00:00:00:04 - 00:00:19:07

David Richter

If your business is profitable on paper, why are you still broke? And I hear this so many times. There's so many times when I've talked to someone either individually and I've asked like, how are you doing? Like in your business? Usually people will open up to me because I'm the numbers guy and they'll really tell me what's going on.

00:00:19:09 - 00:00:40:09

David Richter

And they're like, my CPA told me I had, you know, six figures of profit, but I have 10,000 in my bank account or five or like $5. I don't have two nickels to rub together. And so I really dive in and okay, what's the real reason they're what's going on. But then I go to the next person I talk to, almost the exact same scenario I want.

00:00:40:09 - 00:01:04:09

David Richter

I just last week I was on a call with someone and they said, I'm doing 2 million in revenue, but I'm going to clear about like 100,000 in net profit. I'm like, that's not a great percentage. And they're like, yeah, I know that. I feel like I'm doing all this work that I'm going out there and busting my behind just to get this money in the door, but then I don't get to keep any of it.

00:01:04:11 - 00:01:20:17

David Richter

So I hear that over and over again. I speak a lot as well too. And when I go out and speak, there's one of the biggest topics that resonates with a lot of people. So if you're sitting there thinking like, I'm making money, but where's it all going? Like, this comes and manifests in different ways. Whether it's you saying, I don't know where my money's going.

00:01:20:21 - 00:01:48:11

David Richter

I'm not sure how much I have, or I don't feel like this is enough, or where's the financial freedom that I was promised when I became a business owner? If you're feeling any of that, then you're probably making money. But feeling broke, I believe. And I don't just believe I've seen it, that if you have a system like profit first in your business, it can overcome that feeling, because a lot of people, it's not about the deal flow that they're doing.

00:01:48:12 - 00:02:04:23

David Richter

It's about what they do with their money once that deal happens. That's where true financial freedom comes into play. And so why do most people lose out on financial freedom? Because they don't have a system for their money. They don't know where it's going. They don't know how how much is really coming in, how much is really going out.

00:02:05:00 - 00:02:30:21

David Richter

Because the guy even that I talked to last week, I said, okay, around 2 million. So did you make 2 million was a 2.4. Like are you making 200,000 a month? But he couldn't give me exact numbers. He's just like I think around this number. And I think it's going to be around 100,000 that we clear. So a lot of times people don't feel like they're making the money because they don't even have clarity of what they really are bringing in, let alone what they get to put in their pocket.

00:02:30:23 - 00:02:59:17

David Richter

Okay. I'm going to go off on a little tangent here. I know that I look like I should have gone to school for like, accounting and for business and all that. Like, I look like the typical bookkeeper accountant person. But my background is entrepreneurship, real estate investing specifically, and when I was in a business where we were doing lots of deals, we were doing like 25 deals a month at 1.300 deals a year, multiple millions coming in the door in the top line.

00:02:59:18 - 00:03:17:09

David Richter

But we weren't keeping any of it. We were spending more than what was coming in. We were doing 26 worth of expenses, 26 worth of deals out the door every single month because we didn't have a good system for our cash, we would. We had a great system for bringing the deals in the door for closing them. Great sales process.

00:03:17:11 - 00:03:37:22

David Richter

We had great marketing. We had all the front end was super shiny. The back end was more like, okay, are we making money? Are we not like, where are we putting the money? But we didn't have that clarity. So when I originally read profit First by making the cowards that opened my eyes, it wasn't just a book like Rich dad, Poor Dad that says, hey, you need to pay yourself first.

00:03:37:22 - 00:03:54:15

David Richter

Or the richest man in Babylon that says, a portion of all you have is yours to keep. It literally gave step by step of how do I keep more? How do I pay myself when I read profit first? So that's why I even wrote my own version of profit first, because I believed in it so much and I had seen it work.

00:03:54:15 - 00:04:18:21

David Richter

So when I first started simple CFO, the company that I own now, I implemented profit first with each client from the very first client. And one of the first clients that we worked with was $70,000 in the hole when he first came to us, meaning he didn't even have profit on paper. He really had negative profit, but he was playing the money shuffle game.

00:04:18:21 - 00:04:37:06

David Richter

He had a couple businesses and he was robbing from Peter to pay Paul. And so we had to sit down and say, okay, how do we get out of this mess? Or how are we going to fix this? And one of the first things we did was the profit first implementation, which what is that? What is profit first and how does that solve the problem of you make money but you feel broke.

00:04:37:08 - 00:04:53:13

David Richter

It's a step by step system to be able to keep more of what you're making. A business really is composed of two parts when it comes to money what you make and what you keep. And you have to make money like you have to go out there. You have to do deals, you have to make sales, whatever industry you're in.

00:04:53:15 - 00:05:14:21

David Richter

But at the same time, if you're going to do that but you don't keep it, then why do you have a business? And that's where I believe profit first solves the key problem for entrepreneurs specifically. And I say entrepreneurs specifically, because we are not usually built for the numbers. As entrepreneurs, we usually don't love spreadsheets. One guy, one time.

