a sale, I pay everyone else and their mother and hopefully there's profit left over at the end of the day, the end of the year, the end of the month, maybe when they sell everything and sell their business.

00;03;48;27 - 00;04;20;20

Unknown

I don't want that for you, because if you go that route, you'll end up like that guy. You'll end up like that guy who was like, I'm having the cash flow crunches. I'm actually scaling up. But then two years later, when he didn't implement anything, it's like everything was gone. Everything was lost. Everything he worked for. And then he had to rebuild from square one, where if he would have had some key systems like profit first in place and placing profit as a priority versus a last resort and placing profit last, then he would not have gone out of business like he did or at least had to make that horrible decision between bankruptcy or

00;04;20;20 - 00;04;38;17

Unknown

letting everyone go. So this is where Profit First can help with that. But I want you to know that reserves are the bedrock of you having the option in your business to do what you want to, whether that is using those reserves to grow and scale, using those reserves to buy back your time, using those reserves to just be there as a peace of mind account.

00;04;38;17 - 00;04;55;01

Unknown

Using those reserves to go on vacation and trips. Financial freedom starts with the ability to have the discipline to put the money where it needs to go, and not just where you want to put it. It's like I need to have in my business reserves in place. So that way I have some measure of control and financial freedom from the business.

00;04;55;08 - 00;05;13;09

Unknown

So many people say that finances are such a sticky point, whether it's in marriage and it's one of the biggest causes of divorce or for business partner breakups. If you have a business partner, it's like the cash in the cash management and not having reserves. That's a huge part of people breaking up in the business world as well, too.

00;05;13;12 - 00;05;31;15

Unknown

It's the biggest cause of stress and anxiety for people. I want you to have reserves because it alleviates a lot of that. It's so much better to go into a conversation saying, hey, it was a down month, but we have 3 or 4 months of reserve, so what do we want to do here? That's a lot different energy than oh my gosh, what happened?

00;05;31;15 - 00;05;44;07

Unknown

Where are we? Like I don't know. The deal didn't close. We didn't get the sales that we wanted to. What's going to happen. We don't have any reserves. Like we need to get a deal on the door now that's a lot different energy, isn't it? So I want you to be able to have that calm energy at all times.

00;05;44;07 - 00;06;02;22

Unknown

And it starts with don't scale and grow until you have that reserve in place. And if you've already started to scale and grow and you've been using your revenue and you're just been growing as your business has been growing, I'm telling you right now we need to stop, put a stop on that and just be able to say we need a system to keep more of the money.

00;06;02;23 - 00;06;24;09

Unknown

I'm not saying you have to stop growing forever. I'm just saying for right now, let's take a pause and make sure we have a system in place to keep growing but growing profitably. So what is profit first in practical terms, not just from the rich dad poor dad terminology, or from that formula that I gave you? Profit first is all about making sure you give every dollar a name in your business.

00;06;24;16 - 00;06;53;08

Unknown

What does that mean? Dave Ramsey's made super popular in the personal finance space, the envelope method and making sure you if you get personal finances and you get income into your personal life, putting that money in different envelopes or into different bank accounts and like, okay, where's my money for the utilities, for the mortgage, for groceries, for all the different expenses, vacations, all that into different envelopes in the business world, I would just have you set up business checking accounts and naming them certain names, like, I want to keep more money.

00;06;53;08 - 00;07;10;10

Unknown

So I would have some accounts called like profit owner's compensation to pay yourself owner's tax. So you have a peace of mind account. When the tax time comes, you've got taxes set aside to pay the taxes. So I would have some of those accounts to help you keep it. Then I'd have some control accounts to help you control the cash flow, income and expenses.

00;07;10;10 - 00;07;29;11

Unknown

I'd have an income account and an opex or operational expense account. Income would be for all the money you receive, and then you would transfer that to the rest of the accounts in your system, like those keep accounts, those first three profit owner's comp and the owner's tax, then the opex account to make sure you have the operational expenses to keep the business running and functional.

00;07;29;13 - 00;08;00;27

Unknown

But this is how you build reserves. You don't build reserves by saying one day, you know what, we had a great month. Let's just throw a bunch of money into our savings account. You build reserves from where every sale happens. A portion of that sales goes into a reserve account. It's automatic. I don't know if you've ever heard of that book, The Automatic Millionaire, where his whole theme for the entire book was literally just setting up systems to make it automatic for you to reinvest, whether it was a stock market, whether it was into your employer's 401 K, if it's a self-directed IRA, if you're in the business world, like whatever it might have been,

00;08;01;02 - 00;08;18;14

Unknown

he's just like, don't even touch it. I just have it be on automatic. Same thing in your business. It's a deal closes, you get it into income. Can we automated as much as possible to be able to build the reserves and have that money there. So that way we don't have to be running around like a chicken with our head cut off all the time.

00;08;18;21 - 00;08;34;16

Unknown

I want you to have that reserve account, because then you can make decisions actually from opportunities and not from fear. You can say, I can build the business that I want to, or I can pivot or I can grow or I can, you know, change directions. If the markets go in a different direction, I want you to be able to do that.

00;08;34;16 - 00;08;48;05

Unknown

But how do you do that? By building reserves in the practical way to do that is setting up what do we a reserve account. And then from every deal or every sale that you get, you put a little bit away into that account. So that way one day you wake up and you're like, hey, we've got 3 to 6 months in there.

00;08;48;05 - 00;09;06;04

Unknown

Now. I feel very confident to either reinvest back in the business or just to keep building that reserve account, or maybe you build it up to 6 to 12 months. Now you're feeling really good and you're like, should I pay myself more or should I go on vacations? What should I do with this extra cash? That's a much better question than oh my gosh, what happened?

00;09;06;04 - 00;09;25;23

Unknown

We didn't close the deals. We didn't get the sales. What do I do now? So if I could give you any advice, it'd be from this recording right now. Set up one account, call it reserves or owner's comp. Like start paying yourself regularly or start putting money away one of those two things. So that way you could get in the habit from every dollar that comes in.

00;09;25;23 - 00;09;53;14

Unknown

You put a little bit away. That's how you build reserves. Reserves are not an event that happens. It's a habit that you build into every single sale that you do in your business. Thanks for spending time with me today. If this episode gave you clarity or a new perspective, be sure to like, subscribe, and comment below if you're ready to apply what we talked about today with real guidance and accountability, visit Profit Recom to schedule a free discovery, call with us to create your path to financial clarity and freedom.