David Richter: Transform Your Real Estate Investing Business with the Profit First System

Startups, particularly those in their early stages, typically do not have full-time CFOs. They most likely do not produce enough revenue to cover the cost of adding another member of the C-suite to the payroll. But once a startup begins to scale, that’s when hiring one becomes necessary.

Still, the cost of hiring a full-time chief financial officer can be prohibitive for some startups, but there is an alternative that many companies have found helpful – fractional CFOs.

David Richter is the founder of Simple CFO Solutions, LLC. As an active real estate investor with over 850 closed deals under his belt, he has helped real estate companies keep the profits they’ve earned, build cash reserves, and achieve true financial freedom.

Derived from Mike Michalowicz’s “profit first” concept, David’s book, Profit First For Real Estate Investing, shares what fractional CFOs do, and the biggest challenges he’s facing as an entrepreneur.

What is a fractional CFO?

A fractional CFO is someone who provides financial expertise to a startup or small business. Although fractional CFOs support startups on a temporary basis, they typically have extensive prior CFO-level expertise and can provide high-level financial business strategy.

“A fractional CFO works a fraction of the time and a fraction of the cost, but still gives people a great outcome of more profitability, clarity, and confidence in their numbers and overall general business goal,” David said.

When should you hire a fractional CFO?

The best way to navigate the often treacherous terrain of entrepreneurship and finance is with a seasoned professional at your side.

In some cases, a company may be too small to have its own full-time CFO, while others may be too big without one.  But once a startup begins to see growth and make more money, it’s imperative to have an experienced and knowledgeable CFO.

“A lot of people don’t know what to do with [profit],” David observed. “A bookkeeper’s not going to tell you where to put the money and a CPA is really not going to tell you either.” That’s the best time to consider hiring an experienced and knowledgeable CFO on your team.

Making profit a habit

David authored the book Profit First for Real Estate Investing. He has sat in a lot of different seats within a real estate investing company but his role in the finance seat was a game changer.

“I saw that even though we were doing 25, 30 deals a month, we were spending just as much as we were making,” he said. With the unique opportunity of being in every seat as a real estate investor, he found himself drawn towards finding another calling – to help companies recognize where their funds were going.

After moving across the country and selling off his real estate holdings, he worked with another investor to help him see his finances and realized that more real estate investors are going through the same thing. “That to me was the other big spark of ‘Okay, this is something that real estate investors need.’”

His transition to entrepreneurship began.

He got introduced to Profit First, he implemented its principles with the real estate investors he was working with and saw great results. “There’s a billion ways to sell real estate and to actually have properties and invest in real estate. So that’s why there needs to be a book specifically for the real estate investing community,” David realized.

He met up with Mike Michalowicz, the original author of the Profit First concept. “I went to him and I bought the intellectual property from him. So I own Profit First for real estate investing.”

In his book, David reveals his simple cash flow system that not only makes “pay yourself first” possible; it makes it easy. This step-by-step guide will show you how to use the proven profit first technique for increased profitability.

His goals for the book

The ‘why’ behind every author’s decision to write a book may be different, but they all share one goal: to communicate their message to many people at once. 

“As much as I would love to work with a million real estate investors, I have to get this message out because I can’t work with everyone and our team can’t work with everyone,” David said.

As an entrepreneur, he is not one to shy away from a challenge and wants to sell 10,000 books in the first year. The process has not been easy, but he considers it as “a labor of love”. 

“I love the community. I love the people that we get to work with. I am a part of that community, so it’s like I’ll invest in this, I know it’ll return to us.”

The physical “thud” effect of a book also stands as one reliable way to establish any author’s status as an expert in any given field. Many authors write books to secure more speaking engagements or presentation opportunities. For David, public speaking is one of the fastest ways to accomplish that goal.

What he’s doing to overcome the challenges in business

When asked about his biggest challenge in business, he answered that it was more about his self-growth and making sure that he has the right mindset to lead his team.

“Growth for myself is probably the biggest challenge of like, okay, I need to up-level to being the seven-figure business owner or eight-figure business owner.”

To move towards that goal, David mentioned that he has many outlets to continue growing as an entrepreneur. He is now working with a mentor and running on an operating system and performance management framework for the business.

“I read a ton too. I’ve got books behind me. I try to educate myself as much as humanly possible so I can pass that on to other people.”

