Strength in Numbers with Marcus Crigler

Episode 63: The Hidden Financial Problem Killing Real Estate Investors - Part 1

• Marcus Crigler • Episode 63

Share episode

Use Left/Right to seek, Home/End to jump to start or end. Hold shift to jump forward or backward.

0:00 | 26:20

There is a hidden financial issue that can kill real estate investors. It is not about deals, funding, or market conditions.

In this episode of the Strength in Numbers podcast, Marcus Crigler sits down with James to unpack a problem most real estate investors don't see coming until it's too late. Poor bookkeeping, unclear cash flow, and a lack of planning eventually led to a painful moment: a tax bill they didn’t expect and couldn’t afford.

Listen as Marcus breaks down why this happens, how real estate entrepreneurs unknowingly put themselves at risk, and what it takes to run a real business and not just hustle for deals.

Enjoy the show!

You’ll Learn How To:

  • Avoid surprise tax bills that can wreck your cash flow
  • Understand your numbers to keep your profits
  • Build a real financial system

What You’ll Learn in This Episode:

(01:47) What a fractional CFO actually does

(03:38) Accounting is really about simplifying your life

(05:35) The real reason behind the name of the BEC CFO

(07:40) The problem with first-time business owners in real estate

(08:47) Requirements of the business

(09:32) "Box of receipts" doesn't work anymore for sophisticated business owners

(11:15) Accounting as the “language of business.”

(14:24) Why having the right financial team changes everything

(16:29) The common mistake of hiring cheap bookkeeping help

(18:31) When to outsource vs. build an in-house finance team

(19:33) How a full financial back office supports long-term growth

(21:23) Waiting too long to fix your numbers creates bigger problems

(22:58) Successful-looking investors still struggling financially

Who This Episode Is For:

  • Entrepreneurs who don’t fully understand their numbers yet
  • Real estate investors who deal with tax or cash flow issues
  • Anyone building a real estate business who wants to do it right

Why You Should Listen:

This episode is a wake-up call. Fixing your numbers this early can save you from costly mistakes and set you up for long-term success.

Connect with Marcus Crigler:

SPEAKER_01

A lot of times that's because you're staring at a tax bill that you did not expect with and maybe don't have the resources to accommodate because of the timing of some of these things. That is the last place you want to be. This is a problem you definitely want to get ahead of. Because if you're behind, that probably means you are are in a bit of trouble. And that trouble can compound, I think, really, really fast.

SPEAKER_00

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 Kriegler.

SPEAKER_01

We've got an awesome guest today, and really excited. Uh Marcus and I have been talking about doing this for a while, and we finally were able to get it scheduled with both of our hectic travel itineraries. So without further ado, I want to introduce our guest today, Marcus Kriegler. Marcus, welcome.

SPEAKER_02

Hey James, I'm glad we're able to do this. Finally, we've, you know, we talk about this every time we see each other, right? We see each other probably around once a quarter. And we're always like, hey, we got to get this podcast going so that we can have these conversations recorded. But, you know, how is your golf round? Right. That's usually, that's usually how the conversation goes.

SPEAKER_01

That's right. That's right. But, you know, we put it together. It'll be well worth the wait. So just to set the table a little bit, and then Marcus, I'd I'd love to kick it to you to talk, you know, a little bit about who you are, a little bit of your background, and then and then what you do. But, you know, Marcus is like a I think the right characterization would be fractional CFO. Would that be right?

SPEAKER_02

That's right. Yeah. Yeah.

SPEAKER_01

Yeah. So fractional CFO and your business is entirely focused on real estate investors. Marcus brings a lot of experience working with, you know, within the niche of real estate investors. And I think, I think that's a really, really important point because, you know, obviously accounting, the the finance side of business in general is a big world. But specifically, you have been working with investors to solve their unique problems for quite a while now. So, you know, tell us a little bit about you and your background. And, you know, I think it's always interesting to hear kind of how you got into this and then some of the things that you focus on when you're working with your investor clients.

