Expenses versus Investments w/ David Pittiglio

Welcome to Real Estate Business Builders. I'm your host, Lars Hedenborg, the founder of Real Estate B School. Bottom line, the real estate industry has failed to create a clear path to financial freedom. Traditional brokerages and coaching are designed to keep you running on the transaction treadmill with no exit strategy. While I didn't have any sales, marketing or business building experience when I got into real estate, I was willing to bet on myself and figure it out because my family was depending. Having served over 5,000 families with their real estate needs, I've made every mistake you could possibly make in this business. Through Real Estate B School, I've helped hundreds of agents and team leaders realize their goal of true time and money, freedom and living a life without regrets. If you know there's another level of growth inside of you and you want to learn how to build a highly lucrative lifestyle business, then you're in the right place. You won't find any fluff or hype here on this show. Just real world tools, systems and strategies that work. Let's grow together.

Welcome back to Real Estate Business Builders. I've got a special guest on the podcast today, David Patiglio. And you know, I think I've said it before, and I said it with much love and respect, but I love guys and girls that like, geek out and are complete nerds in their line of business. And Christy and David have built a business to serve a very specific and desperate, desperate need in our industry is turning, you know, agents and team leaders into, well, not bookkeepers or accountants, but turning them into CFOs, so Chief Financial officer of their business and giving them the what, what they need to be successful on the business side of things. And we're gonna unpack a conversation today that I think is super timely. You know, David, how many folks do you have in this niche right now? I think you're like mostly real estate, right? How many clients do you have right now?

Yeah. Hey, good afternoon. We are about 850 clients right now.

Yes. Yeah. So if there's anyone that understands like the net, net net of, of like selling homes and generating top line, but what these agents are taking home, it's. It's this guy among any guy that I know in the industry and the skill set that you have and just this awareness and your ability to see into businesses. So without, you know, naming the folks, we're going to, we're going to talk about the good, bad, ugly as it relates to translating your efforts into take home. But three things specifically, we're going to unpack Today. And let's just take them in order. We kind of teed up the conversation. Earlier you talked about expense management versus expense cutting. So we're going into a time now that I think is going to be, you know, great if you're prepared for it. And for a lot of folks, they're just going haphazardly cutting everything. Right. So talk about and kind of school us on this concept of expense management versus expense cutting.

Yeah, great question. So in my eyes, the examples that I start to see nowadays is the market is shifting and the biggest thing that comes out is fear. Everybody's really concerned about what is going to happen, not about what's actually happening, but what is going to happen. And the I'll call it a knee jerk reaction is to start going through their bank statements or some type of information and start just cutting. We don't need that anymore, we're not going to need it in the future. And we start slashing everything without the thought process of the actual management of expenses. And so that's where I start to use different terminology, is expense management managing the output or the outflow of the, of the monies going out of our business, bank accounts and personal. We can get into that later. But then also ensuring that we're not short sighted in what the future will hold for our businesses, that we're not cutting something today that we're going to nest, we're going to need in the very near future or in the, in the midterm.

Yeah. So let's go through a few examples of expenses that agents should be aggressively cutting, even if it's lifestyle stuff. And then the things that you're seeing that like, gosh, you guys have been through this before. So you've been through the roller coaster of real estate. So the things they should be cutting and there's things that they may think twice about cutting.

Yeah, the first item is the frivolous spending. It's the let's run through Starbucks every day and there's nothing wrong with the coffee. But maybe there's some other opportunities to instead of spending a hundred dollars a month on coffee, maybe have coffee place inside your own office like Parks Coffee or something like that. Obviously it's just an example, but the frivolous spending where we're swiping the debit and the credit cards consistently on items that we really don't need, we can refocus those same monies on different lead generation efforts or certain aspects that are actually making the business money. So that's the biggest one is Frivolous spending.

Okay. And then how about on the side that you, you know, you see people cut everything, right. They go through their credit card and they're like, oh, that's a big, you know, it's, it's expense versus investment. What are some of the things that you're, you're seeing people cutting that you're like, I don't think you should, you should be cutting that.