Click here to listen to the full podcast!

Transcript from Podcast

​​[00:00:00] David Ritcher: This is a labor of love. I love the community. I love the people that we get to work with. I am a part of that community. So it’s all invest in this. I know it’ll return to us, but I also want to do basically whatever it takes to get this message out there too.

[00:00:15] Natasha Miller: Welcome to FASCINATING ENTREPRENEURS.

How do people end up becoming an entrepreneur? How do they scale and grow their businesses? How did they plan for profit? Are they in it for life? Are they building to exit? These and a myriad of other topics will be discussed to pull back the veil on the wizardry of successful and FASCINATING ENTREPRENEURS?

My book RELENTLESS is now available. Everywhere books can be bought online, including Amazon and barnesandnoble.com. Try your local indie bookstore too. And if they don’t have it, they can order it. Just ask them. The reviews are streaming in and I’m so thankful for the positive feedback, as well as hearing from people that my memoir has impacted them positively.

It is not enough to be resilient. You have to be RELENTLESS. You can go to therelentlessbook.com for more information. Thank you so much.

David Richter is an active real estate investor who has been essential in closing over 850 deals. He has helped real estate companies completely turn around from going out of business to building cash reserves that it was profit advising company, Simple CFO Solutions. Now let’s get right into it.

[00:01:38] David Ritcher: So most people know what a bookkeeper or an accountant is, or a CPA. A bookkeeper handles the transactions, CPAs and accountants handle the taxes, right?

So a CFO, if the best I could do it is if you were to walk into a hospital, most nurses or whatnot would be like your bookkeepers. They’re handling your charts, they’re handling the day to day type things and the CPA or the accountant as well. They might be more the surgeon they go in there and they’re focused on one thing.

They’re the brain surgeon. They focus on the taxes. The one specific lane, the CFO is more like the doctor, like how is the business doing? Making sure that the patient overall is connected to the right people, has the right specialist on the team, has the right nurse that’s checking on them, making sure that the overall health of that patient and that business is doing well.

And a fractional CFO is like a part-time person. So that’s where a part-time CFO, meaning a lot of businesses are too small to have a fullt-time CFO on their staff because you could be spending $250,000 easily in a year for a full-time CFO. But a lot of businesses, those same businesses are too large not to know their numbers and not to have someone on the team pointing them to true profitability.

So a fractional CFO works a fraction of the time and a fraction of the cost but still gives people a great outcome of more profitability, clarity, and confidence in their numbers and overall general business.

[00:03:11] Natasha Miller: Okay, thank you for that. I have a fractional CFO and have for a few years, and I think I was at 5 million in revenue when I got the CFO.

And I remember thinking then that I wish that I had started working even on a smaller level with a fractional CFO at a million in revenue. But this is leading up to the question, when should a business owner hiring a fractional CFO, in your opinion?

[00:03:39] David Ritcher: In my opinion, it depends on what the fractional CFO is offering, but that’s when you start making more money than you’ve ever made before in your life. So for some people that’s $5,000 a month, or that’s $10,000 a month.

As you start to grow and scale your business, if you’re coming from like a W2 job into entrepreneurship, then you can quickly start making more money. As long as your services are being accepted by the marketplace and you’ve got a good offering, then you’re going to start making more money than you’ve ever made.

 A lot of people don’t know what to do with it. And that’s where our CFO really comes in because a bookkeeper’s not going to tell you where to put the money and a CPA’s really not going to tell you either.

[00:04:20] Natasha Miller: Bookkeepers and accountants, let’s just talk about this. They do as they’re told, they do what they were trained to do. And in general, typically what I found is that they are not creative idea people. If they are, they’re going to be a CFO, potentially.

[00:04:38] David Ritcher: Exactly. That’s where the CFO comes into play. And I say, when you start making more money than you’ve ever have, because some fractional CFOs work by the hour, so you don’t have to spend a lot or some are by the month, they have a monthly investment or whatnot.

So that’s where you and your business, are you feeling that your business is out of control? Do you feel like you don’t have a handle on the numbers or the finances? Like some of these key pain points in a business where you’re like, I hired a bookkeeper, but I don’t know if they’re doing anything right.

And like “I did my tax return, my CPA did my tax return. I have no idea if like I actually owe all this money or if this is really right.” So if you’re feeling some of that pain on and it’s taking away from what you’re really doing Of making sales happen, of doing the marketing or whatever that you’re really good at, then that would be the time to start considering a fractional CFO on your team.

