[00:00:00] Speaker A: SA.
[00:00:26] Speaker B: Foreign.
[00:00:30] Speaker A: Welcome to Pivotal Change. We have another wonderful episode ahead of us. This is a TV show that's all about leadership and people that are running businesses or have some type of executive team or influence and want to expand any of those things to find those key points of pivotal change they can make to drive themselves forward along their path to success. And as this episode airs, you have probably just accomplish a tax season with your business and your personal taxes. And so the question that we're going to be asking on the first segment of this show is, so what's next? Maybe I enjoyed the process, didn't enjoy the process, paid too much in taxes, don't truly understand my situation. So that's the conversation. We're diving in for your benefit. And I brought one of the leading experts in the country. He's been in the industry for over 50 years, Wayne Shelton, a CPA who's got 48 years as a CPA and 50 years in the business. Wayne, you advise people all over the country, and I think it's 47 of the 50 states. Welcome back to the show, sir.
[00:01:28] Speaker C: Thank you. Thanks for having me.
[00:01:31] Speaker A: It's my pleasure. And so what I want to do is I want to try to tee people up for this spring and this summer to really get their situations under control. They're out there moving and grooving, and they are really just probably smashing their industries and having a lot of success, but something's just not right. And so my question for you is, as an accountant that's been doing this for a very long time, what is the next step? What's the first thing business owners should be thinking about or looking for or considering now that the tax season is over with?
[00:02:02] Speaker C: Well, I think probably what they need to look at is how did it come out this year? Did they know in advance where they were going to come out? And if that did not happen, what can I do this year to change everything so that I know in advance? See, one of the things we see, particularly when we get people from other accounting firms when they come in as new clients, is that they, they, they have no idea where they are. They're, they're sitting there biting their fingernails. Am I going to owe money? Am I getting money back? You know what's going to happen.
And this year has been no different than the others on the people that we have come in. When we work with clients, what we want to do is we want to work with them, and they will know in December how much they owe in April. So that's very Important. We feel like, so what, what they need to be doing now, they need to make sure their books are good and clean because, well, you know, so many people manage by their checkbooks, which is the way most businesses start out. That's not a good way to manage your business. You need to manage by the books. And so what we see a lot of times is people have such messy books that they come in at the end of the year and it takes, you know, a month just to clear up all the mess that they've got. So they've got no clue if they made or lost money. They don't know what decisions they made, if they were good decisions, bad decisions, you know, where they're going, where have they been? A lot of people are just totally lost in all of those areas. So what we want to do is we want to focus people back on what can I do to stay up with my business all the time. Now one of the ways we do that is we'll meet with our clients three or four times a year and we'll do a tax update just about on every one of those. And we'll kind of compare things to last year, look and see what's going on, you know, compare the, the company results just in general. And that's what needs to be happening right now. It's. This is when you start to do your work to make your tax situation better a year from now.
[00:03:53] Speaker A: Oh, so I really like that statement that you just made. Your work for next year's tax results starts now. And you mentioned several times cleaning up the books. And so a little bit in layman's terms, that's just the tracking of your inventories, the tracking of your income and your expenses, your credit card statements, your bank statements, making sure that everything's reconciled and you can drive yourself down to an accurate dollar amount of what you actually have to operate to both buy and sell inside of your business. And so if people are, like you said, living by the checkbook, they don't have an accounting system or accounting software, or if they do or the books aren't clean like you said, and they can't make those reasonable decisions, I have a great opportunity in front of me, but I don't know if I can afford to take the risk on this opportun because my checking account says one thing, but the reality of my financial situation is actually another. And they need to be finding people that can help them get clean and help them start looking comparatively from last year to their future so that their tax situation gets better. Is that a good summary?
[00:04:55] Speaker C: It is a good summary. And you know, one of the things that we have noticed is once we go in and clean up the books the first time, a lot of times there were some setup problems. And that's very easy to do, very easy to fix typically. So what we do is once we go in there and fix that setup, for example, you know your credit card, sometimes people, instead of charging out all the credit cards on a monthly basis, they just charge it to credit card expense. Well, that does nothing, you know, so what we try to do is teach them how to do that. And then next year what we're seeing is, is the next year the books are so much cleaner, so much easier to get up and going. So that's what they need to be doing, is making sure those books are good and clean, that they're on the right system. You know, are they on QuickBooks Online, are they on desktop? You know, those things are changing very quickly. You know, QuickBooks is trying to push everybody from being on desktop to online. And so you've got to navigate all that stuff.
We, we try to tell our clients, when you get ready to sign up for QuickBooks, let us help you do it. Because it's, it's all in the setup. If it's set up wrong, it's wrong forever until you fix it, you know, so when we see that so much and people just don't know how to set it up, it's not their fault. I mean, they never been trained to do it, so. But there's some tricky things in there that can be get posted in the wrong places.