SPEAKER_02

Yeah, totally. So I'll start with today, and then we can maybe go back to the back to the very beginning of where it all started. So I own a Beck CFO and CPA, where we are a CPA and CFO firm working with real estate entrepreneurs across the country. So, very simply put, we help people make money, save money, and build wealth in real estate. And then we do that through our kind of lens of accounting and finance knowledge focused specifically on the real estate niche, right? And so that's that's kind of where we've developed to, but that wasn't where we started. I really got into this industry really because of my father-in-law. My father-in-law got me into this industry in 2008, 2009. We all know if we're in real estate, what type of world we were living in during that point in time. And I saw so many people that were struggling financially. But my father-in-law, I'm not saying he wasn't worried, but he was good and he felt very confident in the money that he was earning. And I looked at what his career was and he was an accountant. And if you if you know me, if you get to know me, you'll probably think, well, Marcus, you're probably the furthest thing away from a CPA or an accountant. But that was the path I chose and fell in love with it, right? Fell in love with accounting, fell in love with being able to utilize numbers to help people's life, really. And that's really what accounting is all about, is a lot of people think about it as bookkeeping or you know, fractional CFO or even tax savings. But at the end of the day, what it all comes back down to is simplifying somebody's life. And so what we do, and what I've kind of learned since that time is we've got into this, this, this industry, and there's several iterations of it. I was with a another CPA firm that was a great experience and bought out of that CPA firm and then opened this one in in the middle of COVID, but learned very quickly that if we were going to truly add value to the market, we're gonna have to specify and we're gonna have to be truly focused on one area. And I just happened to be in that area of real estate already, and I was falling in love with it, right? I fell in love with the actions of real estate entrepreneurs. It's it's a combination of two very, very different skill sets that come together to make one really interesting entrepreneur, right? You've got the entrepreneur skill set, which you see all the time out there, sales, marketing, you know, the ability to generate revenue. But then you've got this investor skill set of buying and holding properties and flipping them and adding value to those properties so they go from being worth 200 to worth 400, right? And all these cool things. So I fell in love with that. And since then, it's been riding this business, right? Beck CFO and CPA, and trying to help as many real estate entrepreneurs across the country get their numbers right so that they can make more money. And ultimately, when you make more money, you got to save money in taxes. So we do a lot of work behind that as well.

SPEAKER_01

Awesome. No, that's a great background, and I think I think kind of lays it out perfectly for for the things that we want to discuss here. I'm curious though, and you and I have never talked about this, but where'd the name come from?

SPEAKER_02

Yeah, so that's that's funny that you asked that. So I've got three kids, Bennett, Ella, Carter. That's my youngest to my oldest. So it actually came from the first letters in each one of their names. So I was when I started this company, I did not want to start it with my last name. You know, if you if you look at the traditional a lot of the other CPA firms, which they're a lot of them have gotten away from this, but certainly when I bought it, it was, you know, Smith and Smith CPA firms or whatever, Johnson and Johnson CPA firms or whatever. And and I didn't ever want the CPA firm to be about me. I always wanted the CPA firm to be about truly putting together a business that helps people. And I think when you start worried about whose name's on the front door, you start forgetting about who who you're actually serving. And so that was a core focus of ours when we started this thing from the get-go. And now Beck's just Beck, right? You know, a lot of some people ask, some people don't, but it's just become, you know, just the name of the company at this point.

SPEAKER_01

I've always known you to be a great family man, and I know that's a huge part of your life. And maybe we will touch on that a little bit more. But I think that's great. I did not know the answer to that. So it could have been anything, took a risk there, but that is a that is a great story behind the name. I like it. I think a lot of people, number one, I think real estate investors, you know, they tend to be what I see anyway is a lot of them are really good with, you know, the nuts and bolts of running a real estate business. They love working in the dirt, they love putting the boots on and getting on job sites and you know, picking out materials and managing subs. And they may not love all that stuff, but it's definitely something that they are very proficient at if they get to the level where they're owning a business that is actually, you know, successful. They are not, in my experience, known as amazingly sophisticated financial people. And there are absolutely counterexamples of that, but you know, that does not tend to be one of the areas of strength that kind of gets you into this. Has that been your experience?