[00:05:29] Natasha Miller: Okay. And then let’s talk about numbers. So I’ve paid anywhere between 5,000 to 7,500 a month for my fractional CFO. What will people pay and how is it based?

[00:05:41] David Ritcher: Sure. So for us specifically, because we work with a lot of real estate investors and that’s a lot of the people that we serve and we do a percent of gross profit.

So 1 to 3%, depending on the size of their business. So it’s tied more to, if you make more profit, we make more because, we want you to make more profit. Our whole business model is making sure that at the end of the day, you’re truly making more. And that’s where we usually do a percent of the gross profit and there’s other CFOs out there that charge per hour as well.

So if you’re needing someone just on an hourly basis, then there’s some other people that charge 150, 200, 300, $400 an hour. But if you only need one question, that’s different than if you need an actual team member, who’s there guiding you, directing you, guiding your financial department as a regular person on your team.

[00:06:29] Natasha Miller: Interesting that you charge that way. I think I like it. I have to take some time after this podcast to really consider that. But I think I like it.

So you wrote the book “Profit First for Real Estate Investing”. I have questions. I’m going to set them up. How did you come to write the book? Is it a partnership with Mike? And why real estate specifically? If you can remember those three things.

[00:06:53] David Ritcher: I might need help.

[00:06:54] Natasha Miller: I will prompt you.

[00:06:55] David Ritcher: So why did I write the book? That was the first one. So I wrote the book because I saw a big need in the real estate investing space, because this might answer a couple of your questions with my answer here. I am a real estate investor. So I know I look like the accountant bookkeeper type, but I am actually a real estate investor and entrepreneur by background.

And I sat in a seat inside of a real estate investing company. And one of those seats was the finance seat and it was a company that we scaled. We were doing about five deals a month. We scaled it up to 25 or 30 deals, just like you see on HGTV doing a lot of the fixing and flipping.

We did other exit strategies too, but the point is, we scaled it up. And I got to sit in a lot of different seats, get to see a lot of how small business operates and like just being able to absorb that. Then from there, one of the last seats I sat in was the finance seat. And I saw that even though we were doing 25, 30 deals a month, we were spending just as much as we were making.

And that to me was like, why are we doing this? Like, why are we just in our rat race? Like that, all of these other people say “Get out of your rat race and do this. And jump on entrepreneurship.” And then here we are, as a small real estate company, that’s scaling up here and it’s like, why are we doing this? Is it even worth it?

So that was the first kind of light bulb in my head of “Yeah, there’s something off here.” I think there’s probably a lot more real estate investors in the same position, which was funny because then go figure with this business, I moved across the country because it couldn’t sustain the overhead that it had.

So I had a lot of real estate holdings of my own. At that time, I sold them off, started working with another investor, helped him with his finances. And one of the things he told me after we helped him was like, “This has been life changing.” That to me was the other big spark of “Okay, this is something that real estate investors need.”

So then I also told a mentor of mine like, “Hey, I’m starting this business as a fractional CFO company to help people actually get the bottom line from their numbers and know what it actually is and get that clarity.” And he said, “Have you read Profit First? And I said, “No, I’ve never read that.”

So that was several years ago now. Read it in one, sitting took 10 pages of notes and said, “This is a great framework for our cashflow management piece inside of the fractional CFO service.” So that’s where I read that book, started implementing it with the real estate investors that we were working with and then I saw it start working like magic with people and them getting the actual clarity and more profitability.

And that’s where I went to Mike and said, “Hey, I’d like to write the book for real estate investors,” because it’s also a lot different than a service-based buying real estate, especially cause there’s a lot of different exit strategies in real estate.

You can buy and hold, you can buy and sell. You can buy, sell it and then still hold onto it as property managers and do turnkey type properties. And you’re selling a cashflow and asset to someone. So there’s a billion ways to sell real estate and to actually have properties and invest in real estate. So that’s why I was like, there needs to be a book specifically for the real estate investing community.

I think they’ll really appreciate having clarity and guidance from this because a lot of people in the industry had already read Profit First and I was getting a ton of questions all the time, too. So that was number one of why did I write it.