[00:06:12] Speaker A: I like that. So find an expert or professional, somebody that knows what they're doing to help you set your books up the right way from the beginning. And if they're kind of messed up, you're also going to need a professional to fix those and make them correct. They're going to make correcting entries and things like that to dial everything to where it should be. Like you said, it seems like a correct categorization, but according to IRS standards or GAP standards, those aren't the right way to do it. So let me ask this question. So now we know a little bit of what we should be doing next with getting our books clean and looking forward to next year, which I really appreciate you you emphasizing that forward looking aspect. But let's say somebody just didn't like their results. Maybe they go to conferences or they have friends and other businesses or even their same industry and they say, I hear Johnny and Sally talking about their accountant does this, and their accountant told them that, and why aren't I doing these things? They didn't like the results because maybe the relationship with their accountant isn't there. Is that something else that should be hunted after is a relationship in some type of proactive versus reactive account?
[00:07:10] Speaker C: In my opinion, that makes all the difference because as we've talked about before, There are like 66,000 accounting firms in the United States, and that's using the term real loosely, okay? Includes hr, blocking everybody. As far as I know, there are less than 2,000 people that are actually doing the pre planning and the advisory and the management and working with the companies. Now, there may be probably more than that, but there's. That's just all I'm aware of. Which, you know, that's a very, very small part, a very small number of people that are actually doing this type work. But, you know, I feel like, and I've said this before, I feel like that our profession has kind of let down our clients by being tax factories for so many years. And most accounting firms are still tax factories. That is not where the action is, in my opinion. That is not how you help your clients. You help your clients and to learn how to run their business, business, manage their business and manage their taxes. And that's what is not being done in general. They're being prepared, but they're not being managed. And there's a huge difference in those two.
[00:08:10] Speaker A: Yeah, I like that a lot. The tax factory is a term you and I have used a lot to really drive an emphasis. And some people think that they're doing tax planning and advisory when really they're just a factory with one or two options. And you know, I really feel like it's important that people understand that probably the situation with their current accountant is that you are paying them to prepare and produce a tax return. You are paying them to have maybe one end of your meeting and of course do some just bookkeeping, reconciliation accounting work. And you are not paying them to receive their time that it takes to expertly review your situation, analyze something, come up with a plan, and then execute that plan. And so one thing that we have seen in the past, and I know you and I have talked about this, is people walk in to a planning firm, an accounting and advisory firm, and say, wow, this is crazy expensive. And that's because you're paying for a value, not paying for a transaction. You're not paying for a payroll to be done twice a month. You're not paying for a sales tax to be filed. You're paying for the planning that is going to take tens if not hundreds of thousands of dollars of tax liability off your shoulders and strategically and securely execute so that you are safe. You have reduction of liability, you're audit proof, you're tax efficient. Then you have best practices, like you were saying, put into your firm. So what's a part of the way somebody could find a firm like that?
[00:09:40] Speaker C: You know, you're going to have to be, you're going to have to ask a lot of questions because a lot of people will say, oh yeah, we do tax planning, we do tax planning all year, you know, yeah, yeah, but they don't have a method to actually produce those services. That's the problem. There's a difference between just giving one off tax information, which is what mostly happens. And a lot of times we hear that when people go to some accounting firms, they have to prompt them and say, well, what about a home office? Can I do that? Well, yeah, you can do that. Let me tell you about that. You know, that's not what people are looking for. They're not looking to go to their accountant with their own, their own suggestions. They want the accountant to make these suggestions. You know, have you thought about doing this or this or this or this? That's what we're supposed to be telling them, not them telling us. So it's been backwards for so many years.
[00:10:29] Speaker A: That is a great way to put it, and like you just said, it's been backwards for so many years, is that people are having to poke and prod and almost dig the information out of their accountants who don't want to create a structure, use the word method, which is one of the five M's that my audience had talked about before, is that you need to find an accounting firm that has a method for this. They can ask the questions, what is your plan? How do you execute this plan? Which is actually what we're going to be talking about in the next segment in just a minute. But if you were going to really, just for about 30 second answer, put a nail on the head, put a pinpoint in it. How do you quickly identify a reactive versus proactive accounting firm when you have that first phone call or first meeting?
[00:11:11] Speaker C: It should be the first phone call or the first meeting. Typically when we have our first meeting, you know, we'll pre qualify people and just see where kind of where they are in their, in their journey with their businesses. But then when they come in the office, we have a PowerPoint presentation that we sit down and go over them with in detail and it shows how that we do business.
Like, I think if that would be the best way to find a firm is to see how they treat you at the front end. If they say, well, what do you got on your mind? You know, and that type thing, that's not what you're looking for. They want to know what you are going to do for them. And they need to be, if they can't tell you that at the very first meeting, they don't do it.