Yeah. So return on investment, right? I'm looking at. Well, I mean, we're a great example. Bookkeeping. Right. Well, guess what? Taxes are not going away ever. So you're still going to need a set of financial statements to provide for tax planning and tax preparation purposes. The bookkeeper is not the best person to cut right away. Same thing with the executive assistant in the business. If they are supporting and leveraging you to be able to provide thought processes on how to gain more revenue, likely not the person that you want to cut. Maybe we reduce hours or renegotiate terms or provide, you know, different job duties, but just simply cutting expenses such as those, not likely a benefit. I'll do coaching as well. Right. Like there's going to be somebody that takes that coaching spot whether you take it or not. Getting rid of the business coach today and then knowing that you're going to need them again in six months when things turn around or when you're. Your specific business shifts, likely not the best decision. So there's just different areas of everybody's business, but there's, there's a lot of common denominators of items and vendors that you are going to continue to need. Lead generation, a big one. This is where ROI comes in. Making sure that we're tracking, you know, what is my best legion effort right now, and maybe it's scaling back on one and increasing on another, and then the business may not change at all. So I don't want to paint a pretty picture that everything's fantastic and perfect, but have the, the cognizance around what we're really spending money on so that we can better manage the business through these, you know, the turbulence that's coming and already here.

Yeah, and, and, and you said something in there that I, I want to make sure it lands on, on, on the listeners and those that are watching. Roi, return on investment. So we, you know, we had our book set up with you guys. We're like under the broad category of marketing and advertising. I mean, we zeroed it down into like literally lead source codes. So, you know, 101, 102. That was all of our sort of online legion. Two was all yard marketing and, you know, circle prospecting open houses. And three was mass media. Four was, you know, expireds and fizbos. Five was, you know, team database generated. And six, you know, so there's a way to match the money you're spending to the, to the deals that you're doing. And if you're, you're not even in that game, that's something definitely to focus on. Let's. Yeah, and I said it, but maybe you can touch on it. Expenses versus investments. So how would you coach somebody to go through all the money they've spent in the last three to six months? And line by line, how would you have them code like, I know how I do it, but how would you coach them to do it?

Yeah, honestly, there's a couple of different financial reports. And if the bookkeeper or the person you go to is managing the financials appropriately, they can very simply run you a vendor report. And basically what that does is you pick the time frame, let's say January through last month, which is October 31st, and you run a vendor report and essentially goes down the list of all of the pennies that you spent by vendor. So you'll see lead generation vendors, you'll see professional service vendors, maybe the rent payment that you pay to the building or the mortgage that you own. And so you go down that list and you start to go, am I really utilizing that service? I'll use Hulu. If you haven't signed into your Hulu account In the last six months, why are you paying 17 or 70 bucks a month? And so that's where that vendor report really comes into play because so many things are on autopilot these days. Nobody's cutting checks and nobody's really physically touching the money that goes out of the business. It's just on auto debit or auto pay on the credit card. And so we don't feel or really pay attention to it all the time. But a vendor report just like that allows you to sit down and I'm talking. Ten minutes, Lars. I'm not talking. You know, you need to take the whole weekend to do this. It's a 10 minute conversation with yourself of saying, am I using this vendor? Am I not using this vendor? Can I talk with them? And then making just executive decisions and, and having a conversation around what, where the money's really going.

Yeah, I probably did it the more painful way. I literally printed out six months of my Amex line by line, and I printed out Six months of my business checking and then my personal checking. And it took me, it did take me about four painful hours to go through. But the net result of it, I found $6,000 a month that my business didn't suffer. You know, my family didn't suffer. We still live, live a great life. Nobody's missing these things, but we just have a tendency. Every business is looking for monthly recurring revenue, right? So you sign up for these things and you know, so, so it's just a really good exercise. I recommend it every 90 days. So number two, let's talk about, you know, depending on when you listen. Well, it doesn't matter when you listen to this. It's tax time all the time, right? No matter when you are in the year, you should be thinking about your taxes. But you mentioned, and this is the second point, you know, proactively managing your taxes. So let's, let's unpack this a little bit.