SPEAKER_02

Well, absolutely. I think it's what keeps us busy, to be honest with you, which is, you know, it's a good and bad thing, right? The interesting thing about real estate, and maybe it's different than most other industries in that most of the people getting into real estate are first-time business owners. This is the first business that they've ever owned, or it's the first business that their family has ever owned, right? It's, you know, it's their first world of entrepreneurship. And a lot of that I think is due to the really the low barrier to entry to get into the industry overall. And so you've got a lot of what I would call rookie business owners or business owners that, you know, I hate to say this in some ways, but in no have no business owning a business yet in their in their life, right? They haven't, you know, mastered some of the accountability and responsibility that that it takes to run a business and run one effectively. But I think what you see is that once those people have a little bit of success and they start seeing that, okay, well, actually, this isn't just a way to make money. This is a way to build a business. They end up going back to finding out, well, hold on. A business has certain things and requirements of that business, right? And part of that is, hey, I've got to keep track of the money coming in and coming out. It's got to be more than just a bank account. It's got to have, you know, one of these things called a balance sheet and one of these things called a PL or a profit and loss statement. And these are, you know, you got to have cash flow and you've got to kind of understand when the cash is coming in and when it's going out and the timing of those things. And for most business owners, I mean, even if you just listen to me say all that stuff, you're like, oh my gosh, this is exhausting. And so it's usually one of the things that they'll stick their head in the sand about, right? It's like, until I have to have it, I don't want to think about it. But the problem is when you have to have it, is when it starts costing you money not to have it. And so that's when the bank is calling or, you know, James is calling and saying, hey, I need your financial statements in order to make this loan. Or, you know, you've got your tax guy calling, hey, I need your financial statements to file your tax returns. Oh, wait, well, I only have a box of receipts. That doesn't work anymore when you start becoming a sophisticated business owner and you're in it for more than just making money, but you're actually running a business here. And I'll tell you, people don't necessarily, it's not a line where they just cross over, right? And they're like, Well, I started this and I was just flipping a property, and then all of a sudden it spiraled out of control, and now I'm flipping 10. And and all of a sudden it's more than just a side hustle, it's this enormous business that has millions of dollars at risk and millions of millions of dollars at at play at any given point in time. And so when you're not really tracking it, when you're not really keeping out ahead of it, eventually it will cost you. And I use this cautionary tale for anybody that's listening to this and and they don't have what we call books and records. And guys, if that sounds complicated, it's just like QuickBooks, right? You we've all heard of what QuickBooks is. It's it's having your information inside of a little QuickBooks file and having each each transaction that hits your bank account coded to what it actually needs to be, and that's all it is. But the the difference between doing that and having that done consistently and not is potentially, potentially whether or not you'll make it or not in this industry and in most industries. I remember uh Robert Hershevec, which most people know him uh famously from being a shark on shark tank, was doing an interview one time and they were like, What is the most important thing about a business owner or that a business owner should know? And he said, You've got to understand the language of language of business. And he said, The language of business is accounting. He said, if you don't understand that, you're gonna struggle your entire career. And I think a lot of business owners in this industry, they get to that point where they're like, okay, I've got to learn the language of language of business here because I'm making a lot, I'm moving a lot, but I'm not keeping a lot. And that where the struggle starts to begin.

SPEAKER_01

That's a great way to explain it. And I really I asked the question because I feel like a lot of investors, to your point, the barrier to entry is pretty low. Many people get in, I'm sure, thinking I'm gonna build this huge thing. But I think a lot of people get in it because they have proficiency in it in the space. They've they've been doing something tangential. They've been a general contractor, worked for one, and saw this opportunity and jumped in, started doing some deals, and then almost a victim of their own success, they grow this thing that they maybe didn't really weren't really intentionally working towards, but they get good, the opportunities present themselves, they keep build, you know, building a little bit of a balance sheet, and now they can do more. And all of a sudden, it goes from a one-man band, which may be a little bit easier. And this is a question I I'd love to hear your thoughts on, but you know, could could be a little easier to manage financially into a business. And now you have people that rely on you, that you've employed and that are a part of your team. And you really have to start thinking about how to make sure that this thing works because it's no longer like, all right, well, if this doesn't work, I'm gonna go back and be a GC again, or I'll go, you know, whatever the alternative might be. You're now impacting the lives of a number of other people. And I think that that progression can happen really quickly. I've certainly seen it on the lending side, companies that started where the lending piece was a bit of a side hustle for them. Man, it turns out to be, you know, a real business there. And then all of a sudden, you know, they go from opportunistically lending out a few million dollars to a real company that requires a lot more to keep it, to keep it healthy. Um, and I think real estate investors fall into a very similar trap. And it's actually probably even more so with them, because you can get started and do a couple projects a year and make a living, you know, for your family, depending on where you live. But, you know, that can spiral in a good way, but it creates a whole host of problems that you may not be trained to handle. I think the other thing is that real estate entrepreneurs, I think maybe entrepreneurs generally, but certainly real estate entrepreneurs, you know, our borrowers are they're out there and they're, I think a lot of times a real estate investor's job is just solving problems all day. And this is just another thing. And, you know, typically they're the the the buck stops with them. So they are used to kind of like, all right, I gotta, I gotta saddle up and I gotta fix this problem. And if you do that in a in something like this, on the financial side, especially when it starts to come to taxes and these other things, you know, if you don't really know what you're doing, you can get yourself in a lot of trouble. But I think a lot of entrepreneurs in this space tend to feel like, well, I solve all these other problems. I'll just, this is one more thing I've got to take. Right. And I think having somebody like a professional that really understands it and understands this, this kind of vertical niche like yourself, I think can be massively important. And at the end of the day, I think we as lenders and others, we want our clients to succeed. It's not about making loans, it's about helping people build a business. Can't do that if if you're running behind on your taxes and you start to get into that whole slippery slope, right? So I think that to me made what you do so valuable because most of these companies are not big enough to have their own CFO. It's not financially viable for them at a at that earlier middle stage. You know, if they're lucky and they become very successful, then yes, you've got budget for a CFO and you should absolutely do that. But, you know, there's a lot of people that are not ready for that. So to take advantage of someone like you with a tremendous amount of expertise and who's also seeing these same problems from lots and lots of different clients, there's probably not a lot you haven't seen. Um, I think that makes you an incredible, an incredible value and incredibly important to the long-term success of your clients. And so I wanted to really bring you on here to to help, you know, folks who aren't who who are still in that I'm kind of gonna deal with it myself mentality to kind of consider the alternative, which is you know, bringing in a real professional like you to help them. So I don't know if you had any thoughts on that, but definitely don't want to.

