Episode 49: Why You’re Not at $100K Per Month (And How to Fix That) - Part 2

In this episode of the Strength in Numbers podcast, Marcus Crigler and Kaden Hackney continue their conversation about what it really takes to build a real estate business that produces $100,000 per month in profit.

They started off last week discussing how to build a business to a hundred thousand profit a month through the hustle phase. Now, they are diving into the secure phase.

This is the phase most entrepreneurs skip. Instead of strengthening their financial foundation, many businesses jump straight into expansion. This is a must-listen episode. Enjoy the show!

You’ll Learn How To:

• Build a financial foundation for long-term growth
• Avoid the common mistake of skipping the secure phase
• Create reserves that protect your business
• Eliminate bad debt and strengthen financial habits

What You’ll Learn in This Episode:

(02:03) What is the secure phase, and why do most entrepreneurs skip it

(02:58) Choosing safety first accelerates long-term growth

(03:52) The marshmallow experiment and the power of delayed gratification in business

(06:00) Key steps involved in the secure phase

(06:27) The importance of holding three times the business expenses in reserves

(07:55) Reserves protect you when the market shifts

(09:36) What counts as fixed expenses inside your business

(10:18) Marketing should always be treated as a fixed expense

(11:16) Why does short-term debt require additional financial reserves

(13:26) The risks of carrying large inventories with little cash

(16:03) Playing to win vs playing not to lose

(16:42) Eliminating bad debt and what qualifies as bad debt in business

(21:20) Discipline for risk tolerance

(22:03) Getting yourself paid

(23:08) Avoiding the “good month vs bad month” lifestyle

(25:30) Tax strategies entrepreneurs should begin implementing early

Who This Episode Is For:

• Real estate entrepreneurs who are trying to stabilize their income
• Investors who want stronger financial systems
• Entrepreneurs who want to scale

Why You Should Listen:

If you want to grow your business without constantly feeling like you are one bad month away from starting over, this episode will show you the financial habits that make long-term success possible.

Connect with Marcus Crigler:

• Website: https://beccfo.com/
• LinkedIn: https://www.linkedin.com/in/marcus-crigler-cpa-977a45b7 
• Facebook: https://facebook.com/marcus.crigler 

Transcript

SPEAKER_01 0:00

Those habits, they'll save you some today and you'll you'll appreciate it. But man, oh man, there's probably a list of 10 tax strategies that you can do in any phase of being in business. And later on, when you're making the serious money, they become three, four, five times more valuable to you along the way, which is incredible because you're doing the exact same stuff.

SPEAKER_02 0:24

Welcome to Strength in Numbers, the podcast for real estate entrepreneurs who are tired of being broke and not having control of their finances. If you're ready to finally take control of your money, slash your taxes, and start building real wealth, you're in the right place. And now here's your host, Marcus Krigler.

SPEAKER_00 0:46

Welcome everybody to another Wednesday with Marcus and Caden. Hopefully, we're giving you some good value so that you can uh improve your business a little by a little. Couple uh pieces of items, some little pieces of items, does that make sense?

SPEAKER_01 1:04

Uh I don't think that's a turn of phrase, but we'll go with it.

SPEAKER_00 1:08

So some bills to pay for having this, right? So if you are interested in working with a CPA firm that focuses on real estate entrepreneurs, uh Beck CFO is your CPA firm. Give us a shout. Go to BeckCFO.com. Up at the top right, there is a free consultation button, no obligation, easy conversation with Tony. Uh, his job is to figure out if we are a good fit for you or not. And if not, point you in a direction of somebody that can be a good fit.

SPEAKER_01 1:40

So Caden, what's up, my friend? Not much, man. I think uh we've got a juicy topic to discuss today. We started off last week talking about how to build a business to a hundred thousand dollars a month, not revenue profit a month. Yeah, we were talking about the hustle phase or getting into the secure phase. Now, for people who haven't heard, what is the secure phase?