[00:11:49] Speaker A: I think that's great. And they're probably asking questions also about what are your goals, what are, what is your vision with your business, what.
[00:11:56] Speaker C: Are your goals, what does your path look like?
[00:11:59] Speaker A: And then we're going to make sure that we don't disrupt that path and we support that path. So I'm going to just put a pin right here. We're going to cut to our first commercial break of the evening. We're going to be right back with more Wayne Shelton and more what to do after tax season on this episode of Pivotal Change.
Foreign.
We are back with more pivotal change and we are going to keep carrying on this wonderful conversation with Wayne Shelton, cpa. We are talking about what to do now that tax season is over. And maybe I didn't like something about my results, my experience, what went on. And we talked a lot about that in the first segment. Now we're going to say that you need to find an actual advisory planning based firm that does the real proactive work was kind of the summary towards the end of the segment. Now we're going to say, Wayne, what does that look like? How does it work? So like, how does somebody even find that accounting firm to like we were talking about just a second ago to know the difference from the website, from the advertisement, from the first phone call and you talked about answering some of the questions, being proactive and talking about goals. But when you find a firm like that, how do you begin your interaction with them?
[00:13:34] Speaker C: You'll probably have a meeting where they're gonna, they're gonna be testing you to see if you're a good fit with them. And because we do that, you know, not everybody is a good fit for every firm, you know, sometimes it's just a what they're looking for, what the client's looking for is not what we offer. And that's fine. You know, everybody has a different little, little different thing. But, but one thing I have noticed, it seems like all business owners, they want to know where they are. They want to know where they're going, and they want to know if they're doing everything right. I get this question all the time. What am I doing wrong? Am I doing it right? Is it okay? You know, is everything okay? And so, you know, we try to show them by the numbers if they're doing something right or they're doing something wrong. Now, we can't say if always if it's right or it's wrong. We can just say, here, here is what you spent for this. Here's the impact of it, that type thing. So that's, you're going to want to dig down into the numbers, and that's what you've got to do to be able to be successful at this, is find out what's going on in the business and, and really know what the numbers are. So you'll meet with your accounting firm, they'll be interviewing you. You're interviewing them, and you should ask every question you can think of. You know, write down some in advance if you can think of them. And one of the things, they should tell you this. But if they don't, ask them specifically, tell me how it is to work with your firm over the next 12 months. Tell me how often we're going to meet. What are we going to talk about, that type thing. So we have a very specific plan for all of that. And we actually tell our clients on the front end, you know, here's the things we're going to be talking about in meeting one, in meeting two, in meeting three, we're going to be able to do a tax planner at the end of the year, we're going to know exactly where you are. We're probably going to do another one in the middle of the year and kind of maintain and go that way. So that's kind of the way we, we let them know that that's what their schedule is going to be like. And people usually like that. They also like the fact that, that we, we charge them a monthly fee rather than a big fee at the end. You know, so they're paying for their tax return as we go. They're paying for the meetings that we have and everything. And instead of having to worry about stroking a big check at the end of the year to us, when they're having to do it for taxes, possibly they're doing it throughout the whole year. And when they get ready to file, the tax return is done.
[00:15:45] Speaker A: Let me, let me ask another question about. So they found a firm and you said it's an exchange that you're looking for the right fit of client. Just like they're making sure they have an, that can fit their business, their relationship. So there's, there's a relationship factor to be considered there. And then there's also the side that, like, what do you look for in a client? So Wayne Shelton sits down at Shelton cpa, has a new prospect coming in. What are some of the key indicators that you're looking for? And you, you structure some questions to discover if you're looking for those things.
[00:16:16] Speaker C: Well, you know, I like to see. We like to have a personal connection with people. You know, we don't want people coming in here telling us how to do our job. Just like we don't need to be telling our clients how to do their job if they're a car salesman. My job is not to tell them how to be a better car salesman. My job is to tell them how to manage their business better. So. Well, you know, we have some people that come in and they just try to micromanage. They take control of the meeting. They try to, you know, they're very demanding and they're just, you can tell they're going to not be fun to work with. If they're not fun to work with, I don't want to work with them. You know, if, if, if we're not all having a pretty good time and getting along well, it's not going to go well. That's one of the things we look for. Probably first, we also look for kind of where they are in their, in their journey. Are they at the very first of it? Are they at the end, are they looking for a situation where they're going to want to be bought out in the, in the near future? You know, kind of we just need to have all of those goals and plans, you know, in. We actually put them in writing and regurgitate them back to the client. We have meetings and say, here's what we went over in the meeting. Here's the things you're going to do, here's the things we're going to do, and that's how we move forward. So that's kind of what we look for.
