Wake Up to Wealth - From Numbers to Wealth with Casey Quinn

Episode Date: May 15, 2024

In episode 17 of Wake Up to Wealth, Brandon Brittingham interviews Casey Quinn to delve into the importance of understanding your business's back office and accounting. They emphasize the significance of knowing your financials to make informed decisions for business growth. Tune in to gain insights on how mastering the financial side of your business can lead to significant growth and success.SOCIAL MEDIA LINKSBrandon BrittinghamInstagram: https://www.instagram.com/mailboxmoneyb/Facebook: https://www.facebook.com/brandon.brittingham.1/Casey QuinnInstagram: https://www.instagram.com/caseyryanquinn/Facebook: https://www.facebook.com/CaseyRyanQuinn/LinkedIn: https://www.linkedin.com/in/caseyryanquinn/WEBSITEBrandon Brittingham: https://www.brandonsbrain.org/homeCasey Ryan Quinn: https://www.caseyryanquinn.com/City Life Residential: https://cityliferesidential.com/

This is Wake Up To Wealth, a podcast dedicated to helping you change the way you think about wealth. And now, here's your host, Brandon Brittingham. You need to understand what you're spending and then what that ultimately is giving you for a return. You could be losing out on actual gain, actual cash on cash returns because time value of money, right? If you don't actually understand what's happening with your financials, you're not speaking the language of business,

how do you know when to make the next hire? Hey, what's up everybody? We are back again with another episode of Wake Up To Wealth and I have a repeat of Casey Quinn. Last time he was here with another good friend of ours, Brady McDonald. What's up, brother? What's up, man? Happy to be back.

Happy to be in Dallas with you. So we didn't get to really talk about this last time, but I think this is just such an important topic. And it is the topic that's not sexy that a lot of people don't like to talk about, but you can't truly run a business until you really understand your back office and your accounting and that entire side of business, which frankly, there's a lot of people who run big businesses that don't even get or understand the side. Yeah. It's wild, right? I mean, over the last five years and understanding some incredibly successful people and really digging behind the scenes on what they

have going on and realizing like their shit's a mess. You know what I mean? And you can only imagine where they'd be, you know, with a good ordered back office. Right. So they're just scaling and growing their businesses despite themselves. And what happens a lot of times, right, bro, is at some point when the economy turns or something happens, all of a sudden, you know, Holy shit. You know, as,

as Ken says all the time, right? You're out in the ocean or in the water, fades away and you're exposed. Yeah. So. So kind of some basic things from an accounting perspective, like what are kind of some key targets or KPIs or metrics people just really need to dial in and know to run their business effectively? Yeah. I mean, I think the first and foremost, what a lot of people don't do is they always talk about a profit and loss statement, right? So they're not really in the details of the back office on our center of financials. They talk P and L. Yeah, I made X. But when you really dive into it, it's about the cashflow, right? Another term that a lot of bigger businesses use will be EBITDA. And that's a term that's essentially cashflow. It's more formalized through gap accounting. But the cashflow is probably the most important

thing that people generally don't, particularly in our field, right? In real estate, a lot of the business of real estate, especially in portfolio growth happens on the balance sheet. It doesn't really happen on the profit and loss statement. My company, right? We've scaled our business over the last five years to close to a hundred million. Guess what? We've never shown a dollar in profit on our profit and loss statement. Yet we've scaled to a hundred million because cashflow has been really, really good over the years through bar model investing, through refinancing, through obtaining right debt. And so cashflow, I would tell you is always king is number one. And you should be having metrics to measure ultimately how that cashflow is performing.

Right. Right. And get into some KPIs. What's your cash on cash return? That's a big one, right? Your cost, what's your... Funny word there, right? Yeah.

What's your COC though? What's your cash on cash return? Then the other one is the lifetime value of your customers is another really big one. Combining that with your cash conversion cycle. Because most of the time, anything you're doing in business, when you push money out the door, the goal is to bring money back in the door. When is it coming back in the door? And so if you're not really measuring when that money is coming back in the door, you could be losing out on actual gain, actual cash on cash returns, because time value of money, right? I'd rather have $10,000 today compared to $10,000 a year from now, because $10,000 a year from now, it's not going to be worth it as much, right?