SPEAKER_02

I think so. Typically what we see is the evolution, if you will, is that somebody will figure out that they need help. But what they what they do, and just like any anybody, right? Just like when people are coming in and they need a loan, okay, well, what's the best interest rates? How am I what's the least amount of fees that I'm gonna pay? What's the best deal I can get on a loan? And what they find is that they're gonna go out into you know our industry and they're gonna say, what bookkeeper can I find? What you know, overseas VA that I can pay $4 an hour to that can do my bookkeeping. And there are industries where that works and that can that can work out for you, and at least for a period of time. But what I would tell you is real estate's not one of them. Real estate's one of those industries when you are buying, fixing, and flipping, selling, refinancing, holding, wholesaling, you've got subject to, you've got lease options, you've got all of these different things going on, and all of them have different treatments, not only from a bookkeeping standpoint, but from a tax standpoint. And I think that's where we see a lot of people kind of get in trouble. So eventually they realize hey, I need to do something, I need to do more than that VA. And on top of that, right, when you hire a VA or you hire somebody outsourced like that, you have to train them. Well, who in your business is the best trained to train an accountant or a bookkeeper in your business? Nobody, right? You don't have one yet. And so what we typically say is if you aren't in a business model where you and you've not grown your business to where you can hire two full-time employees in your accounting department, and there's a lot of there's a lot of safe money guards by having two accounting people in your finance department or more, right? We talk, we can get into the weeds of this with segregation of duties and all this other stuff so that you're not getting stolen from. But ultimately, if you can't afford two full-time employees in your accounting department, somebody higher, somebody lower, then you need to outsource it. And you can outsource it to somebody like us. Well, you know, I'm a little biased, of course, because I run the organization, but we run an organization that has all of the financial back office in one place, right? That's kind of how we designed it, where instead of having to go to a bookkeeper for one thing and a fractional CFO for another and a tax strategist for another and tax prep for another, we have it all in one house and you have one team that kind of gives you that full back office finance support. And you know, that was by design because we don't believe you should run a business without that full finance support. Now, does that mean you come into our office and you're you know only doing a few deals a year and you need a full fractional CFO for your business? No, you might grow into that, you might need that, and eventually, just like you're talking about, James, you might grow beyond that and need a full CFO. That's where we feel like we've had the most success. And we have that several times a year where we've got people, we I call it kind of a bell curve where they come in as they're on their way up the bell curve and as their business is growing and they need more and more of our services until there's a time where the cost versus benefit's not there. And they need to go hire that internal staff. They need to go hire that CFO, they need to go hire hire that controller. But also now you've got a team that's helped you build up the back-end finance of that business so that you're not just handing over, you know, a big mess to a controller or a bookkeeper or a CFO that you're hiring internally, you're handing over something that's really nice, really clean, and able to have somebody take it to the next level through bringing it in-house. So I think that's really where you know we've established ourselves within the within the industry. And I think, you know, I think that's what you need as a real estate entrepreneur and really any entrepreneur in general is to find a firm that is small enough to give you the attention you need, but has the resources to grow with you as you grow your business. Because again, we're all in this business to grow. I don't think anybody is trying to, I mean, they might be trying to stabilize, but I think when they figure out that stabilization ends up meaning that you decline, they find out that growth is back on the table, right? And so at least uh minor growth year over year. So that's kind of that's kind of our philosophy on it.