[00:17:26] Speaker A: I really like the give and take of that relationship that you just described. Like you said, you know, of course, we call it jokingly your homework assignment. And we give them like, hey, we're going to go do these things. You go do that thing. Because we had a collaborative meeting where we agreed that this is the path forward based on your goals and our expertise. And so you can, you can then Move that forward. So I really like that the personality is a big thing. You don't just have to take everyone that walks in your door, make sure they're going to jive with your. Your employees, with your staff, who's going to be doing the bulk of the work and the bulk of the relationship maintenance anyway. So that, that's a really good point for people to hear across the industries, not just in the accounting world, is make sure you're working with people they can actually get along with, and you're going to enjoy the process. Nobody wants to show up to work and be miserable every day. So go ahead.
[00:18:10] Speaker C: I was going to say, you know, we run into people sometimes. I think all firms are like this. They will talk to one of the staff members and they can be extremely rude to them, you know, for no reason. Then they get me on the phone and they're just nice as can be, you know, but we don't let. We don't let that happen. We do not let any client abuse our staff. And we've had that. We've had people come down and apologize in person for being rude on the phone. They were that close to being fired. If they had not come down and done that, they would have been. But so we, what we want to do is we want to treat people with respect and we want them to treat us the same way. So if we find somebody that is just not going to fit that mold, they're not for us.
[00:18:49] Speaker A: I like that. And I like that you try to determine that on the front end. And I know that you use a profile sheet where there's actually some easy check boxes. Now, not everyone fits into a profile sheet in a check box, but it's a great way to start and a great way to get the feel. So now you found a client that you like. They're proactive, they're receptive. They want to have more control over their situation, but know that they need you to help. So how does that process to get started? What does the beginning stages look like?
[00:19:14] Speaker C: You know, the way we start out is we will ask once, once we've kind of had the initial meeting and determined that they look like they would like to work with us, we would like to work with them. Then we start gathering information. We have to gather a lot of information about their business. We want to find out how many checking accounts they have, how many credit cards they have, how many employees do they have, you know, how often do they pay payroll. We want all the details. You know, how many checks are they Writing every month, how many deposits are they making, how are they doing their accounts receivable, are they using QuickBooks, are they using something else? So we'll dig down really deep into the, all the infrastructure of what they're doing. And with that we can give them a proposal that is not just spread, you know, it's going to be between 2 and $3,000. We can say your number is going to be exactly this because we have done our research and we found out. So that's the, our next step is to gather data and then to sit down with them in just a few days and tell them what their fees are going to be. Exactly.
[00:20:10] Speaker A: Gotcha. And so you're going to, you're basically telling them what you're going to do and what you're going to teach. And there's an old training mindset that says when you're teaching, when you're instructing, you tell them what you're going to tell them. So here's the summary of everything. We're going to color cover and then you tell them. You actually do the teaching and then you tell them what you told them. Which is which, you go back and do that. So you're in this advisory process, you're telling them what you're going to tell them. And then you actually do these meetings. And then you also say there's a summary, there's a follow up, or hey, this is everything that we covered and just told you. So that's, it's a beautiful mindset. Tell me about specifically the execution of those advisory meetings. What does that feel like and look like to the client?
[00:20:51] Speaker C: You know, I tell you what it is, what we do is when we start a new meeting, and this is assuming we've already had a meeting earlier in the year, we will look at our prior notes and say, okay, here are the things that we went over last time. You were going to do this, we were going to do this. Here are the results of what we did. And let's look at your financial statements now. See how if, if the cleanup project is going well, if things are getting better, and if things are, if we're doing our job right and you're doing your job right, this should, your book should get dramatically better very quickly. And that is what we're looking for. Because, you know, I hate to keep harping on it, but let me tell you, if they don't know what their books are showing, they don't know anything about their business, you know that. They just don't. And a lot of Times they don't know what they don't know. That's the other problem. And they don't know that they should be looking at these financial statements. And so we will. One of our, one of our things is there's a lot of education included in our program. We want them to understand how the tax rates work. We want them to understand how depreciation works. We want them to understand how QuickBooks works. So we want to understand them to understand how to read a financial statement. So we'll go, we'll spend time doing that. We were big on comparing to prior years. You know, that is a huge way to mark where you, where you're moving to. You know, look at prior year and see how it's changed this year. And one of the things that I think is really important that a lot of, a lot of accountants have a lot of problem with is things change, sometimes dramatically in a period, very short period. We have to be adaptable for that and be ready for these changes. So when we come in, we want to find out from them. We, we still ask questions, we will ask questions every meeting and say, okay, tell us what's going on. You know, has anything changed in the way you're marketing? Is anything changed in the way you're getting business? You know, have you lost a lot of business that you know it's a concern to you? If so, why? So we'll want to know what is happening in the business every time we meet to, to make sure we're up on what the new goals are.
