A lot of business owners and even real estate professionals don’t take the time to focus on the bottom line. What ends up happening is they overspend, make mistakes, and even wonder why their bank accounts still have no money in them. Introducing you to a solution, Chris Larsen invites over to the show Rocky Lalvani. Rocky serves as Chief Profitability Officer for business owners, and he teaches them how to ensure they get paid, and they make a profit of priority. With his cash flow management set called Profit First, Rocky shows us how it is possible to maximize our business’ profit so we can have the time and freedom to do what we love. Follow along to this great episode to learn how to get your bottom line taken care of and put your profit first.

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Profit Comes First: Taking Care Of The Bottom Line And Get Paid Rocky Lalvani

In this episode, we have Rocky Lalvani. Rocky started with nothing when his parents immigrated to the United States when he was only two years old. In spite of a lot of struggles and his mother passing away when Rocky was seven, he’s been able to achieve both financial and life success. Rocky loves to share his journey and inspire others to achieve their dream even faster. Rocky serves as Chief Profitability Officer for business owners, and he teaches them how to ensure they get paid and they make a profit of priority. Rocky, welcome to the show. 

Chris, it’s great to join you.

I always enjoy our conversations. I’m grateful to have you talking about the profit first concept and I’m excited to jump into that. Before we do, maybe you could share more with our readers about your background, your story as an immigrant, and how you ended up where we are now.

I came here when I was a young kid, my parents immigrated to the United States to live the American dream. When they came here, a lot of their friends and some of their relatives came as well. They had to struggle but quickly, they found success. Part of that was something unique which I didn’t realize until much later in life. They would talk about life and money so they would have conversations. It wasn’t unusual for people to ask, “How much did you pay for that?” “How are you doing this?” People knew what people made it work and people talking about what they were doing with money. I grew up thinking that talking about money was natural, which it’s not. For most people, money is a taboo subject. Unfortunately, it’s a shame because we go to 12 or 13 years of school, we go off to college, some of us get advanced degrees and we do that all for the simple purpose of making more money, yet they don’t teach us how to make more money.

I’m an undergrad in economics. I have an MBA and yet they never taught me how to be profitable. They never taught me how to do those things. That’s something you have to learn separately from that. A big part of my journey is figuring that all out. I’m also a tech geek so I was one of those people using the first electronic spreadsheets called VisiCalc way back in the day. To me, numbers tell me stories so I can look at people. I’m an enrolled agent, so I can do taxes but if I look at a spreadsheet or a tax return, it tells me stories and it begs a lot of questions. I can look at that piece of paper and I know how you behave with money because I can see it. That helps the people that I serve make better financial decisions, and take little teeny steps that result in much bigger outcomes over time. None of what I do is an overnight success. Everything I do is based on compounding and compounding takes time so take little teeny steps and over time, you will have the life you choose. It’s not a race. It’s a journey.

We talked about that and I talked about it in my book and how real estate is a get rich slow scheme. These habits that you instill make a big difference over the life of your career, over the life of your financial investments, and how you do that. Tell us a little bit about what you did before you do what you do now. You said you’re an enrolled agent. What was your background ten years before that? 

I’ve always had side businesses, a lot of what we’re talking about now is the result of side businesses. It’s finding the intersection of what I love with what the world wants and is willing to pay for it, but I spent most of my career doing what you did. I was in the medical field, in sales. It was funny because I was selling to doctors and I realized how horrible they are at the business of business. They don’t understand finances at all. Part of that is they’re not allowed to talk about money in medical school. They’re not allowed even to have these kinds of conversations.

A lot of what I used to do was when I would talk with the fellows, I would say, “Here’s how you can build financial success as a physician. If you would slow down for the first couple of years when you get started in practice, you can have everything you want, but you’ve got to do everything in sequence.” Too often, they have so much pent up demand and they have so much societal pressure to live like a doctor that they overspend on top of the massive debt already in and it collapses on them. They make good money so it’s not that they’re going to starve but they’re beholden to them.

With the changing of what’s going on in the medical industry, it’s even more so. That’s why you see such an increase in the rates for doctors with suicides, depression, and walking away because they have had enough. The rest of society faces the same things too. If you do the right things in the right order, you have success. I can take the same ingredients to bake a cake and if I do it in the wrong order, I’m not going to have a wonderful chocolate cake. I’m going to have a mess of my hands. Life is the same way. Take the right steps in the right order and you will have a tremendous amount of success.

I’ve seen the same thing. We’ve talked about some of our shared overlap in our histories in the medical field, working with doctors and you’re right, it’s hard. A lot of these doctors, especially with the shift from personal or owning their own practices to being employees, they’re getting further and further away from a lot of these practices that you teach. I talk about it in my book. A lot of our investors and readers of the show are physicians and they have all the right ingredients and all they need to do is do it in the right steps.  