Yeah, let me, let me first preface that I'm not the CPA, right. I work with the clients, CPAs all around the nation. And there are some very proactive tax preparers out there. And so let's make sure we're on the same page. December 31, at the end of the day is the last time you get to make an adjustment within your business's financials for the year. So now that we're, I'm going to say 45 days out from year end close, the concept shifts to do I want to pay Uncle Sam next year in 2023 for the 2022 tax liability, or are there certain things that I can do today before the end of the year, before that timestamp closes to maybe proactively pay for expenses next year? And I'll give you some ideas on what that looks like at a very high level. Businesses don't owe taxes. People owe taxes. And so if the business is profitable, then that dollar figure, that profitability number flows over to somebody's, the business owner's personal return and then tax rates and in tax credits and things like that get deducted from there. But if you can proactively minimize legally your business's profitability, that reduces the taxes that you're going to owe. And so some of those things, and I'll give you some ideas, Lars, these are not anything that I'm saying. Go out and do this tomorrow. I would definitely consult with the tax preparer, but in the industry that I'm in, you get to see a lot of common denominators. One of them is, is S corporations and payroll, meaning paying yourself a W2 wage or bonus. So the business owner, the officer of the company, and then a really cool one is paying the children of the business owners. Completely illegal thing to do there. And let me, let me preface that. A transfer from.

You said completely. A legal thing to do.

Yeah.

Real fast. You said completely illegal thing to do.

So a completely legal thing to do. There is tax code that allows that to happen.

So. So, so tell us about paying your children, because I think it's more than I. I'm paying mine because I think it's increased over like from five years ago. Right. From like 6,000 to like.

Yeah. Don't quote me on the exact number, but I want to say it's this year. It's about 12,500 per child.

That's what I thought. And I know you're so. David is not a tax guy. Statement here is like, do not. This is not advice. This is just a guy that's been in the business that knows a little bit about books and real estate businesses and he's seen a lot of things. So with that sort of statement out there, what are you seeing? The best ways that people are using their kids to get them paid.

Yeah. So there's options for the kids to work inside the business and do certain things. Whether they're doing it for professional image, where they come into the office and make everybody happy, whether they deliver goodies or put stamps on envelopes. There's lots of things that kids can do within the business and they can get paid for it. And these are for children under the age of 18 and up to that $12,500 per year, assuming they don't have any additional income like their modeling or something like that. Yeah. And what that does is say two kids. 12. 5 a year. 25 grand. If your business did a hundred thousand dollars in profit now, Your business did $75,000 in profitability. Right. And so now that. That net number that is lower gets transferred over to your personal return and you therefore pay less in taxes.

Yeah. At 40. And that's state and federal at 40%.

All.

All in. You know, at a minimum, that's $10,000 on the 25.

And essentially the money stays in your own household, right? Yep. Yeah. Now. Oh, yeah.

And. And the money stays in your whole. Yeah, I didn't even count that part of it. Yeah.

So that's.

So it's. It's 100% capture.

Yeah, it's great.

Yeah. Awesome.

Now, let me, let me preface that. When I say paying Your children. It's not transferring $12,000 from your business account to your personal account. That, that's a distribution of businesses profits or retained earnings. There is a payroll function to it where there are taxes involved and withholding. So consult a professional. I'd be happy to walk you through that if that's a necessity. But. Or if that's an option for you. But just simply transferring money is not payroll. I want to make sure we're very clear on that.

So tell me anything else around. Proactively thinking about taxes.

Again, additional expenses within the business. So what that looks like is maybe prepaying for next year's expenses. If you, if you choose to do something like that, I'm going to throw out depreciation and something along the lines of buying a vehicle. Again, there's many thought processes on this, right. Do you spend the whole dollar just to save 60 cents or 40 cents? Right. So. So I'm not offering go out and do this again. But there are options to buy equipment and furnishings and other aspects that you may need in the business that become a direct 100% write off this year. And I'll use very round numbers. But if Your business had $100,000 in net profitability again and you go out and buy a $60,000 truck for equipment to run signs around and put signs in the yard, that $60,000 becomes an expense for the year. And now your business is paying profit or taxes on the profit of $40,000. Again, round numbers. A little more to it than that, but that's the idea. Yep. Awesome.

All right, so let's shift into point number three. And this is probably the one that gets me most excited. And I wrote it down as we were chatting about it. But it's, you know, making sure you have something to show for your efforts, meaning making sure you are tracking or have a method of moving money around. You know, you have, you can cover taxes but also savings, you know, tracking your net worth, make sure your net worth is increasing. So let's. I don't know what the title of this point number three is, but what have you seen? And we've, we've run different systems personally. And you've been involved in profit first. And I've modified it to a weekly version of it that's working phenomenally well for, for me. But what do you see in, in this area? You know, agents that sell a lot of homes but they don't have a lot of money to show for it.