[00:22:49] Speaker A: I like, let me. So that's a good spot for me to jump in a little bit is that you've basically moved into. What I was going to ask you next is like as that ongoing relationship happens, you do this heavy lifting up front. You tell them everything you're going to do and change. You clean up the books, you do all the planning. Like you had mentioned earlier about depreciation and home office and some other things. And there's tiers of categories that may apply to most people, but not everyone. But ultimately they know what's going to be worked on with them and then you keep this relationship going to keep the books clean, to handle any of those things that pop up on the rad are or those weird situations. So give me about just a quick 30 second answer. What do you think is the most key part about how to keep the relationship going over time, the maintenance?
[00:23:28] Speaker C: I think the key thing is communication. I think that we have to be communicating, you know, at least on a monthly basis, even if it's, hey, how are things going?
We have, you know, when we, the way we work is we set up a team. We'll have an accountant, a tax preparer, myself typically, and an admin person. The admin person's job is to make sure that the communication between us and the client is ongoing and does not get dropped. That is a really easy thing not to do, is to just let it kind of fall through the cracks. But those admin people, that is their job is to manage that relationship.
[00:24:05] Speaker A: Good job. So communication is the key. That's one of the biggest benefits of the ongoing relationship of a planning style advisory firm. So that Wayne, that's an excellent piece of advice. I think people have a good direction where to go. So if somebody wanted to talk to you more about this or get a hold of you as accounting firm, how would they find you?
[00:24:21] Speaker C: We're, we have a website, Shelton Associates, 442-270-442-6688 is my cell phone. That's my office phone. And you can look on our website and get all of our email addresses.
[00:24:36] Speaker A: Absolutely. Fantastic. Thank you so much for coming on the show. Again. You're an expert that we can't ever get enough of. So we'll be having you back some more in the future. Thank you.
[00:24:45] Speaker C: Look forward to it.
[00:24:47] Speaker A: Everyone else, sit tight for the rest of this episode.
[00:24:57] Speaker C: Now, you done with me?
[00:25:10] Speaker A: Foreign welcome back from the break. You've reached the halfway point on this episode of pivotal change and we've got a new guest with us who we're going to have a very exciting conversation with. We've got Kirk Jaffe. Now, he is an expert in real estate and mortgage lending and help with financial planning. He's got a pretty distinguished career. He's a professional that's been in California and now Nevada. And he helps people streamline things all over the country. He helps with business consulting, he helps with strategy, corporate governance, and a really, really heavy player in a real estate game. So, Kirk, welcome to the show. I can't wait to have this conversation.
[00:25:49] Speaker B: Hey, Ryan, thanks for having me. Glad to be here.
[00:25:51] Speaker A: My pleasure. So what I'd also like to do is I'd also like to tell us a little bit more about yourself because I always tend to sell people short.
You've got a lot of really good character traits and what you do and how you help people. Just expand on that for just a second for us.
[00:26:04] Speaker B: Yeah, you know, my career has really been based on navigating the river of change. So 2008 I had a mortgage company. In 2008, the entire world economic platform collapsed and I had to figure out change. So it went from that to running the third largest default loan servicer in the United States, where I personally signed on 250,000 foreclosure files, serviced over $200 million of loans, and really took what I call a PhD in real estate. And as the river shifted again, I took all that information, all that ability, and today I do it for myself and for my clients that I'm consulting, either building family offices or helping them through their business struggles and helping them grow effectively and permanently. And that's what I do, still do real estate. We build houses, custom built houses. We'll tell you more about that. But love real estate mortgage, can't get away from it. And it's essential to knowing your financing and your real estate if you're going to try and grow a business. They go together.
[00:27:00] Speaker A: I love that. I love that. And out of everything you just said, probably the thing that just made me almost like a little kid giggle is that you said the permanence, right, to help build the permanence of it, instead of just these, these roller coaster rides that unfortunately a lot of startups or entrepreneurs can get themselves into. And then real estate is for everybody, literally. We all have to have something over our head. So what I'd like to do is kind of jump into these questions so we can, we can start getting that expertise to help people get their pivotal change. So let's talk about real estate right from the get go and specifically about the transactions. So if we're looking at real estate, there are some of these most common challenges that people are going to face during this real estate transaction. Can you tell us what a couple of those common challenges are and then how you help them overcome them?
[00:27:43] Speaker B: Yeah, I've written several books about this too. You can get them off Amazon or if someone reaches out to me,
[email protected] Happy to send them copies of the books. You could scan that QR code that's there behind me too. I'll take you my card.
So most important thing about the real estate transaction is controlling the vendors. As a consumer, you want to really know what the capabilities of your loan officer is on the mortgage side and how that integrates with your CPA on the reporting side. When you go to time to do taxes and then know all and understand that every mortgage transaction, every real estate transaction has somewhere between 1500 and 3000 communications, people don't realize the amount that goes back and forth between the agent and the mortgage and the escrow and the title and the inspectors files are often, you know, just six inches thick by the time they're done. So as a consumer, a business owner, understanding that our job is to quarterback and make sure we're communicating clearly with all the different entities is really what makes transactions go successfully.