Before we jump into Profit First, I want to learn a little bit more. I lost my mother older in life, but I lost my father at age five. I found it through introspection that it has an impact on you. It makes you think about life and time as being finite. People have asked me over my life, “What drives you?” Over the past couple of years, as I approached the same year that my father passed away, he passed away at 41. I realized that I was looking to this point and driving as hard as I could because I knew that the time was finite, and we didn’t have unlimited time on this earth. 

It’s difficult. Especially at that age, you don’t even understand. The whole concept of that is difficult to understand. Along those days, I realized that it made me stronger as a person. As much as it’s a heartbreaking thing, I wouldn’t be here if I didn’t have to go through those experiences of learning about depth, the importance of relationship, or enjoying the journey. At the end of the day, you don’t know. One of the things that I always ask people is, “If you died today, would you have regrets? If you have regrets, go fix them.” My only regret dying now is that I wouldn’t have more time with my kids, but it’s not that I didn’t do something that I wanted to do and wasn’t able to. Part of it is too many people have regrets of not trying, so try.

The number one regret of people on their deathbed is they didn’t do more things. They didn’t try more experiences. I’m fortunate to have gone through some of these losses in my life because of what it taught me. I certainly wouldn’t wish that on anybody. That’s for sure, but that’s why we’re so passionate about helping people achieve financial independence because I believe you can chase your passions and you can do these things and be your best person, best self in life. Readers are saying, “When are you going to talk about Profit First. What is this?” Give us an overview, Rocky and I’d love to talk about how you work with business owners and also how real estate investors can apply it to that. Walk us through the philosophy, how it works, and how it differs from how most people operate. 

The reality is, a lot of business owners and even real estate professionals don’t take the time to focus on the bottom line. We are all focused on the top line. It’s a vanity number, “I did XYZ. I sold millions of dollars and something. I achieved these top-line results.” It’s easy because, at the end of the month, it’s not hard to tell how much money you made. You can look at your sales and say, “This is what I sold.” What’s difficult for people is to understand the bottom line.

For most people, they don’t know the bottom line until about a year and a half later so it’s not until you get your taxes done that you sit down and say, “What was my bottom line? How did I make a profit?” Especially in real estate, it’s deceiving because of depreciation. It lowers your bottom line so you’re sitting here going, “Did I make money?” “What does this look like?” It’s difficult to understand that number. Because of that, people don’t focus on it, they overspend, they make mistakes, and they wonder, “Why am I running the 6 or 7 figure business? Why revenue is coming in and yet the end of the day, when I look at my bank account, there’s no money in it? Why am I struggling every month?”

Profit First fixes that problem. It’s a cashflow management set that allows you to watch exactly what’s happening in real-time looking forward, not backward. Most business owners look at their bank account and say, “Do I have money? Do I not have?” That’s how they make decisions. If you look at the reports that are coming from your accountant, your cashflow statements, your profit and loss, and your balance sheet, not a single one of them give you a clear picture of anything. They’re not comparative and they don’t match what you feel. It’s a struggle. I have an MBA and they showed us all these sheets, but they never taught us how to affect the sheets, and how to tie them together. Profit First does that in the simplest of ways.

Most people are familiar with Dave Ramsey. I’m sure you’re familiar with him. He’s got an envelope system so he can give every dollar a job and you put the money where it belongs. Profit First is the same concept for business owners. The money comes in and upfront, give every dollar a job, and you put it where it belongs. For this discussion, let’s focus on rentals. When you buy a rental, you sit down and you run your numbers. You say, “I’m going to buy this property for X amount. This is how much it’s going to cost me to borrow. This is how much my taxes are.” You guess and say, “I’m going to apply a vacancy factor. There are certain repairs every year and there’s long-term maintenance.” Each of them has a percentage, whatever percentages you come up with.

The money comes into the account and what do you do? Do you set anything aside for repairs? Do you set anything aside for vacancy? Do you set anything aside for the new roof that you’re going to need in ten years? No, you spend it all. That’s where we run into trouble. What Profit First says is, “When the money comes in, let’s create accounts for all of these things.” Let’s name our account Vacancy. If we’ve got a 5% vacancy rate when you get $1,000, in rent $50 into your vacancy account. Put some money into your repair account and into your long-term account.

What this does is it smooths out your cashflow so when your vacancy occurs, instead of having a dip in my cashflow, I go to my vacancy fund, I move money and now I have my cash like I normally do so I can cover my mortgage. When a repair comes up, it’s no longer a struggle of, “This is a bad month. Can I put off this repair for two weeks?” You upset your tenant. Your tenant moves out and now you’ve got a less desirable tenant moving in. Because you need the money, all of a sudden you lower your standards, it becomes a hamster wheel race to the bottom. What this does is it allows you to make your decisions based on your values instead of based on bank balance because the money is always there for what you designated for it.