SPEAKER_00 2:08

Yeah, so well, the first thing I like to uh mention when we talk about the secure phase is it's the most skipped phase, and it is really the phase that takes you from being a you know an expanding and growing company potentially to being a company that's back in the hustle phase, right? And so there's kind of two options once you get past hustle, right? There's two paths you can go. There's a fork in the road, if you will, right? You're making decent money, uh, you kind of got your stuff organized, you've got a consistent profit model, all those good things, but there's a fork in the road, and one fork is hey, I can go focus on safety. The other fork in the road says I can go focus on risk. Okay. Well, what I will tell you is that the entrepreneurs that end up on the hamster wheel, which is that entrepreneur wheel where we're always feeling like we're running, they turn left to risk. They don't turn right to safety. But what they don't realize is that just turning right to safety does not take you to a different destination. It's actually a shortcut to the expansion that you want to have.

SPEAKER_01 3:24

Yeah.

SPEAKER_00 3:25

But it doesn't look like that.

SPEAKER_01 3:27

So I think if I could add some color there, it sounds like we're saying, hey, if you start with safety, you're gonna get where you're trying to go faster, even though it doesn't feel like that initially, right? Initially, you might be behind your peers for a minute, but then you're gonna zoom and catch up. Is that kind of what we're saying here?

SPEAKER_00 3:48

That's right. That's right. Did you ever see the study about the kids that they put in? I don't even know if the study is real or not, but I've heard about the study where they put the kids in a room and they tested the kids, the ones that, you know, I have some sort of thing. Oh, is it like the marshmallow thing? Yeah, marshmallows or something. The ones that ate the marshmallows were the ones that maybe didn't have as much success in life. They followed them throughout their life. The ones that delayed the eating of the marshmallows or the candy or whatever and waited, their personality type was a lot more successful financially in life. And this is kind of what we're talking about this kind of delayed gratification of hey, you have this fork in the road, you can go. You've like a lot of times you've got the capital to kind of get that going, and you kind of feel invincible because you've gotten through this hustle phase and you're like, Well, heck, I'm running. I don't want to slow down. I'm like, I'm running. Why would I stop? I'm running, I'm feeling good. Business is good, everything's good. Why would I not stop? And we're not telling you to stop, we're telling you to turn the right direction, right? You're still going down the road, and you still should be going down the road, but one direction has a bunch of unknowns and a bunch of potential downfalls, and the other direction has a lot of knowns and a lot of safety for the potential downfalls. Downfalls are the same, really. You can't, you're not going to change the risk, you're going to change your reaction or your ability to react to the risk, and that's how you manage risk.

SPEAKER_01 5:17

Yeah, so it's almost like we're we're saying, Hey, your car, you know, your your 1980s car that is falling apart got you here. And that, you know, I'm I'm making an analogy to your business. Sure. But in reality, instead of going and buying a real car, maybe maybe we actually go and uh upgrade the business model a little bit and get some some features in place that are gonna protect us. So, what are some good examples of what we're talking about in the grand scheme of the secure? Like we're going and checking a list off of what that entails for success purposes.

SPEAKER_00 5:57

Yeah, yeah, it's great question. So, the first thing that we talk about in the secure phase, and you're gonna kind of see this throughout all the phases, I think. Uh, not I think, I know. Hustle phase, if you'll draw back to one of the things that we talked about, is three times personal expenses. It's important to have that. That's kind of like the rocks of the foundation of your house, right? Like you can't put a foundation on bad soil, right? So that's kind of the rocks of the foundation of everything, or loose soil, I should say. The next thing is that the building that fortress is getting to a minimum of three times business expenses in your business account, right? And so you got your personal account taken care of on the security side, it's getting three times expenses in your business account and securing yourself from that standpoint. So if we go back to that fork in the roads, fork number one is do I keep doing what I'm doing and save more money in the bank until I hit that number? Or do I go invest a whole bunch more in marketing or buy another flip or go expand what I'm already doing? Yeah, so what happens is turning to the right.

SPEAKER_01 7:08

I was gonna say, because we we hear a lot of arguments about this. Why wouldn't you just go and keep spending and and try to keep as much money deployed as possible? Like, why wouldn't we do that?

