00;00;05;19 - 00;00;25;29

Unknown

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.

00;00;26;00 - 00;00;57;13

Unknown

The goal is simple to help you run your business with more confidence and less financial stress. Enjoy the episode. Borrowing money to scale your business is smart until you do it for the wrong reasons. What do I mean by that? There's so many people that get into business and they think that borrowing money is the end all be all of like, I've got to get this money in order to get my business up and running, and I've got to go out there and maybe get a loan, maybe get a bridge loan, maybe get any type of loan and SBA loan that will help me get off the ground.

00;00;57;16 - 00;01;15;08

Unknown

Now, I will say there are times when getting a loan makes sense, especially if you're in an industry like the real estate investing world. You're getting a loan for an asset that will be sold off your books, usually within a short amount of time, especially if you're getting money for a fix and flip, or for a rental like a buy and hold.

00;01;15;15 - 00;01;28;23

Unknown

Then you're getting that money and you have an asset, and you have something that's either going to be sold and that that's going to be gone. That's usually the good type of debt. But let's just say you want to get money to grow your business. You want to have money that's been able to get you to where you want to be.

00;01;28;23 - 00;01;44;23

Unknown

And there's there's different avenues you can take. You can either get a loan, maybe you get a one from a private lender and they give it to you unsecured. And that's a little bit more dangerous because then there's not as much control from them. And it's like you can use it for whatever you want to. And if it doesn't pan out, you're still on the hook to pay them back.

00;01;44;23 - 00;02;00;15

Unknown

Plus the interest in. Plus if your business doesn't go well, where are you going to get the money from? But there's other ways as well too, whether it be the SBA or whether it be some of these ones out there, there's other ones that offer you financing. I would just always be careful about looking at what their terms are.

00;02;00;15 - 00;02;21;27

Unknown

What are the interest rates? What is your payback time, all of that. But I want to make sure you also understand you can grow from your reserves as well to lots of people. I heard this recently at an event that I was at, and I absolutely love this statement where a guy got up and he said, don't grow from your level of revenue, grow from the level of your reserves.

00;02;22;00 - 00;02;42;17

Unknown

Meaning if you are not going to get a loan to grow your business and you're going to grow it with your own cash. Don't just do it because you're making more money. Don't do it just because you have more sales. Maybe then you have before or this was a great month. And so we're going to throw more money at marketing this month and see if we could get more leads and more sales versus wait, okay.

00;02;42;17 - 00;02;57;24

Unknown

Hold on. We've had some good months. What do we need to do with this cash in order to maintain and to make sure that we can be a business for a long time? Lots of people are trying to get rich from their own business and get rich quick. Even though this is not a get rich quick scheme, the entrepreneur world.

00;02;58;00 - 00;03;12;21

Unknown

But a lot of people are trying to get rich quick and they think that, okay, more money I put into this business, the more I should get out of it. But then how about when you put that more money into it from a good month? Then the next month you don't get any sales and you don't get any leads, or it doesn't work out how you want to.

00;03;12;21 - 00;03;27;04

Unknown

And you're like, oh, shoot, I just poured all this money from a good month into my business and now I have nothing to show for it. Not even that maybe you might be on the hook, especially if you've got some investor funds or whatnot to be able to use as well too. I don't want you to do that.

00;03;27;06 - 00;03;45;15

Unknown

I want you to grow confidently because if you go to several different routes, whether it's getting an actual loan from a bank or from the SBA or from a private lender, having a clear cut plan, how much am I going to take? What am I going to use this money for? When is the expected return on this money so I can pay them back?

00;03;45;20 - 00;04;02;11

Unknown

What are the terms with this investor or with this institution? It's like is this a long term loan like some SBA loans are years long or might be even decades long, depending on the program you go through and what you're qualified for. It's like, how long do you have to pay back and what how are you going to figure that out?

00;04;02;11 - 00;04;18;10

Unknown

Versus if it's a private lender and they're giving you an unsecured loan, meaning they're just pumping money into your business, but it's for maybe an hour to a certain amount of time. But it's more about what is their return and when are they going to have their return back. And like, are they just interest only payments to this lender?

00;04;18;16 - 00;04;40;21

Unknown

Is it more of like an amortized loan that they're giving you? It's been very clear. What is my plan with this money. Not just a hope and pray plan? Man, I hope this money works out. I pray that there's some money left over. I could pay them off and I can grow my business. If you're a small business owner and you're jumping into entrepreneurship, chances are you are not a big tech company.