You can look at your accounts. You can see where your money’s going and when tax time comes, if it’s not being taken out with the mortgage, there’s the tax check, “I have to write a tax bill. I have money in the tax account because I know what the tax bill is ahead of time and I’ve set that up.” Sometimes, when we buy properties, we rehab them because that’s what needs to be done. Sometimes there’s part of the rehab that I don’t need to do, but I know what’s coming. A lot of times that’s the roof, “I bought this property. It’s got a twenty-year-old roof. It’s no surprise that in five years I’m going to need to replace that roof.”

Setting aside those accounts and pre-funding them on the purchase to say, “I’m going to put money aside for the roof, and over the next five years I’m going to build towards that so when it comes time to replace the roof it’s not it’s not a struggle.” The money’s there, you stroke a check, and go on with life. By being a little bit more disciplined and setting your money aside, you don’t have to worry about these things. You know that you’re profitable because, at the end of the month, you’re only taking out of the business with profit. You’re not spending money that you should have been setting aside.

In the first conversation we had, we talked about how my wife and I do it in our personal lives. I talked about it in my book and I reference Ramit Sethi’s 12 Minute Guide to Automating Your Finances. It’s similar. It’s challenging when you have money flowing to your account, you spend it all and you’re trying to save what’s left. There’s almost nothing left but when you pay yourself first, put the profit first, put it where it goes and make it happen, you can automate it and to short circuit our natural human nature to do that. 

Life gets busy, you have kids, work, this and that. We forget to do things. It’s life. It’s like what Ramit says, “When you have the automated systems, you build wealth.” That’s how I built my wealth. From the day I got out of college, I set up automated saving systems that went to 401(k)s, credit union, stock purchase, mutual funds, and cash. I never saw the money, to begin with, and it was gone before I ever felt it so I never missed it. I never felt I was living a life of missing. At the end of the day, you all do this, look at your credit card statement, there’s a whole bunch of charges on there. Most of them are double-digit, not triple-digit. I don’t even know how I spent thousands of dollars, $40, $80, $50 at a time and it’s not hard to do. These are timeless principles. It doesn’t matter whether you’re in real estate, you have a job, it doesn’t matter who you are, you have to set up the automated system for you and let it run. The less you’re involved, the better the outcome.

If you’re reading and you’re thinking, “This sounds complicated. I’ve got to do ten different bank accounts for all this stuff.” Rocky, how do you help individuals and business owners set this up, make sure it’s automated, and make sure it’s going to be sustainable for the future?

Usually, what I do is I create their allocation percentages. If we can automate it and if your bank can do it for you automatically, great. If you can’t, we can set a date, and depending on the person and what they want. Some people do it weekly. Most people do it twice a month. Some people do it monthly. You sit down, you have your percentages. It takes all of five minutes to move money. This is not complicated. This is first-grade math. It’s simple and basic. When you do simple and basic and you keep doing it, you have success. What I do is a second level. I go through, especially for business owners, and we dig through all your expenses. Business owners have three kinds of expenses. The first kind of expense is directly related to their business in their sales. For example, if I have a clothing store, I buy clothing to sell. We can’t run a clothing store without clothing.

The second thing is the expenses we need in our business, but maybe we can reduce it. If I have a clothing store, I need a storefront to run it. How much am I spending on rent? Is there a way to cut rent? How much am I spending on my software systems to run my business? We spend way too much on software. I have to market but am I getting a return on my marketing and my sales dollars? Is there actual value there? The third thing is vanity, “I need a fancy car for my business.” “I need this fancy display for my business.” Nobody is buying your product because it’s in a fancy display. They’re buying your product because they have a need and desire for it. Too often, business owners spend a lot on vanity. It’s digging through your expenses and saying, “Where are you wasting money?”

Most business owners, right off the top, we can find 10% waste. It’s not hard to do it. In your own personal life, you can find 10% waste. That 10% is such a big gap that takes you off the edge and starts building success over time. It’s finding that edge and preventing the shiny object, “I need this.” No, you don’t need that. You want that. It’s distinguishing between needs and wants. A lot of what I do is accountability and hold them tight to that. You mentioned Ramit. When you go through Ramit’s book, he got a different mindset about how he does stuff.

We grew up in the same culture so we think the exact same way. How do I cut my costs? How do I get my cable bill down? How do I get my phone bill down? I’ve negotiated with Home Depot. You can negotiate with these places if you choose to. I don’t think Americans understand you can negotiate. In real estate, we always negotiate. That’s a big part of it. In real estate, it’s having a good team but I want a wholesale team. I don’t want a retail team. Meaning, I don’t want a team who’s coming in to do my kitchen. It’s amazing how many people will spend $60,000 on a kitchen that I can do for $5,000 or $8,000.