Yeah, it's a, it's an unfortunate. It's an unfortunate instance to be in, but definitely a great question. You know, when I. When I think of. It's not. Don't make it overly complicated. It's fairly easy. If your business is profitable, $10,000 this month, don't spend the $10,000. Maybe spend 5 of it on certain needs and then take the other $5,000 or 50% of it and put it in a. A rainy day fund or a rainy day account, possibly at your current financial institution or a different one. And it's a very simple way to just move money because a lot of people have habits of if there's money in the account, then that means we can swipe the debit card today. And I'm not saying that's wrong or good or bad, but that is a habit that most of us have. So if the money's not in that specific account to spend, we're less likely to have those frivolous spending moments, like I mentioned a little bit earlier.

Yeah. And there's a lot of psychology. I was, you know, trained as you were, and we've been in the profit first world, which is like, you know, 10th and 25th. That's when you do all your movement. I got into a world where the guy really deeply understands the connection with people and their money. And he recommends. I didn't do it, but I moved it to weekly. Daily. Daily. Going into your accounts and seeing what money came in today and what money went out. And so essentially putting together a daily P L and moving money. It's more for the psychology of it that, you know, I do it every Monday morning. I'm. I pay off. You know, I've got two, two businesses, two amex cards. I don't do it for the points, but I get points. But I pay them every Tuesday after I do my meeting with myself on Mondays. What have you done personally or have you seen in terms of best practices there, like a weekly meeting with yourself where you've set up these different accounts and you're getting money out of the core account. We mentioned, we talked about mixing personal expenses and business. Maybe talk about that. But what have you seen in terms of this stuff?

So I personally have every single expense in my business on autopay going through my American Express card. And that American Express card gets paid off 100%. No, no interest whatsoever. When, when the payment is due. What that allows me personally to do is just pay attention to one account. And I can manage that. And I, and I do log in often. It is no less frequent than every other day. So I'm always in there making sure that nothing's happening that shouldn't be happening, that I just wasn't aware of. I will tell you that Only out of 50 people in my organization, only three people with the other is my wife and then the other is a manager have access to spend money. So this is not a free for all. I manage the money and whatever I allow to get spent gets spent. I don't, it's not a, whoever wants to buy lunch today and do whatever. It's very, very close knit. So that's why I don't have to look at it every day because I can trust the people that are actually, you know, allowing the money to go out the doors that gets paid off every month. And you know, my business is a little different. I can, I can anticipate the revenue because we do monthly reoccurring revenue. So as long as I know what I'm what's coming in and then any extracurricular business expenses that may be coming up, I can account for those. But Lars, what I'll tell you is that if you're paying attention to the financials, every single month, you start to get into not only a cadence, but you start to get a break even number. And that break even number looks like, hey, it costs the business 20 grand a month just to get by. And so if I know that I have $30,000 a month of revenue coming in, then generally I'm going to have $10,000 worth of profit every single month. A little more to it than that, but it really can be that basic and the same thing in the real estate world. The conversation goes to everybody has a break even number. And generally if you're forecasting and you know what's closing coming up, then you can proactively understand if you're going to be profitable in the next month. If you need three closings a month on average just to break even, and next month you have five, you know, you're in the black. If next month you only have two, you know, you have a problem today, you don't have a problem next month. Yeah, that's awesome.