Particularly as an investor is when you can go put your money into something. So a lot of times what's happening is, especially wholesale companies in the real estate space, even agencies in the real estate space, they're not really measuring that, right? So they're spending money on marketing, you know, different costs, different cogs, if you will, in their business. And they're not measuring when the return on that investment is coming. And that's a massive mistake because all of a sudden you could be belly up and not realize it. Another one, you know, I've heard you talk about, which I'm a believer in, is your customer acquisition costs. Explain that and break that down a little bit. Yeah. So essentially, you're spending money to acquire

a customer at the end of the day, right? You have marketing. Most public truth trading companies, industries can fluctuate a little bit, but generally they say you should be spending anywhere from 8% to 10% of your top line revenue on marketing. And really what that is measuring is essentially when I spend money today, at what point in time am I going to get revenue and how much is it costing me to earn that revenue? A customer, right? A customer is paying you top line. And so yeah, you're not sure if that's profitability or actual cashflow yet, but you need to understand what you're spending and then what that ultimately is giving you for a return. And so if you're spending $10,000 a month in marketing right now on lead generation or branding or whatever you're spending it on, what is that returning you?

Right. And if it's returning, because a lot of times there's various channels in real estate, so you can be doing mailers, for instance, or any business, right? You could be a roofer sending mailers out, hey, you need your roof fixed. You have to measure that cost and then understand on that specific product line or that specific channel, what actually is returning? How many customers are you getting? But more importantly, not the customer that you're getting, right? But how much are they spending with you? The first time, and then depending on your business, repeat it. And that's more of the lifetime value of your customer. For instance, if you run a coaching program or a mastermind, right?

And you spend 10 grand to acquire a customer, or you spend out a bunch of leads and you're doing PPC and you spend 10 grand and you win one client, well, they might pay you 10K for that month, but they might pay you 10K a month for the next six years. Right. So you're really analyzing what's the lifetime value of the customer. I'll spend $10,000 today to win a $10,000 client next month if they're paying me 10 grand a month for the next 12 months. Absolutely. All day.

Yeah. But you have to do the math, right? So you have to do the calculations to make sure and understand, right, that the 10K that you spent is going to create the lifetime value of the customer that's above the marketing spend for that direct target that you're going after and that lead, if you will. Yeah, absolutely. So a lot of people kind of run businesses and in more than what most people think and are kind of blind to the numbers in the back office. Can you effectively build or scale business without knowing you're accounting? My opinion would be no, but you see a lot of people try to do it and they can only get so far. And certainly if you have a really good margin business, you could do it pretty well

because ultimately you're returning a bunch of money. At some point though, it's going to crash. Yeah, because think about this, right? If you don't actually understand what's happening with your financials, you're not speaking the language of business, how do you know when to make the next hire? Right. How do you know when to spend another 10 grand on customer acquisition cost, right? If you don't understand actually what's happening in your business. And so, yeah, I have 20 grand in the

bank today, but if you don't have a solid back office, right? And you don't have a solid financials, you might owe $30,000. And when you're out there running a business and you're hustling and working 80 hours a week, you might not remember on the back of your brain that you owe 30 grand. Well, guess what? You're bankrupt in that exact example. And so without having the fundamental accounting in place in the back office, you're not going to be able to really scale because you don't understand how to maneuver and manipulate in the language of scaling the actual business. Yeah. A hundred percent. What other kind of KPIs do you think from an accounting standpoint are really important for people to kind of know and really be on top of in real time? Yeah. I mean, I'm thinking it really depends on

the industry you're in, right? And so obviously we're both in real estate and so we can kind of stick to there as I'm sure a lot of the audience is ultimately on that real estate side. One of the big things that I think investors don't really ever pay attention to is true annualized cost of capital. That's a good one. Yeah. It's one of the best ones. It is literally how I've scaled my portfolio. Because when you do the math, right? And so marketing is good. And so you have a lot of lenders out there that are really preaching and pitching, hey, I've got the lowest interest rate in the market. Use me. You got an 8% interest rate right now. Amazing. I'm going to use you all day on a short-term capital, right? Because

Johnny over here is offering me 14. Then you finish the deal, you paid 8% for four months and you turn the property as a flip. And then all of a sudden you paid two grand in legal, you paid three points, you paid $800 in additional outdoor scenes. And when you really analyze the cost of capital on that, you paid significantly more for the deal. We've done the math in my portfolio and we've estimated that we've saved close to $2 dollars in the last five years just by analyzing just by using annualized cost of capital as the calculation to determine what lender will borrow where we're going to use right so so um if you're out there and you're really

good at sales and marketing and you're getting anxiety just listen to this shit right which i'm sure most people because because i was there at one time. Where do you start? How do you get this shit together? How do you figure this out? I think for most entrepreneurs, and a lot of entrepreneurs come from the sales background, right? They're big, they're hustlers, they're out there selling, they're really good at communication, lead generation, those different things. And so what I always tell people is you don't necessarily have to learn and be the accountant in your company, right? Hire it out. Yeah. Right? Do what you're really good at. So that's what everything in life, everything in business