Is it a partnership with Mike? It was actually with Mike. I went to him and I more bought the intellectual property from him. So I own Profit First for real estate investing. So I can use that brand. That is my brand now to be able to go out there and publish and speak and events and whatever I want to do.

[00:10:36] Natasha Miller: So he’s licensing the Profit First brand. Is that what you’re saying?

[00:10:41] David Ritcher: It was less a licensing deal and more buying a one-time payment for intellectual property, because he does have licensing as well with Profit First professionals to sell the service.

So that’s more of a licensing deal there. But with the book, it was the one-time investment and it was just a no-brainer because I’m like, I can’t serve every real estate investor too. This was another big reason for writing the book is as much as I want to. And as much as I would love to work with a million real estate investors, I have to get this message out because I can’t work with everyone and our team can’t work with everyone.

So I wanted to at least get the core message out there to help people as well. Then I think I probably answered your third question. Why real estate industry?

[00:11:23] Natasha Miller: Yeah. So what are your goals for the book? I heard that you wanted to serve many other people, but we’re entrepreneurs, we’re business people.

Are you trying to make a profit on the book? Are you trying to get more clients? How many books are you trying to sell? What are your goals?

[00:11:38] David Ritcher: Sure. So a big part was, I just wanted to get this info out, but I also knew too. I wanted to sell. I want to, in the first year sell 10,000 books, I think that would be a really very respectable number to get out there and to get the message out there as much as possible.

And then also, yeah, the clients is a great by-product of it as well too, because writing this book has been, I’ve delved more into how a real estate investor thinks. I’ve had 10 years worth of experience in real estate investing, but then it was more like, this is how to really help them.

And this is what they’re really needing, and this is what we’ve seen that can really help them too. Yes, it’s been also helpful from the aspect of growing the business and making sure we’re actually helping people implement and honestly hold them accountable to the system as well to be more profitable.

[00:12:29] Natasha Miller: I asked this of course, because I’m publishing a book, but I know because I am, there’s a lot of investment that goes into. You invested in the intellectual property. Okay. That’s one thing you took some time to write the book. You may have had a ghost writer, but you definitely should have had an editor.

I’m just going to say you better have had an editor. I’m sure you did. That’s money. Then there’s cover design layout. It’s a lot of money to produce a book. And especially a good book that’s done really well. And who are you publishing with?

[00:13:03] David Ritcher: IngramSpark. It’s just self-published.

[00:13:07] Natasha Miller: There’s not as much there, but then there’s the marketing. And I will not say how much I’m spending on my book, but it’s a lot of money. So are you going to break even? Are you going to have profit? Did you think about Profit First in the endeavor of writing this book?

[00:13:25] David Ritcher: Oh, yeah. So that was definitely a big part of it. I knew I’d be investing some upfront, but I knew on the backend because like I said, we have a fractional CFO service and helping clients and whatnot. That’s a big revenue stream for us as well, too. So that’s one way. And then the other way with the book, my goal was not to produce all the revenue back from just the book as well.

So even though it’s done so far, we’ve sold thousands of copies up to this point and we’re on track to do 10,000 for this year, which is awesome. But my big goal was I knew that with this, it would also produce more speaking opportunities. Now I’m going out literally tomorrow to an opening of a new real estate investing like co-op and they’re having me speak there and they bought a bunch of books for me to sign. And I’ve got another speaking slot like that next month too.

So that’s the other thing that I knew it would produce. And I went into a tube before, like you say, thinking about Profit First. I asked some other authors that had done this as well. How was their return in getting some good information, trying to ask us many good questions as I could before pulling the trigger.

So it’s definitely been an expensive journey. I also saw that as this is a labor of love. I love the community. I love the people that we get to work with. I am a part of that community. So it’s I’ll invest in this. I know it will return to us, but I also want to do basically whatever it takes to get this message out there too.

[00:14:46] Natasha Miller: Yes. Great. What is your biggest growth strategy right now for this year? For the rest of this year?

[00:14:53] David Ritcher: The biggest growth strategy. So there’s a couple people we’re talking to right now in potential collaboration slash partnerships of just exponentially growing the company where we have so many people that want to work with us and we just need more good people to be able to actually serve them as well too.

And we’ve got a pretty decent sized team as it stands, but we want to make sure that-

[00:15:15] Natasha Miller: How many employees do you have right now?

[00:15:16] David Ritcher: We have about 30 CFOs on the team right now.

[00:15:19] Natasha Miller: Are they contracts or W2?