SPEAKER_00 7:22

Yeah, well, I mean, in due time, in due time, you do want to keep as much money as you can deployed that makes sense. However, what allows you to keep money deployed is the money that's not deployed. That's simple, right? So the more money that you have accumulated, and as you grow, the more money that you can put not deployed, right, as reserves, it allows you to have more money out on the streets making returns. And so when you allocate, you know, if you think about a traditional, like let's just think about a stock portfolio. When you go look at a stock portfolio, you're building out a stock portfolio, you don't have all your money into one stock, right? You have it diversify. Well, same thing here. Part of that is you got to have this in a in a reserve account, low risk, low return, but it's there, right? Saves your butt if the stock market goes down, real estate goes down. And so that's what we're talking about. That's why it's so important, is that it keeps you in the game. And here's the trick, right? Like the ones that really understand this are the ones that they save when times are good, and they deploy when times aren't are not so good, right? They're the ones that are making all the money because they're deploying when you're reducing your marketing spin, they're increasing it or at a minimum keeping it the same. When you're laying people off, they're hiring your best talent. Not the people you're laying off, they're your best talent, right? That's the difference. So it allows you to be opportunistic when there is an abundance of opportunity, right? But when there's abundance of opportunity, that also means that there's pain in the market, right? Yeah.

SPEAKER_01 9:11

Yeah, that's that's a really good point. So if you don't prepare for that downturn, you're gonna be in the same boat reacting as all your competitors, you won't have money, you're gonna be scaling back with the market too. So you're you're not gonna be in that power position. That makes sense. Okay, so 3x business reserves, and we're talking fixed expenses, is that right?

SPEAKER_00 9:36

Yes.

SPEAKER_01 9:37

Okay, and fixed expenses would be, you know, just generally, what would that include?

SPEAKER_00 9:43

Yeah, so great question. So fixed expense is any expense that comes out of the business, whether it hits a revenue number or not, whether a dollar is made or not. If you're gonna spend, if it's commissions, right? A dollar is made, you have to pay commissions. But if no dollars are made, don't have to pay commissions. So that's not a fixed expense. That's what we would call a variable expense, right? It varies with revenue. Any fixed expense stays the same whether revenue is zero or a hundred thousand dollars or five hundred thousand dollars or a million. Now, some people will say like marketing is a variable expense, it's not just because you can control the expense by reacting to your revenue, that does not make it a variable expense. So, just so we're all clear, marketing is a fixed expense.

SPEAKER_01 10:33

Yeah, that makes sense. That's something if you turn off the marketing, your whole thing's gonna collapse eventually, right?

SPEAKER_00 10:40

Right, and some people have to do that, but if you're building your business to last, you definitely want marketing to be in that, you know, in that piece.

SPEAKER_01 10:50

Yeah, that makes sense. So reserves, you know, we're we're getting down into real estate, right? If we're talking about a couple of different active businesses, right? So wholesaling and flipping, right? Um, the wholesaler and the flipper, we're saying, brokers, yeah, real estate agents, brokers, flippers, people who hold inventory, they've maybe got a little bit of an extra qualifier there. What what does that look like?

SPEAKER_00 11:15

Yeah. So in addition to uh the 3x business expenses, if you have short-term debt, right, on your books, whatever that is, I mean, for whatever reason, but in our industry, it you know, it's usually flippers that are getting private money loans or hard money loans or you know, bank financing and short-term, anything that is short term. And I don't necessarily, by the way, I don't qualify short-term as 12 months. I qualify it as 18 for this purpose, right? So if it's due within the next 18 months, that's considered a short-term loan, right? Some people have their flip loans go out to 18 months versus 12, it's still short-term. So, nonetheless, 10% of your short-term debt needs to be also in reserves. So if you have a million dollars in debt on properties that you're flipping, that means you have to have an additional hundred grand in the bank to flip that million dollars worth of properties, and so that's a good safety net rule. And then, by the way, this is a really good strategy for how you expand your flipping as your reserves increase, it allows you to take on more flips, and then you can expand based on how your reserve we'll talk about this more, but as your reserves are increasing, that's what makes you decide to take on more flips because you have the debt reserves associated with it. You don't just say, Oh, my operations can take on more. Yeah, but maybe your finance can't. Yeah, they both have to be able to take on more.