is. Pay someone, right? So you pay the experts. What we realized because we were so good at it, scaling our business, we actually spun off our own accounting company. We do consulting, we do fractional CFO work now, we do bookkeeping. Bookkeeping is the basis to it all. We do tax advisory now and we're really expanding there because about 18 months ago, we saw like, wow, we can really, really help a lot of investors in this country really scale their business and we can get a little bit of cut of it, right? We can make some money and everybody can win. And so that's what I really advise people to do is look, if you don't know it, no problem. Hire people that do, and they can tell you and teach you so that you're now dangerous, right? And so there's two levels to it. There's the trust level, let them do it,

which I actually don't... I say, let them do it, but trust and verify is what I say a lot, right? And so if you don't understand what it is that they're telling you, you got to ask. You've got to put enough time in as the leader and CEO of a business or a COO, president, whatever your role is in the company to make sure that you're understanding what it is that you're looking at when they give it to you, right? And then you're asking the questions and then you start to learn, right? And you start to be able to develop the skillset to be able to say, hey, five minutes a day or once a month, I spend an hour with the team and they're telling me these different things so that I can create the right infrastructure, the right pieces to my game so that I can continue to

scale understanding the numbers behind it all. Yeah. Another thing I want you to talk about before we go, because I think it's so impactful and powerful, talk about a tax saving strategy through depreciation. Talk a little bit about that. Yeah. I mean, listen, it's another wildly amazing thing that you could do, right? The government essentially encourages us to invest. They're smart, right? That's how they build infrastructure. That's how they create inflation. That's how they create a GDP growth at the end of the day. And so they have rules in the tax code that says, take advantage of your investments by depreciating the asset. What happens is, what that means is when you go buy a property, let's just say I put $50,000 in renovation into a single family home. When you put the $50,000

in, you don't expense that money. You're legally not allowed to expense it. What you do is called capitalize it, right? How that sits on your balance sheet. But you're allowed to expense it over a period of time, which is a lifetime value of the asset. And so in real estate and homes, there's different lifetime values of those assets, right? So if it's the infrastructure of the home, it's more like 30 years. But if you're putting hardwood flooring in, there's certain tax rules that they allow you to change the depreciable life of the asset. So for instance, if I spend 20 grand on flooring, I can actually expense the flooring over a five-year period. I can take a $4,000 expense each year.

Guess what the offset of that is? Nothing. And so all of a sudden, you're taking expense on previous cash outlay. And so you can start to really maximize essentially your depreciation expense, which is lowering your net income, which is reducing your taxable income, no matter how you've done as a business or as a person. And so if you're a real estate professional, for instance, and you go out and you make a million dollars as a real estate professional, well, if you can buy enough real estate as well to get a million dollars in tax depreciation, you made a million dollars, you have it and you can go spend it however you want, but you don't have to pay any taxes on it because you have the tax depreciation. And the really cool thing about how you really maximize that is debt.

Yeah. So you can go buy a million dollar property for maybe $200,000, right? We'll call it 80%. But you can devaluate the whole thing. But you can depreciate the entire million dollars on that specific. Now, look, there's some caveats like land and different things. To make the formula simple, you can expense that entire million dollars. So you made a million dollars, or you made 200 grand in income. You put that into a house, you bought a million dollar home, you got $200,000 in income, and now you're going to take a million dollars in expense. So you have an $800,000 loss that you report to the IRS,

but you made $200,000 in cash. Exactly. In your pocket. And so myself, the last two years, I've not paid a single dollar in taxes. Yeah, me either. And so think about that. You can have high income earners. You can be making a million dollars a year as a CEO of a big corporate company. Guess what?

You're paying $300,000 to the government that year. At least. Maybe more. Yeah, 100%. And it's coming out of your paychecks every month, right? So you and I, we see that all the time that people that aren't taking advantage of holding more real estate that do really well in the wholesale space, right? Do really well in flips, do really well at the different cash producing businesses in real estate. And all of a sudden they have these massive tax bills. It's like, what the heck are you doing? Because last I checked, real estate value is always going up.

Yeah. And so you're building wealth. And I've actually put together a really good example to show on just a single family home, how incredibly amazing tax depreciation benefit is. If you just keep the asset, and I compare a flip where you can make 16 grand to where essentially you can make $0 in cashflow or 16 grand, but you're $60,000 wealthier. And over the next five years, you're actually making like $50,000 because you're not paying taxes on other income that you've earned. And so the return on that investment in the cash on cash ultimately is insane, right? From an investment perspective.