We built a house so I hear you loud and clear. You can go from $200 a square foot to $300 or $400. 

The reality is when you’re building the value from $200 to $400, is on you. The next person has no value in the $200 to $400 because that wasn’t what they picked. You immediately deflate that so it’s making wise decisions. When we go flip houses, it’s like, “This isn’t a house for me. This is a house that’s going to sell to a particular market. What does that market want? Not what do I want.” There are appropriate price points for granite and there’s appropriate flooring for each price level. You have to make the right decisions for who those people are that are going to buy that property. In rentals, it’s all about durability. Spend for durability and ease of flipping. The mistake I made early on was I put carpet in houses. Never put carpet in rentals. The cost of every time they move out to shampoo and everything else is astronomical. Spend a little bit more, putting vinyl planks that are durable and last forever and can be cleaned for $10 instead of $200. It’s those little things.

Rocky, you talked about mindset. If somebody is reading and they say, “How do you get them in the right mindset?” What books do you recommend to learn more about Profit First and learn how to implement this process? 

Buy the real estate now. I knew how to do everything in real estate. I know how to lay tile, run plumbing, and do all this stuff. I knew how to do it as a kid, putting in roofs and yet I never bought my first property until my 40s. I was selling real estate in college and yet, I didn’t buy my first property. That was the biggest mistake. Real estate is a long-term game. That’s the struggle I have internally now, it’s like, “Do I want to buy more real estate at my age because by the time it’s paid off, I’m going to be in my 70s. I don’t know that I’m going to need income or more income than I’ve already built.” The question is, does it make sense?

Probably around 2011 or 2012, everyone was buying real estate so he’s buying all these properties and he turned around and he realized, “I’m 65 years old. Why am I buying all these properties? They’re going to pay me when I’m 85. This is absurd. It doesn’t make sense.” Think about what your outcomes are. When do you need the money? Real estate is great for young people. You’re more willing to do the work and you’ve got the time to build wealth. It’s guaranteed. It’s the simplest thing I’ve heard. If you want to be a millionaire, go buy $1 million in real estate, mortgage it, pay it off and you become a millionaire. It’s that simple.

That’s the first thing I tell people that I mentor and coach, “Put your life vision together. Do your investment goals and does the process fit that?” It’s so much important to get that in place.

That’s what living forward is all about.

I didn’t know that so this is unplanned but I love it.

The book, Living Forward is how to create your life plan. Its title is A Proven Plan to Stop Drifting and Get the Life You Want. If you don’t think you need to read Living Forward, I’ll give you another book. It’s by Napoleon Hill and most people don’t know this one. It’s called Outwitting the Devil. The devil wins when you’re in the drift and most people are in the drift. They’re told to do something, they follow a path and they do it without thinking. They go with the flow. When you’re in the flow, you’re in the drift, and the devil wins. If you look at doctors, they’re in the drift. They don’t realize their entire training and everything they’ve gone through has put them on that path. Unless they decide to change it, they’re not going to get the life they choose to live.

It’s all about being intentional about that. I talk about in my book, how much respect and appreciation I have for doctors out there and we’re talking about the culture of training in that. To be clear on that, you and I agree with that and a big mission of mine is to help affect this profession and these people that are doing so much good out there. Rocky, I feel like we’re only getting started. I’m going to have you back on the show at some point. For those that are reading and want to learn more about you and find out more about your podcast, please share with the audience how they can get in touch with you.

There are two podcasts. One of them is all about Profit First, which is the Profit Answer Man. There’s another podcast called Richer Soul. It is about how do you create the life of your dreams. It’s how do you create harmony with your health, time, relationships, and spirituality? The first one is how do I make money? The second one is, once I have money, what do I do with my life or on my journey to make money, how do I live life? Those are the best places. My email is Rocky@ProfitAnswerMan.com or Rocky@RicherSoul.com. You can get a hold of me that way as well.

Rocky, thank you so much. If you’re reading and you’re interested, please get a hold of Rocky. Also like, subscribe and share this with your friends.

Thanks for having me. It’s been a blast.

Important Links:

• Rocky Lalvani
• 12 Minute Guide to Automating Your Finances
• Profit First
• Living Forward
• Outwitting the Devil
• Profit Answer Man
• Richer Soul
• Rocky@ProfitAnswerMan.com
• Rocky@RicherSoul.com

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Tagged: Profit First, Bottom Line, Getting Paid, Real Estate, Maximize Business Profit, Cash Flow Management, Group 2