SPEAKER_01 12:54

That's right. So we both know we see it. People go and and get strapped really hard. Um, I was actually just looking at a set of books today where there's five million dollars of inventory and a hundred thousand dollars in the bank. Yeah, that's kind of scary. What if something goes wrong and they, you know, we're assuming that deals are always going to be closing and everything like that, but I've certainly seen stuff sitting longer and uh price is softening a little bit too. So that's maybe not the best spot to be where you don't really have a lot of reserves and you've got that inventory that you're counting on refilling the coffers, so to speak.

SPEAKER_00 13:36

Well, it also leaves you with less options, too. I mean, when you only have a hundred grand and you've got a property on the books, maybe somebody comes and offers you maybe not the highest profit, but a decent offer, but you're like, I can't sell it for that. You know, it'd be profitable, it'd be off my books, but I just can't sell it for that. I need that revenue to come in because I need the capital, right? And when you're capital strapped and make bad financial decisions, and now you've got a you know, a mortgage payment still on that property, and maybe somebody comes and offers you more, maybe they don't. It's this whole concept, but this is a speed game, right? And so what allows you to be fast is for you to have reserves so that you can get in and out of properties quickly and you don't have to wait for the best offer. Why there's a guy that I I used to never was a client, but really enjoyed having a conversation with him out of California, and he flipped like five or six houses a year. That's it. But his house was like he bought a house for two million, put a million and a half in it, and sold it for six. It's different. So, nonetheless, most of us are in a speed game, and what allows us to be in a speed game better is reserves, and so the debt reserves, the business reserves, two different things, both very important, depending on how you run your business.

SPEAKER_01 14:57

Yeah, and I think you just kind of touched on a really important point there that I want to restate for everybody. You were just saying how when you don't have reserves and like you need an outcome to happen, there's no other way, like you need that outcome, that forces you to make bad choices. So, secure is not just about you know the finances being all secured and everything like that. I think it's also giving you the mental fortitude to win and have a winner's mentality, not a survival mentality.

SPEAKER_00 15:32

100%. It puts you on offense when everybody else is on defense, right? Or when maybe you should be on defense and or you could have to be on defense, it allows you to be on offense. Um, and I'll tell you what, man, it's a whole lot easier to get past losing a little bit of money on a flip property when you got money in the bank that says, Hey, this isn't gonna be that big of a deal. We'll just move on to the next one. Yeah, but I think strapped can't do that.

SPEAKER_01 15:58

Sports performance, you know, just looking at that, you go look at some of these teams, coaches come in and tell people, you know, I know what your problem is, and they'll go and everyone say, 'Oh, we missed the catch, we're turning over the ball or whatever.' You know, they come up with all kinds of things, but it's the reality of it is when you're playing not to lose, that is not the same as playing to win. And your performance, your outcomes definitely get reflected in that. So, yeah, that was a good point there that you brought up. You know, what other kind of symptoms are we trying to eliminate? You know, I'm sure like credit cards, we don't want to be carrying balances and paying 20-something percent interest rates. That's probably another one. Uh, yeah, what else?

SPEAKER_00 16:41

Yeah, so the third one on the wheel, if you will, for uh the secure stage is exactly that eliminate bad debt. And so here's the reality. We get it. As you are in the hustle phase, it is likely that you're gonna accumulate bad debt, whether it was a credit card or a home equity line of credit or a line of or just a regular line of credit, or mom gave me money, dad gave me money, brother gave me money, sister gave me money. We see it all, right? But if it's not secured by an asset, and that asset's not producing revenue to pay the note, then it is bad debt. And so, what I define bad debt is is any debt that's not paying itself off. Now, that's certainly within your business and your personal life, you got to kind of think about that as well, right? Bad debt is any debt that's not paying itself off, and especially as you're investing and growing your wealth, bad debt is any debt that's not paying itself off. But if you really think about that, if you take it very, very literally, which I think is I think you should, your personal residence is probably bad debt. It's not debt paying itself off. Now, uh, I certainly would not pay it off as my first option in the secure phase. I would probably wait until I'm in the investment stage before I was paying off any home mortgage, because I think the interest rates are even now are lower than what you can get as far as a yield and return on that. But nonetheless, I do think that that's something that everybody should have as a goal is to pay off their personal house and actually own it, or at least to own it as much as you can, given a world that we live in where you own property taxes.