[00:15:21] David Ritcher: Some are contracts. Some are W2. Depends on where they are in their journey right now, but that’s where we’ve got about 30 people that work with us. And we’re talking with some people right now that have bigger organizations that have congregated those people together, but aren’t bringing them clients.

So that’s where our big growth strategy is, trying to find these types of groups where I like to talk. And I like the message and I like going out and speaking and I like doing podcasts and stuff like that. So I’m really good at saying, “This is how we can help you. Here’s how the system is putting that system together and then producing it.”

And I just need more people to help produce the actual service. So that’s what we’re doing this year.

[00:16:02] Natasha Miller: My next question, you can’t use the reverse of what you just said. Just letting you know in advance. So put your thinking hat on. What is the biggest challenge you’re facing this year in your business?

[00:16:14] David Ritcher: Biggest challenge I’m facing this year? Probably internally for myself. This is my first bigger business. I’m a younger entrepreneur and this one is the first one that’s really taking off.

And if anything. Growth for myself is probably the biggest challenge of “Okay, I need to up level to being the seven figure business owner or eight figure business owner.” now I need to start making sure that I’m in that frame of mind and that I can lead the team, put the right people on the team and let them run. Don’t be the micromanager. Don’t do those things. Like really let people fly like that. So that’s where I feel.

[00:16:50] Natasha Miller: What are you doing accomplish that or to move toward that goal?

[00:16:54] David Ritcher: So I’ve got a mentor who has already sold a business for where we’re wanting to get to. That’s one big way. And the people on our team have regular conversations. We’re running on like an operating system for our business, so we can bring up issues and whatnot, but I’ve got some-

[00:17:10] Natasha Miller: Is it an EOS traction or scaling up?

[00:17:13] David Ritcher: Yeah, it’s a mixture of EOS and the OKR system objectives. Key results. John Doerr. I’ve got some good people on the team too like “Here’s what I’m feeling, here’s what we’re thinking,” and just talking through those things.

And I’ve got some really good people that are on the team that got a great right hand man, that has been down this road and just said, I can throw things off of him, just saying where I am. So I’ve got a lot of good outlets for being able to grow as the entrepreneur.

I read a ton too. If you’re watching this, I’ve got books behind me, I try and educate myself as much as humanly possible so I can pass that onto other other people.

[00:17:48] Natasha Miller: What city are you in?

[00:17:49] David Ritcher: St. Cloud, Florida. So near Orlando.

[00:17:52] Natasha Miller: Okay. I would suggest you look into Entrepreneurs’ Organization. It’s one of the things that really helped me get my mind around the revenue and profit that I was making. And you’re just in the middle of all kinds of entrepreneurs.

My next question. And my last question is what do you wish you would have known. Before becoming an entrepreneur? About entrepreneurship and having your own brand?

[00:18:20] David Ritcher: What would I wish I would’ve known for me specifically, it’s probably that the business would take off because I think first the mental game, because when you first start out, it’s okay, starting to make money and starting to do these things, it’s like working, but then, okay.

Now partnering with people and exponential growth and like getting there. It’s like some of that when I first started out was just like, “Oh, I need to be everything to everyone.” And no, the way to grow the company is really finding those right people, providing that service, like letting people flourish in their seats.

A lot of the worry that I had upfront and I’ve worried about, are we providing the value and are we doing this? And they’re like, am I reaching out enough and all that? And it’s at this point, there was no reason to worry. A lot of that stems from knowing who you are too. That’s a big thing going into it.

I feel like I’ve gotten to know myself a whole lot deeper on a deeper level going into entrepreneurship now, too. And that would probably be one thing before jumping in. If I could ask some of the questions that I’m able to ask myself now, about myself and about the different feelings and thoughts.

[00:19:27] Natasha Miller: It’s hard to do because we’re always evolving, always getting better, hopefully, always learning.

David talked about what a fractional CFO is, when you should consider hiring him, and how he came to write his book Profit First for Real Estate Investing. For more information, go to the show notes for your listening to this podcast.

Want to know more about me? Go to my website, natashamiller.com. Thank you so much for listening. I hope you loved the show. If you did, please subscribe. Also, if you haven’t done so yet, please leave a review where you’re listening to this podcast now. I’m Natasha Miller and you’ve been listening to FASCINATING ENTREPRENEURS.

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