00:05:14:21 - 00:05:30:01

David Richter

I'll never forget this. I was on a phone call with him and he said, I'm allergic to spreadsheets. As the business owner, I'm like, that doesn't that does. Describe the typical entrepreneur. Like, I like to go do the deal. I like to make the money. I like to close the sale. I like to see that that wire hit the bank account.

00:05:30:03 - 00:06:07:12

David Richter

But then when it comes to like bookkeeping and accounting and all that numbers crap, like, I don't want to do any of that. That's where most people are in their entrepreneur journey. And if we don't graduate to okay, I understand that I don't have to be the numbers expert, but I need to know something about my numbers. That's where I believe Profit First can come into play, and how you as an entrepreneur can stop feeling broke because of profit first, when you first implement it, it's literally the envelope method that lots of people in the personal finance space have made very popular, where Dave Ramsey, whether you love him or hate that guy, he's made

00:06:07:12 - 00:06:26:02

David Richter

the envelope method for personal finance very simple and very practical, and it's helped a lot of people get out of debt. What that is, is he has people set up individual envelopes, and you name every dollar that comes through your fingers from your personal income. So that way in those envelopes, you name it like gas, utilities, rent, mortgage, whatever it might be.

00:06:26:08 - 00:06:49:11

David Richter

So that way you're paying those individual expenses and you know how much money you actually have to spend. So then if you want to go on vacations, if you want to do extra things, you have envelopes for that, and then you're actually saving towards that. And you know that, hey, some of that we're keeping in some of it's fun money, some of it's expenses, profit first applies that same principle of knowing where every dollar is going, but it applies it to business.

00:06:49:11 - 00:07:08:11

David Richter

So that way now it's very practical as well too. You set up bank accounts, business checking accounts and not envelopes. I don't want you stuffing hundreds of thousands of dollars of cash in envelopes. I want you opening up business checking accounts and naming them certain names. That's what Profit First is about. And I'll just tell you, like, I want to go deep here.

00:07:08:16 - 00:07:29:13

David Richter

And if you really want to understand how not to feel broke, here's profit first broken down into the practical steps. Number one, you're going to open up some bank accounts and you're going to name them. What are those bank accounts that you should name? I call the first three bank accounts the Golden trio of bank accounts. Number one is a profit account.

00:07:29:13 - 00:07:48:21

David Richter

A profit bank account number two would be an owner's comp and number three the owner's tax. Why do I call it the Golden Trio? I mean, look at me. I look nerdy too. So I love Harry Potter and Star Wars and like all those big epic sagas, they have three main heroes, right? Lucan, Leia, Harry, Ron, Hermione. Making sure good wins those three bank accounts should help you win the game of business.

00:07:49:02 - 00:08:06:18

David Richter

Lots of people just have one big account. It's the expense account, and it's like all the money comes in, all of it goes out and it's literally working against you all the time because it's just the outflow of money. That's the big black hole bank account that most business owners have. It comes in and then it goes out to the swirling vortex of doom, never to be seen again.

00:08:06:20 - 00:08:23:10

David Richter

So if you set up those three first profit owners, comp and owner's tax, and we can go dive deeper into those accounts, but those would be the first three that I would have you set up. Then the other two are just functional. It's income and expenses. Knowing what's coming in, knowing what's going out, the Golden trio, though, helps you keep more of it.

00:08:23:12 - 00:08:45:04

David Richter

So that way from every sale you have, no matter what industry you're in, these fundamentals will work for you. Because if you have these bank accounts specifically, that golden trio of bank accounts that help you keep more profit owner's comp and the owner's tax, then whenever you have a deal closed, whether it's a sale and you get that wire in the door, you get it into the income account.

00:08:45:04 - 00:09:02:14

David Richter

So it's sitting there. Let's just say you made $10,000 on this last sale. It gets wired to the income account, and then it sits there until you transfer it to the golden trio onto the operational expense account. So that way you can still pay the expenses. But then you have these accounts that keep accounts to make sure you're keeping more of what you're making.

00:09:02:16 - 00:09:18:00

David Richter

Then you will wake up one day and your CPA will say the same thing he said to you at the beginning. Or she said to you at the beginning, you have 100,000, and then you can wake up and say, well, how much do I have in my bank account? Oh, not only does it match, but I know exactly where every dollar is.

00:09:18:02 - 00:09:40:10

David Richter

And then that's the feeling of, oh, I'm not broke anymore. I actually have money either for reserves or profitability or the owner's comp to pay yourself. I believe that is the biggest way for you as an entrepreneur to be able to break out of the cycle of I make money, but I feel broke and honestly, I didn't teach you anything like with accounting or QuickBooks online.

00:09:40:10 - 00:09:59:09

David Richter

I didn't even touch a spreadsheet there. All I said was open up these bank accounts, and then once money comes in, you're going to transfer those to the accounts and we'll dive deeper into that, what that really means. But that's how you can at least start to break yourself out of the rat race and really understanding where your money's going, but then keeping more of it so you don't feel broke anymore.

00:09:59:11 - 00:10:17:22

David Richter

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.