SPEAKER_01 18:24

That's right. Yeah. So with the bad debts, I think every single piece of this secure phase, it really has to do with changing your, like really solidifying and working yourself out of bad habits, right? Like when you're in the habit of making sure that that debt is being paid off, even if it's not actually paid off, if you're making the conscious effort to pay attention to that and focus on eliminating that bad debt, that is probably the big superpower shift because it's it's changing your your behaviors where you once didn't really consider the financial repercussions and you're not seeing the the interest rates that are bleeding you over time. You know, you you do start to really put more back in your pocket that way. So this is actually financially rewarding to do this too.

SPEAKER_00 19:14

Oh, it's it's so rewarding. And here's the thing that nobody really talks about with that. A lot of that bad debt that I would call bad debt, right, is not necessarily bad debt, right? There's credit cards and those kind of things that aren't great debt, but there's also lines of credits, HELOCs, where when you pay these things back, it's capital that you can tap into as you are expanding your business, potentially, right? And so that's the other thing is you're building these reserves on one side, but you're eliminating debt on the other side. Some of it's bad debt that you know was consumer debt or whatever, just trying to build this thing to where it's at today. But some of it is good debt that you want to have access to the capital, but you just want it freed up. And you know, when you use that capital, you probably want to use it for like buying a piece of real estate or something, right? And so where it's secured by an asset. And so it's always good to have more access to capital, especially if a line of credit, if you're getting seven percent, you got a couple hundred thousand dollars on a line of credit that you can go and and you know take down a property that you don't have to get a hard money lender for or something like that. That could really start to pile up some cash in your pocket, too, right? Some income in your pocket and and make more uh as you're expanding. And so this is why you know this security phase is so important. Again, one way is hey, I don't have to pay off the debt, I'll have my business as it grows pay off the debt. It's gonna be making more money now, right? I'll have my business pay off the bad debt. That's not how it happens, it's not how it works. Because here's the reality this is the world that we live in. When you become a good financial steward, you get rewarded financially. And so when you go expand and you got a bunch of bad debt, first off, it's not wise, but second off, karma's gonna hit you anyways. Just leave it at that. Hello, karma. When you know you owe somebody money, but yet you're reinvesting in your business, and like, ah, it doesn't make any sense. I gotta pay, I gotta pay these this bad debt back. Then we can invest, then we can grow and get that next person.

SPEAKER_01 21:20

Yeah, and I also think it speaks to your discipline for risk tolerance. By carrying that bad debt, you're inherently putting a chink in your armor, you're inherently saying that you're okay with that level of risk. And the bigger the quantity grows, that risk starts to you know multiply because the numbers are getting bigger. And the bigger those numbers get, you know, that can that can really have some catastrophic impact on you when, not if it sneaks up on you. What other uh, I guess, like foundational things are we trying to do here? There's definitely how we're managing our money. What other instruments are we just? Trying to deploy here in the secure phase.

SPEAKER_00 22:02

Yeah. The last main thing that I'm focusing on here is getting yourself paid. Right. And so in the hustle phase, a lot of times you're not consistently paying yourself before you go and expand, and before you get into really trying to build something and add all these employees and all these additional costs to your business, you need to get yourself to a spot where you're paying yourself a salary that is livable. Now, where you start and where you finish might be a couple different things. What I believe in is that you need to get your business to a spot to where it can pay you$20,000 a month every single month. That is the goal. No matter if it's a good month, bad month, whatever, it's going to pay you the same amount every single month. Now, you're not going to start there. I didn't start there. Caitlin didn't start there. That's not where you're going to start, but you're going to grow over time to that spot where you're consistently increasing it. Maybe you start with 10, then you go to 12, and then you go to 15, and then you go to 17, and then you go to so on and so forth as your business kind of builds. But what we really want to see is that you start living within that paycheck that you're getting every single month for your business, right? You don't have to live off of a great month that comes in, you're like, okay, I need 50 grand for my house. That's not a way to run a business consistently. So same paycheck every single month, and we'll talk about how to handle the rest next week when we do the expansion phase and how we expand and how we expand appropriately and all that good stuff. But really, you just need to get yourself into a spot where you're paying yourself monthly. And by the way, everybody asks, like, should it be salary distributions? Let's this that's not this conversation. Doesn't matter. Salaries distribute that doesn't matter. That's a tax conversation. We're not talking about tax. What I'm talking about is money in your pocket. How much money do you want to have in your pocket every single month? And your business needs to be providing it. And you need to be able to live within that and not like live on rice and beans.