And so that's what depreciation can do for you if you utilize it the right way. Yeah. So I want to end it with this, because there's so many people I think, I don't want you to listen to this and tune this out, right? Kind of go through. So we all build businesses, hopefully eventually to sell and just kind of ended with this from, from an advice, but also explain like, you can't sell your business if you don't have your accounting shit, right? Oh man. Yeah. I mean, I literally this week have had two conversations around that with some, some good friends of mine that are kind of at the, that, that level and understanding, you know, they want to exit.

When you talk to these PE firms and you're talking to investment bankers, the first thing they ask you is how well is your back office? Let me see your financial statements. And they're looking at it for value add backs, right? They're doing multiples. Every business has exited based on a multiple. The multiple is based generally speaking on EBITDA. EBITDA is a gap-based financial statement, essentially cash on cash return. And so they're looking at that number and saying, hey, if I buy this, what's the multiple that I can get on it? What's my return on my investment? Right. Of course, they're looking at other ways strategically to bring it together. But if you don't have all of that in place, they're not even looking at you. And what generally speaking happens for every business owner out there, if you don't, it's a two to three-year process. So if you want to sell your

business in three years, you better start today. Because it's a significant process, even just basically to move from cash-based accounting, which you're probably doing now, to accrual-based accounting, to gap, to likely having to get an audit in order to get the financials to the PE firms or the investment bankers that want to evaluate to sell it to the PE firms. And so it's a massive process. I have some friends going through it now and it's a massive burden. So the really nice thing about my business is I come from 10 years of accounting experience. I started my career as an auditor. And so we've built our business from day one to really reflect that. And so I'm not three years behind. I could probably do this in about a year because it's...

Some stuff doesn't make sense. Some accrual-based accounting doesn't make sense to do it, but we can easily flip that switch when we had to. But the basic stuff, we're already doing it that way and we understand it because we have the right accountants in place managing it for us. So you mentioned earlier, you guys had started an accounting firm to kind of help entrepreneurs. So somebody out there is listening to this and we've scared the shit out of them. And they're like, oh my God, I need help. How can they get to you guys to get that help? Yeah. First off, because we did place that scare tactic there, But what I would tell you is it's not that scary. Yeah. It's the language of business. You entrepreneurs, everybody out there is incredible salesmen. It's just speaking a little bit of a different language. If you go immerse yourself in

Spain in about a month or two, you're going to be able to get by and order your breakfast, order your lunch in Spanish, right? It's just a reality situation. So all you got to do is just spend a little bit of time on it and find the right people to help you. Accruity is the name of our business that we started. And we definitely really focus, we have roughly 50 real estate clients already, real estate investors. So I would say reach out to me, Casey Ryan Quinn, shoot me a DM on Instagram, on Facebook. We have Accruity as our website. I'll be honest with you, when you think about our business, Accruity, we're a bunch of accountants. Our marketing isn't the

best. And so it's really flipped right now where a lot of really good entrepreneurs have great marketing and lead generation. I struggle on the backend. We've nailed the backend for ourselves and all of our other clients. And now we're moving into the phase of marketing and lead gen to really get this out there to say, hey, we can really help you. Reach out to Brandon. I'm sure you'll be able to hook. A lot of your listeners can hook them up with Accruity with us. We have a good turnaround time right now as far as onboarding.

And so if you want to get your shit in order quick, we can do that very quickly for you. We have a hell of a team. We've already up to 25 employees on that side. All accountants all know what they're doing. And so depending on what you need, you know, we do a lot of finance transformation work now too, right? Like your books are disgusting. You know, I literally just had a coaching client two days ago. We sat down and I said, where are you on your books? I said, how, you know, they do construction. And I said, you know, where are you at? Where are you making per job? And he said, we have no idea. So I said, how do you manage your business? I said, by the bank account. Immediately right to Accruity. We're going to finance transformation, get them the right

chart accounts, all of that. So reach out to you, reach out to me. Accruity is the name of the company, accruity.com. We have the website. We're not on social, so we got to get there, but those are the ways to get a hold of us. Awesome, brother. Well, I appreciate you as always coming and dropping massive amounts of knowledge. Hopefully helped a lot of people today. And again, guys, this isn't to scare you. It's just that you need to, if you want to run a true business, you got to have your back office. And if you don't have it right, you need to start today because you don't have a sellable asset until you get there. Thank you again, brother. Yeah, I appreciate it. It's the best investment you can make,

bar none, if you want to scale and sell your company one day. Appreciate you. Thanks so much for tuning into this episode of Wake Up to Wealth. We sure do appreciate it. If you haven't done so already, make sure you're subscribed to the show wherever you consume podcasts. This way you'll get updates as new episodes become available. And if you feel so inclined, please leave us a review on Apple podcast and tell your friends about the show. It is how new people find us. Until next time.