00;04;40;21 - 00;04;59;13

Unknown

If you're listening to this video right now, you're not Facebook, Instagram, you're not WhatsApp, you're not all of these things where they started with maybe venture capital and lots of people pouring money into them, and then they sold for billions of dollars or they've had multiple offers. What is really going to happen? Usually you're going to say, I want to get out of my rat race.

00;04;59;15 - 00;05;16;28

Unknown

I want to build a business. I want to scale. What's the best way to do that? Maybe you get a few deals in the door, some sales, and you're like, oh, I could grow a little bit faster if I just had more money to go out there and do more deals or get more deals in the door. But you haven't learned, like, how do I manage this money on the back?

00;05;17;02 - 00;05;32;15

Unknown

How do I make sure that if I take a loan, I know that I'm going to not only be able to pay it back, but I'm going to be able to also grow the business, how I want to still have profitability, still be able to measure exactly where I want to go. A loan to me is not like I'm not Dave Ramsey.

00;05;32;15 - 00;05;58;25

Unknown

I'm not going to tell you you should never take a loan. You should never have debt. You should pay it all off as soon as possible. Even though if you look at his track record, he's worth a couple hundred million and he's all debt free, so it's not like he's doing something wrong. I just think that if you're going to grow a business and you have the opportunity to leverage some good debt, especially if you're in real estate, if you're in real estate, you're usually taking debt on for a specific asset for a property or for a specific project.

00;05;58;25 - 00;06;18;08

Unknown

So that way you can finish it, get out of that loan pretty quick and then move on to the next one. That's usually the safest type of loans for a business to grow and scale them. If you're in the real estate world now, if you're just getting a loan just to grow the business and grow the operations, maybe hire someone, get someone on staff, or that's going to be up to you and your business and seen what you can handle.

00;06;18;08 - 00;06;33;19

Unknown

If you take an unsecured loan and you say, well, I'm going to use this to pump some money in here to be able to maybe hire this operations person. And that way I could do be more efficient on the on the actual project management side and get more deals done. And then you go out and you pump sales in the door.

00;06;33;19 - 00;06;53;23

Unknown

Well, then that might work out if you have a plan and if that works out. But do you have a back door in just in case that doesn't work out. The operations come, person comes in and it doesn't work out like, you know, like just roses and everything. What is your exit strategy for that loan? Are you going to go out there and you're just going to have to make sure that you not only sell, but you fulfill the operations as well.

00;06;53;23 - 00;07;26;09

Unknown

It's always having that backup plan. I like what I was talking about near the beginning of this little recording here. If you grow from the level of your reserves, not just always seeking a loan, but do you actually have reserves? Do you have enough financial discipline where you're not just reinvesting every single dollar back to the business, hoping that you'll get to the next level, but you have an actual plan that deals with the cash that's flowing into your accounts, with you being able to actually keep what you're making and have reserves and have profitability.

00;07;26;17 - 00;07;50;11

Unknown

I really want you as a business owner to understand that if you've proven to yourself that you can get some reserves, you've also proven to yourself, if you have that discipline, that you can use some of those reserves to go out there and maybe buy back some of your time, maybe go out there and hire someone, go out there and scale the business like you want to, and being able to grow from your reserves and maybe not get an infusion of cash from an outside source.

00;07;50;13 - 00;08;05;21

Unknown

But as long as there's a plan around what you go after, because if you get a loan, that has to be a very specific plan. How am I going to pay this back? What if it goes sideways? What am I needed to do? There's a great book I want to recommend to you that deals a lot with this mindset.

00;08;05;21 - 00;08;24;04

Unknown

It's called The Road Less Stupid by Keith Cunningham, and he teaches you how to ask good questions of lots of us are good at asking. As entrepreneurs, what's the upside? What's the best that can happen? Even some people are good at asking what's the worst that can happen? The second best question you can ask, but what's the number one best question you can ask?

00;08;24;08 - 00;08;42;26

Unknown

If you're willing to take on debt or any type of risk in your business, is what if the worst case scenario happens? Can I live with it? Can I live with the consequences of the worst case scenario? Or if it doesn't go how I want it to go? And for a lot of people, the answer, the first one, like, I know the upside, I know the downside.