[00:28:46] Speaker A: I really can appreciate that people are not going to understand what truly goes into every portion of the, the process and that if they let the communication down or don't have the experts that are going to forward that communication for them, there's going to be some big gaps in what they're trying to accomplish. Like you said, whether it's residential or commercial, and that's a, that's a big part where the communication breaks down. You're bound to somehow experience some type of failure. So when getting into that, how does somebody determine the right person or the right set of experts to go with? Just like when the right time to even buy or sell a property is.
[00:29:20] Speaker B: Yeah, a lot of it is do your work ahead of time. So I'm in the, I'm just starting out, actually. I've been in a transaction for about five months to buy a company there in College Station. And we love the owner and we're all getting along great and we're actually working very closely together. Now it's time to make the purchase. So I've already started working with the SBA lenders to make this purchase, knowing that it's going to take me another 60 or 90 days before I'm ready to submit file. And so have the meeting before the meeting, send your file into a lender, find out how they underwrite it, what the problems are going to be so you can adjust to them. The other thing you find out is if you like the lender, if they're not cooperative, they don't communicate. You don't feel like they're part of your team. It gives you an opportunity to get out of the way. So that avoids a problem.
[00:30:06] Speaker A: I like that. So you're actually, when prepping for the lender, you're actually showing your cards a little bit ahead of time, saying, hey, this is the transaction we're getting ready to undertake and get into. And of course, you specifically mentioned the sba, which most people watching this may not be aware. They're a little slower than the average lender. Right. It's like steering a cruise ship when you're working with the SBA and the government than it is possibly local branches of lenders and banks and so that's something where you need to prepare for that process. Have all your ducks in a row. Because it seems like in the average business deal there's always one more document needed, one more thing needed, and you want to have that whole package ready so you don't have to wait extra time on top of the already delayed periods for underwriting. So that's, that's a really good point to have made.
So what steps can the individuals take outside of the preparation from identifying the wrong person in just the communication? Because up front they want to make a deal. They probably sound pretty good. Are there any red flags, orange flags people need to be looking out for when engaging with either people that are going to be underwriting the loan, the attorneys are going to be drawing it up, agents, anything like that?
[00:31:08] Speaker B: Yeah, I think it's all relationships.
So, you know, don't be afraid to show your cards. If you're doing a private money loan of a big commercial type, then you have to be a little careful because it's a very small community and they leverage each other. You know, the private money lenders leverage each other to find out reasons why they don't need to make the loan, regardless of what profit they can make. So that's a little bit careful. But if you're dealing with a normal transaction, commercial transaction, buying a property, using commercial banks, don't be afraid. Get in there and talk to them and be open with them because you'll find out real quick who you like working with, who you don't like working with, and you'll understand the questions they're asking and whether or not they make sense to your particular scenario. Everyone's got a different file. Every file is unique. I've done 17,000 loan transactions in my career. Commercial, residential, industrial construction. Everything that can be done, I've done it. And I can only tell you one thing. Every file is its own story. So work on the story of your file. Not what you think someone else got down the street, not what the underwriter tells you that they think it should be. Make it your own and don't be afraid to stand your ground on that.
[00:32:17] Speaker A: I really like that. And I actually want to expand before I get too far away. Is that know your situation, every situation is 17,000. That's a lot of reps. That's like you said, You've earned your Ph.D. and in the accounting world, we're the same thing. We're going to go advise you on your unique situation. Right. We're not going to try to force you to customize to our system and we're not going to make sure that we just completely head over heels, fall into whatever you want us to do. There's a relationship and a give and take back there. And we're going to work collaboratively together to get you to that goal. And in this goal is the real estate game and some of that, that advisement that comes along with that. So that's, that's a really good point. And you said stand your ground. Could you just expand a little bit on that? Where would somebody find a need to do that?
[00:33:00] Speaker B: Yeah, I hear a lot of stories and I have seen a lot of stories over the years. 25 years I've been doing mortgage financing of different types. So you see them all through different cycles. One of the things that I still see that always concerns me is you'll get to a banker who will encourage you to shift your file away from what it is so that it fits the guidelines. And sometimes that's not the best thing to do for a lot of different reasons. So that's what I mean by, you know, don't be afraid to stand your ground if you know that what you're presenting to the bank is just not in alignment with what you're trying to do. You know, don't let someone talk you into it because they're trying to get paid a commission. You know, most lenders, they make their money off commission and a small base salary. In some cases they work at a big bank, but they're trying to get deals done and they have quotas and so they're going to try and make your deal fit their quota. So they get credit and get paid. But that's not always the best thing for you and the worst thing that could ever happen to a small business owner. That's what we're talking about here is have a loan called due, which I just saw a couple days ago.