SPEAKER_01 24:00

And yeah, yeah, you got to have a comfortable, sustainable lifestyle. So secure, all about changing your habits, building stronger uh fortitude in your finances, which mentally fortifies you, you know, empowers you to make better decisions and get better results. So this is uh the second phase that we're talking about building up to that hundred thousand dollar per month profit. Next week, we'll be talking about expand. That's going to be really exciting. I think expand is where everybody wants to get to. And they, like you said at the beginning, skip over secure. Expand gone wrong will send you back to hustle real fast and in a hurry. So don't skip secure.

SPEAKER_00 24:45

No, absolutely not. And like it's interesting because in the secure phase, there's also like you've got some important things that you got to be thinking about from now you're building your financial back end in this phase, too. Like you're starting to try and figure that whole thing out, and you know, trying to get financial information so that you can produce reports and you know have per property reports and have cash flow reports and a balance sheet and a PL, like all those kind of things, and maybe even like a dashboard. Like, if you can get a dashboard in this phase, that's really, really good. That gets you out ahead of it when you're in the expansion phase because you gotta you're gonna need a dashboard in the expansion phase, but in the secure phase, it allows you to kind of get that started. And then there's a lot of tax strategy that you can be doing right here, too. Like, there's a lot of things that even if you're making a hundred thousand, a hundred and fifty thousand, even less, right? Like, there's a lot of things that you could be doing within your business that are good habits to start, like Caden was talking about, just good financial habits to start. And if you start it now, the compounding effect of those tax strategies lasts over decades, right? Like once you get that habit in place and you will know what you're doing with that that strategy is like, for instance, Augusta rule. Like, if you know, hey, every month I'm gonna do a an event in my house and rent my house out to myself, and I'm gonna book it on the on the calendar every month, and I'm gonna do all the things and blah, blah, blah, blah, blah, blah, blah. Like, that's a really good example of you could start that now, which is great now, but it's even better. Like, as you grow, because the more you grow, that deduction becomes a bigger deduction for you. So it's kind of a sweet thing to just like get these things in place now, and then in the future, it's great now, but also like set you up for like even I'm a CPA, and I wish somebody would have told me that kind of stuff 10 years ago because I didn't wasn't even doing that kind of stuff, right? And so, you know, we're drawing on what we see, but also you know, what I wish I would have done, you know, as I was growing this business and starting out in these phases, because I definitely overpaid in taxes in some areas, yeah.

SPEAKER_01 26:56

As a CPA, there's great, great stuff out there, and like Marcus is saying, those habits they'll save you some today and you'll you'll appreciate it. But man, oh man, there's probably a list of 10 tax strategies that you can do at any phase of being in business. And later on, when you're making the serious money, they become three, four, five times more valuable to you along the way, which is incredible because you're doing the exact same stuff. Absolutely.

SPEAKER_00 27:26

Awesome. Next week, expansion. Let's get to that 100K. That's really where the 100K comes in into play. Right now, in the secure phase, you're probably in the 20 to 50K range of revenue per month, right? Maybe you've had some good months where you've hit that 100K, but generally you're probably like in the 20 to 50k range. And then we're gonna take that money and we're going to invest it into key areas with key strategies to take that 20 to 50 to 100 next week. Awesome. All right, thanks everybody.

SPEAKER_01 28:02

We'll look forward to seeing you next week.

SPEAKER_02 28:04

Thanks, guys. Thanks for listening to Strength in Numbers. If you're ready to take control of your finances and start building real wealth in your business, be sure to schedule your free discovery call with Market at BECCFO.com to get started. Thanks for listening, and we'll see you on the next episode.