Not that you're looking for advice, but when I went from monthly payoff of my Amex to weekly, it was a life changer for me. So I don't know what it was about my personality where I would kind of see the not irresponsibly spending, but I would see the balance of the Amex and both of the businesses go up. And then my other accounts were High. But then it would hit my other accounts. It was almost like, you know, then you get it to zero. But now I'm like, I'm psyched every Tuesday, you know, where it only goes up a little, that I pay it off a little. I pay it off, and it's automatically paid off. And I just make sure I'm Monday. So anyway, for anyone out there that goes through that roller coaster of having that monthly, you know, bill to pay off, go to weekly, you know, do a meeting, and I've got a template, you know, that you can. You can reach out to me if you need a template to do it. But that's really. It's changed everything because it's all psychology, right? I'm a spender, you know, so if I just let myself be myself, I'm naturally a spender. And unless I get all this money out of my world and, you know, into investments and other accounts and, you know, I'm just going to be like, oh, great, there's $150,000 in there. Like, I can drop 20 grand on something, you know, where it's not the way we want to think. All right, cool. So expense management versus expense cutting. We talked about ROI and investment versus expenses. We talked about, you know, just thinking about your taxes. Be. Be smart if you're. If you're making a lot of money strategically without any sort of impropriety, you know, just. Just think of ways that you can bring your taxes down. And then number three, we talked about really just having a method of moving money around right where you do. It's not everything, but you do want to have, like, every year, you want your net worth to be increasing. You want to have more command over it and just more, you know, just to know that. Yeah. Like in your example, if I sell five homes, you know, I'm going to. I'm going to be able to bring in $20,000 more than I need to run my business and my personal household outside of those three things, any sort of overarching. I mean, generally, you strike me as a more conservative guy. Any advice for agents that are like, I'm all about the car. I'm all about, you know, big hat, no cattle type people. And I don't. I don't. I mean, it sounds bad when I say it that way, but generally, as an industry, we're very ego driven. What advice would you give to somebody, like, in our industry that that would help us during what's going to be a tough 23, I think.

Yeah. So interesting. Enough, Enough. Lars I'm a spender as well. And so I, I have to be cognizant of, of making sure that we're not overdoing it in certain areas. The, the common, a common theme that I have seen is that we're holding our businesses accountable and we're cutting expenses, but we're not taking that same action and applying it to our personal household. Okay, so. And this is a tough subject for many people. Well, I want to hold my business accountable, but I, it feels good to spend personally, so I'm not going to hold my personal self responsible. And that's a hard, it's a hard grasp. So what I do and what I have done for years now is I reverse engineer how I want to live. And I'll give some very blanket numbers and make it somewhat easy. But if my household requires $5,000 a month to live, and that's to purchase groceries and pay the mortgage and the kids soccer games and buy new underwear, if that costs $5,000 a month, then what I do is I add that to my business's financial statement. If my business requires $10,000 to pay for office rent and the salaries, now that I've added those two together, now I'm looking at $15,000 a month and that becomes my break even number. And so now I'm always focused on the revenue to ensure that I have enough money coming in just to break even. That was my initial process when I started reverse engineering my personal life. Now the conversation has shifted in the last couple years and it still is that so called $5,000 number. But then it goes to what? How do I want my life to look? I want to go to Disneyland and I want to take the kids on a beach vacation and, and I want the new car and I want to put some money away for retirement. And so now my number becomes $10,000 personally, not five. But I only need $5,000. And so now my business is required to make $20,000 a month. Makes sense. So now again, I'm focused always on the revenue and how are we getting money into the business and still managing both personally and professionally. And I will tell you, it has worked miracles for us. If I don't have the money personally, then I have to figure out how the business can make more money. Or we choose to be a little more humble that month. Yeah, that's awesome.

Humility is going to come one way or the other. Like you're going to run out of money and it's going to be a humble moment versus deciding to Discipline yourself and delay gratification, which is a hard thing in this time and age. Brother. This has been awesome. To the point. What's the best way for people to connect with you? If you don't have a bookkeeper and you can. I've seen every iteration in every kind of business. Single agents to teams doing 700 transactions. There. There never is a reason to do bookkeeping in house. I have yet to think of a reason in any of those situations. And every agent needs it. What's the best way to get in touch with you guys?

Yeah, I'll. I'll give you my phone number here and then we can list it maybe in a chat or something like that. But our phone number is 480-248-8450. Likely my assistant Deandra will answer the phone and we can get you over to the sales team. I'm also always open for a a to set aside some time and review your current financial set. Trust me, there is. There's nothing that you can show me that I haven't seen in the past. We've seen thousands of financial statements of different clients. And so if there's a question or a tax problem, I'm always here to. To give my time and help people run their businesses like a business. It's. It's fun for me. It's why I'm here. And I love doing. I couldn't think of anything better to do. Yeah, I'm the nerd. I'm the nerd behind the numbers. Right?

100. And you're. You're a gift to the industry. So we love you guys and I'll continue to. I send over some challenging ones from time to time, but you guys are always there to help and serve. So we appreciate you guys.

My pleasure. Thanks so much.

Love, guys. We'll talk soon.

Bye Bye.

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