I'm on a, I'm on a regulatory list with all the compliance personnel from all these different banks around the country. And one of the questions came up, a file was manipulated. The borrower lied about the income coming from the rental income. The bank found out about it and now they've called the loan due. And who's responsible? Is the lender that wrote the loan responsible to buy back the loan and continue servicing it, or is it just going to get bought back and that's going to go back on the owner? And the answer to the question is really, it's all of it. There's something called subrogation, which Means one entity can pass the responsibility onto the next entity until someone pays. Right. Title companies do this all the time. Insurance companies do it. So your insurance is not going to cover you, your title is not going to cover you. In this scenario, the bank is definitely going to come after you because they don't have the wherewithal to buy that loan back. Most of these small bankers are working on very thin margins. So again, that's a perfect example of somebody that probably was told, oh, just inflate the income. It's no big deal, it's reasonable for the area. Right up until the time that the company that bought the loan, you know, put it in their portfolio, found out that the income wasn't there and they go, we don't want this loan anymore. Bye.
[00:35:23] Speaker A: I think that's most business owners that, especially when you're in the small business the first five or 10 years of your journey, having a loan called due when you've probably just established your cash flow, you're making ends meet, life might possibly be good. And then an error and a dumb decision through the wrongful advisement, man, it claws everything back. And that could be, that could be pretty catastrophic. So in picking a lender, is there. Well, you pretty well cover that. About the way to make sure you're not shifting yourself and stand your ground. And this is who I am. And if it doesn't fit for them and they're just trying to make their quota, just keep getting quotes, keep getting bids and move to the next lender. So is there resources to find who the next lender might be if I don't like the one I'm talking to?
[00:36:04] Speaker B: Yeah. You know, this is why I wrote the book. I wrote the book, how to get approved for Your loan in 21 days or less guaranteed. And this is what it's all about. How does a consumer go step by step and build their own loan? File, file and all the questions are in the book. You can get on Amazon again if you, if you just email me, I'm happy to send you a digital copy as well. You can get my information from the QR code or
[email protected] but the way to do it is really talk to your team. It's that relationship you're going to find out very quickly. If your CPA is unwilling to produce what you think you need to produce to get a loan in place, they're going to push back because they have a license and responsibility too. So, right. Leverage your team for years, 25 years I've been helping clients put a collective team around them. And it's your cpa, it's your attorney, it's everything you mentioned, Ryan. It's your, you know, your, your lender, it's your attorney, cpa.
It's also understanding how you're structured. If you're a small business and you're operating out of an llc, that's, that's your whole world. That's a little different than if you're operating of a trust or a family foundation.
[00:37:09] Speaker A: Kirk, let me jump in right here because this is a really good spot. We're really getting ready to talk about the very next topic that I'm going to ask you about. So what I want to do is I want to cut us to commercial break. We'll get a clean slate. I'm talking about what you're rolling into. Everyone sit tight. We'll be right back for the final segment and more. Kirk on Pivotal Change.
We are back for the final push of the night, the final segment on Pivotal Change with more Kirk Jaffe. And we are picking his PhD in Real Estate brain on mortgage lending and all of the nuances that go with that, the pitfalls, the ways to look and steer. So we kind of cut off our conversation to start with a clean slate about how these business owners, probably small, medium sized businesses or these executives making the decisions for them, are going to start analyzing the key factors of what they're considering when going towards approving a loan. So. So jump in there and tell us what you're just getting ready to jump into.
[00:38:29] Speaker B: Yeah. You know, what I've really learned over 25 years and 17,000 mortgage files and then 250,000 foreclosure files of all different types, commercial residential, is that it's forward planning and vision. So the mortgage work actually means that I've looked at, you know, 7,000 businesses top to bottom financials, cash flows, you know, P Ls, everything that you need to know about these businesses, these lenders ask you. Right. So I've done that quite a few times. I've also done a lot of divorce cases, thousands of divorces, which is how you separate a business really at the end of the day. Right. Whether it's a marriage or business or all the different assets involved, it's separation of all those assets.