00;08;43;00 - 00;09;01;26

Unknown

But then they never answer. Can they live with the downside? And I want you to be able to answer that question honestly and just run that little filter. That's a great filter for any question you have in the business. But specifically, if you're going to take on debt that it's a little risky. Maybe it's not around a property, but maybe it's just around your business and where you're going.

00;09;01;26 - 00;09;19;01

Unknown

And like if you want to grow in scale with lenders funds, you okay, what's the best case scenario? When could we pay this off the soonest? If everything goes according to plan, what what plan do we have in place? And what's that acceptable time frame to pay them back then going through? Okay, what's the worst case scenario here?

00;09;19;05 - 00;09;48;09

Unknown

Let's just say it doesn't work out the way I wanted to. When could I pay them back by? Or if I had to go back to the lender and try and restructure the loan instead of making interest payments monthly? Like, could we do something in a lump sum at the end of the year or at the end of, you know, a term of, you know, two years or something being it, would you be able to live with having to renegotiate, having to go to the lender and say it didn't work out like I thought, we're going to have to renegotiate these terms just thinking about what is the worst case scenarios and can you live

00;09;48;09 - 00;10;05;16

Unknown

with them? If the worst case scenario is you take this money, nothing works out. The business is up in flames and you're going to be bankrupt. It's like, can you live with those consequences? If not? And that's the worst case scenario in this situation, then don't take the loan. If in the reserves, let's say you want to grow from your reserves, that's a little bit more safe.

00;10;05;16 - 00;10;20;17

Unknown

Usually for entrepreneurs where they're like, okay, I have some reserves. I proven to myself that I have discipline, I take from the reserves and I pour it into the business. Well, number one, what's the upside? Well, then I can build more reserves and put it back and have a good plan. What's the worst that can happen if you grow from your reserves?

00;10;20;17 - 00;10;36;13

Unknown

And then it doesn't work out how you want? Well, you don't have the reserves anymore, are you? What? Are you willing to take your reserve level down too? So that would be a question. But then can you live with that? Can you live with not having as much reserves in the hey, this didn't work out? Would you be able to still keep going and still have a business?

00;10;36;13 - 00;10;58;14

Unknown

At the end of the day, it all comes down to you and making sure as a CEO you know the numbers on the back end. So that way you can make those financial decision. That's where you can get help. That's where profit first comes into play. If you need a cash flow system that helps you keep more of what you're making and tells every dollar where to go, or a fractional CFO who helps you understand if you take a loan out.

00;10;58;19 - 00;11;12;22

Unknown

Here's the best case scenario. Worst case scenario can you live with the worst case scenario? That putting that question in front of you, or being able to say, hey, if you grow from your reserves, this is what it looks like in modeling that out for you. So that way that's like the easy button to say, hey, I don't want to have to figure this out.

00;11;12;22 - 00;11;28;16

Unknown

I just want the answers presented to me. And then I get to pick which option sounds the best for me. Just be very careful. If you're using unsecured type of debt or if you're using the debt to grow. I would just say you really have to take a step back and say, have I proven to myself that I can pay this back?

00;11;28;20 - 00;11;45;25

Unknown

What's the best case? Worst case scenario? Can I live with the worst case scenario? Or should I try and build up reserves grow from my reserves? Because I'm not this big tech company, I'm not going to get a huge influx of cash. I'm not going to take this big deal down. It's going to be small deals. And if one deal goes sideways, I might be at risk of paying back this whole thing.

00;11;46;03 - 00;12;11;22

Unknown

Just being smart with the money. Before you get into those situations, I would much rather lean on the side of growing from reserves rather than just always taking those loans out. But if you are in real estate, then loans are probably the way you have to go. And but that's good debt on secured assets, making sure that, hey, once this deal closes, we'll be able to get out of this, even if it doesn't close and doesn't go the way we want it to, should be able to refinance, get this lender out of it, and get long term money on it.

00;12;11;24 - 00;12;35;19

Unknown

Having those exit strategies not just for the properties, but for the money that you have into those properties or into whatever project you have going on. That's where that can give you financial peace of mind. If you go in and say, if I do take this loan or if I do grow from reserves, can I live with the worst case scenario or what's the best case scenario as well, to making sure that you can make those decisions in an informed manner.

00;12;35;24 - 00;12;57;26

Unknown

And then at the end of the day, are you willing to live with it no matter what? 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.