For David Richter, founder of Simple CFO and author of Profit First for Real Estate Investors, it started with conversations he had at real estate networking events. The investors he met were bringing in boatloads of money … and yet they always seemed to find themselves on the verge of going broke.
“I’d go to other events, and people on stage would be like, ‘Oh yeah, we’re doing this many deals,’” Richter told Ricci Truong of the CamaPlan Podcast. “And then like at the bar, they’d be crying like, ‘Oh yeah, but you know, I’m facing bankruptcy.’ Or like, ‘I have no idea what I’m really making.’ Or ‘There’s only like ten bucks in the account.’”
Sensing a need in the market, Richter, himself a veteran of over 850 deals, founded Simple CFO, a company that lets real estate investment firms take on a “part-time” chief financial officer.
Some people call this a “fractional” CFO, because they only spend a fraction of the day (or the week, or the month) working for the client company … then it’s on to another company.
Another thing that’s “fractional” about the part-time CFO is the fee. To take an experienced CFO on the payroll will run upwards of $250,000 a year.
Not only do most small real estate investment firms not have the budget for that, they don’t need the full-time attention of a CFO. But even a little goes a long way.
CFO, Not CPA
Richter likes to stress the difference between a CFO and an accountant, which most small real estate firms do have.
“CPAs speak this different language like Spock, you know?” he said. “They’re usually talking down to me or over me.”
A CFO, on the other hand, is part of the team.
“That’s where you have to have someone on your team that talks with you,” Richter said, asking questions like “How is the business doing? How are we gonna get through a hard time together? Or what are we gonna do when it’s the fields of plenty over here and where do we put that cash to be most effective?”
Part of the goal of Richter’s team of over thirty CFOs-for-hire is to get the company organized, with all of its finances on one transparent dashboard.
“That’s when that clarity happens of, ‘Okay, I know how much I’m making, how much I’m spending, how much I’ve paid myself, or how little I’ve paid myself, what I’m paying other people,’” Richter said.
Putting Profit First
Another mandate for Richter’s team of CFOs is to help the client firm implement the “profit first” protocol, described in one of Richter’s favorite business books — Profit First by Mike Michalowicz.
Richter’s own book, Profit First for Real Estate Investors, does just that — adapt the principle for the real estate investment business.
The “profit first” protocol boils down to turning the typical profit calculation on its head. Most people intuitively assume the math goes like this:
Sales – Expenses = Profit
“Profit first” turns that equation on its head:
Sales – Profit = Expenses
This simple sleight-of-math has the power to turn businesses from money pits to profit machines — real estate investment firms included.
“One of … our longest clients, he’s on his third year of implementing profit [first],” Richter said. “He called me in June and said, ‘With this system I have enough money in my bank accounts that I could not sell a deal the rest of the year and be okay because I know how much I need to save.’”
Not every client stays with Simple CFO that long. Sometimes, all that’s needed is a little leadership to tighten the screws, train a marketing team, and the company is ready to take the reins. But others do commit for the long haul — even if they only need to check in with the CFO every now and then.
“Our horse in the race is making sure that we’re a good investment for the people,” Richter said.
Part of the investment of the CFO is an investment in peace-of-mind — of having it handled so you can focus on what really matters.
“Just make sure that we stay present,” Richter, father to a small daughter, said. “That means if you’re playing with your five-year-old daughter, be with the five-year-old daughter. Put [your phone] on silent. That’s just something that, as I get older, is becoming a lot more real to me.”