SPEAKER_01

Yeah. Well, if you're not growing, you're dying. For sure. It's a term I I I hear and and hear a lot and say a lot as well. But I I think you you also, I mean, obviously, you if you're gonna get to a certain size, you can't just do the shoebox full of receipts anymore. That's just not gonna get you there. And you made the point a minute ago, which I I'd love to just reiterate, you know, most of the time, I think when people figure out, oh my God, like I really need outside help. A lot of times that's because you're staring at a tax bill that you did not expect with and maybe don't have the resources to accommodate because of the timing of some of these things. That is the last place you want to be. This is a problem you definitely want to get ahead of. Because if you're behind, that probably means you are are in a bit of trouble. And that trouble can compound, I think, really, really fast. Faster than a lot of people think. And you and I know uh one another through the the real estate mastermind, collective genius, and and some others, but you know, that's kind of where you and I have really developed our relationship. And I I have had countless conversations, and I'm not asking, you know, you're you're asking, you're talking to people about specifically this stuff. I'm not doing that. And I'm still hearing people who are, by all accounts, from an outside perspective, look incredibly successful, but they're not taking home a lot of money, right? Because of all they're not, they're not matching up some of these things. They're not optimizing their balance sheet to be able to go and get the best financing and their taxes are a mess. And that that is that really stunts growth. And of course, as we both know, it can it can be the death blow if you if you don't address it, right? So I think those are all amazing reasons why any investors who are listening to this who do not have specialized help in this area should consider it. We'll give people your contact information at the end. So if folks have questions and want to reach out, they they can do so. But I I can't, I can't stress enough. I mean, how many times I've talked to people and in terms of the deal flow that they're doing, the team, the size of a team that they've you know built that are struggling. And you, you know, from the outside, it's hard to tell. They've they they're wearing the nice clothes, driving the nice car. They got a lot of great things to brag about. But when it comes time to, you know, look at the bank account, a lot of times those guys are are disappointed. And and it can really hamper their ability to leverage the momentum that they've developed into a bigger and and better business. And the last thing you want to do is pause that momentum to have to rebuild things because you know you didn't realize that you weren't putting enough away for taxes or the mismatch in the in the timing of income and when things are going out. And you know, the last thing you want as a successful investor, and you know, you and I know these these guys work incredibly hard to uncover the opportunities and execute those opportunities. Man, don't let that effort go to waste. I think that's a great message to start with. So, one thing I want to jump into here, how long have has your firm been in existence?

SPEAKER_02

Well, so we just celebrated five years before that. I was part of another firm that was a real estate specialist firm that I was with for, I don't know, nine years, eight years, something like that.

SPEAKER_01

Yeah. So you you've been doing this for for a good bit of time. So you've seen a lot of things. And one thing I I also meant to ask you a second ago, how big is your team? 40, 40-ish, something like that. That's a that's a lot of resources for for people to have access to.

SPEAKER_02

So you've got it's growing, right? I say 40-ish because we're always hiring new staff members, right? So it's always it's always a fluctuating number.

SPEAKER_01

Yeah. So, you know, it's not you and two or three guys in a, you know, in a we work, right? So this is a this is a real thing. But, you know, in your experience over the last call at 12 to 15 years, you know, what what are some of the themes that you've seen with real estate investors, some of the challenges that you see pretty frequently that you're able to help them with? And then, you know, the second part of that question, how are those things looking kind of as you have progressed and as time has has gone on? And, you know, are those are the things that you're talking to real estate investors about today, you know, this the same? Is it really just a continuation of those common themes? Or are you seeing anything, you know, kind of unique and different in today's environment? A lot of tax changes with with you know, the the tax legislation that was passed earlier this year. There's just seems like the environment in general, not even real estate, right? But just the general business environment has been changing. I'm just curious if you're seeing a different set of challenges today. And and then, of course, would love to hear kind of what you're what you're thinking about as we look forward into our cloudy crystal ball.

SPEAKER_00

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 markets at become cfo.com to get started. Thanks for listening, and welcome you on the next episode.