A real estate investor with an MBA explains why your P&L and balance sheet are the only metrics that matter. He tracks monthly financials without fail since 2008, uses a simple chart of accounts in QuickBooks, and targets 65% gross margin with operating expenses around 33-35%.
Questions this video answers
2008 (their first full year).
65%.
Approximately 33% to 35% of revenue (33–35 cents per dollar).
Approximately 30% to 32% of revenue (30–32 cents per dollar).
About $20 to $40 per hour (mentions 20–30, even 40 dollars an hour).
Okay, so let's start, I guess, in reverse there. The importance of monthly financials. This is something I've been doing definitely since my first full year, possibly because I had a business background. I mean, I got an MBA from Duke and I worked on Wall street for a couple years, and I worked in a for acquisitions and strategy for an aerospace company. So I definitely knew that the scorecard are your financials. But here's what I see a lot and here's what I know, that you will never have a real business without having clarity on your financial situation every month when it comes to business. And I'm not saying this is the only measure when it comes to your personal life, but when it comes to business, this is the only score that matters. It's the scorecard. The ultimate scorecard of your business is your financial or your financial. So your P and L and your balance sheet. Most agents only quote, unquote, do their financials when it's tax time. So it's March time frame, and they're scrambling to get receipts and their credit card statements, and they have no real concept of what their business has done all year long. And this is an absolute recipe for disaster. Like I said, I've been doing. I haven't missed a month since I started back in my first full year, 2008. It's not really complicated. So I'm gonna go through my chart of accounts, but it's really revenues. So revenues come from commissions, referral checks, or transaction fees. We track them by list and buy. I don't overcomplicate my chart of accounts with tracking every income from every agent in my chart of accounts. I just track listing commissions, buyer commissions, and transaction fees and then operating expenses. There's about seven or eight categories that I track, which I'll show you as well. It's way easier than it seems. A lot of agents are freaked out by this whole topic. All you need is a chart of accounts, which you have, and a QuickBooks Certified bookkeeper. And I found mine on Craigslist and I still, I used my accountants. My accountant had sort of a junior level accountant on staff. I used her for a while, but it was just, it was too costly. So you can get a bookkeeper for about a half or a third of the cost as you can even a junior level accountant. So on Craigslist, all you do is look for bookkeeper or post an ad for that. You're looking for a bookkeeper. I think I just typed in bookkeeper and I interviewed two and I picked one. And you know, she actually does work for clients of mine, consulting clients of mine as well. And she just does a really good job. And it's not rocket science either. I mean, if you know QuickBooks, you know QuickBooks. And if you give them the chart of accounts, you. You're actually directing that process. So you have access to my chart of accounts. I'm not going to go through it just to save some time here, but it just organizes your revenue, your cost of sales, and then it calculates your gross margin. So when I talk about gross margin, that's what I'm talking about. It's all the revenues you've collected, all your commission checks, transaction fees, referral income that you've collected minus everything you paid out to your agents. That's your gross. Your gross income. And when I talk gross margin, my gross margin is 65%. I have 65 cents out of every dollar remains for me to pay my operating expenses before I calculate my net. So my 65 cents, I pay out roughly 33 to 35 cents to operating expenses, and I have roughly 30 to 32 cents left over as profit before I pay the government and before I pay myself. So it's really not complicated, but you have to commit to doing it monthly, and you cannot do this yourself. I have agents that think this is something that cannot be outsourced. And it's just about the most ridiculous thing that I've ever heard. For you to spend time, you know, when you can hire someone at 20 to 30, even 40 bucks an hour to do something that you're not even qualified to do. So you're not a QuickBooks Certified bookkeeper, and you'll have inefficiency doing it yourself. You have to outsource this, especially if you don't have the money to do it. That's because you don't have any clarity in your financial situation. And by having this clarity, you'll start doing a monthly review with your bookkeeper. They'll prepare your books. This takes me about 10 minutes a month to give my bookkeeper all of my important documents. And so I print out my credit card statements, I print out my bank statements, my check stubs, my PayPal account. And I think that's pretty much it. And I do that for a few other businesses that I have. She handles all of my bookkeeping. Yeah. So this is something you have to commit to.