I've done new businesses. So what I would tell a CEO or a small business owner is really think about where your future vision is. And all this experience led me to open several different businesses. I have six different companies. One of them is called Tall Pines, again, you can get to it through that QR code, But Tall Pines is a business advisory company. And what we do is help create the strategy, build the teams for the consumer, which is a business owner in this case, and really make sure that things are working efficiently. We can, we have a mastermind that we run that's very cost affordable, runs for a year. So we can do it in small groups. We can do it one on one, which is a little more expensive. But I would say the key to all of this, when you're thinking about real estate financing, business growth, is having those growth plans and having real realistic expectations of what your company can do and then also planning for the pitfalls. We're in a huge pitfall right now. I don't think any company on the planet two years ago or 18 months ago was thinking about 25% tariffs or 155% tariffs on their goods and how it's going to impact their production lines. Right? Nobody was thinking about that 18 months ago. Now everyone's thinking about it and they're scrambling. And you don't have to scramble. I'm not scrambling. I told you. I'm. I'm a builder. So we're building custom homes as well here in the Lake Tahoe area. So I'm building $3 million homes that we're going to sell for $6 million in a very specific niche area here in Lake Tahoe. Well, my cost to build has gone from three million to could be as high as five and a quarter million. I didn't blink an eye because I already had planned in what could happen for this type of contingency. And here's what really happened. Yes, my cost went from 3 to 5 million. The price of the houses in the same period has gone from 6 million to 10 million.
So I'm okay, I'm still scrambling around to find some money and put things together. But that's part of having a business model, right? That's part of the game.
[00:41:15] Speaker A: That's part of the fun of being an entrepreneur and have that business model. Right?
[00:41:18] Speaker B: That's right.
[00:41:19] Speaker A: And you said at the very beginning of the last segment, you mentioned the word adaptability in it. And I thought that was a really crucial point, and it seems to be coming full circle right now is that times are going to change. The one thing about change that everybody hates is that you know it's going to happen. Change will always be there. And so as a business owner, you've made it to where you're able to secure financing or self Finance. And you have your structures in your six businesses, I'm sure probably four of those in at least have some type of operating agreement and feed off of each other, since I know the realm that you're in. And so you have a lot of safety nets and security that you can build people into. And so you do both team and individual consulting. And there's a high value to both of those, obviously individuals at extremely high value. What are some of those things that you can do to help somebody, say, hey, let's plan for that unknown future, the terror future that nobody saw coming. How can you help them secure financing in the future with what's existing now?
[00:42:16] Speaker B: Yeah, it's, it's a growth strategy in that case. Right. Or it's a expectation alignment strategy.
So if you have the ability to grow and you want to borrow $1 million against your $150,000 of gross revenue, you're going to have trouble with that. Right. If you're making $3 million of gross revenue and you want to borrow a million dollars, probably. Okay. Just depends on what drops to the bottom line. Right.
You know, on the other side of that, that's, that's on the gross side. On the expectation side, if you're, you want to borrow a million dollars but you're only doing 150,000, the expectation has to be realigned. Okay, you're not going to get a million dollars. You can have maybe 50,000, but now let's. How are we going to use that 50,000 to grow your company? And I tell all kinds of, all kinds of companies, no matter what industry you're in, if you're going to look for a business plan of growth, you should be looking for a 15 to 1 return on your money. You spend a dollar, you should be able to make 15. Why 15? You're not going to get to 15 every time. Maybe you'll end up at 5. But any CPA will tell you a 5 to 1 growth strategy is amazing. Most people look at a 2 to 1 or a 1 to 1 growth strategy, ROI and investment, and they don't realize that that barely keeps the lights on. And if there's a shift in the environment, you're dead in the water. So I always shoot for 15 to 1 and I'll tell you what happens. Either I don't do the deal because I don't see how I can get to 15 to 1 so I avoid the conflict, or I end up with 30 to 1 return, which is awesome, or I end up with a four and a Half to one return and I still made money. So it keeps, you know, having that principle keeps me out of trouble. And I always encourage business owners of any size to really think that way. I don't think they do.
[00:44:04] Speaker A: I really, really love what you're saying. The, the built in for the guarantee of value. So even on a bad day, you're still making money. And I think so many people try to slice their margins and they think they have to be so competitive for all of the wrong reasons and whatever industry it may be. And obviously I know we're talking a lot of real estate right now, but that's, that's such a mindset that people need to, to really shift from is that I don't want to just make my margin and make my, my peanuts of profit. I want to look for that higher ratio, set my goals high. It can be achieved. Even if I fall a little short, I'm still doing great, especially compared to the next guy. So that's, that's pretty interesting. So that gets me into thinking along a different line than the standard business owner next to me, the standard person looking to get the financing, looking to make the deal, looking to build the next property. Are there other options then to think the other way than just the traditional loan model? What are some ways we can get non traditional funding?
[00:45:01] Speaker B: Yeah, well, it's, it. First of all, there's nothing new in the world, right? Everything was created what back in Rome has just adjusted and shifted over time or maybe even evenly older. But you know, if you can't raise, if you can't get a loan for whatever your reason is, you've got bad credit or your company's not making enough or whatever those, those issues are.
You go back to the old standby, other people's money, and you don't need the credit score to borrow money from other people. What you need is a real solid plan and a real good group of people around you, right? We're building these houses as I told you. But because I ran that large real estate company and I was running $200 million of private equity money, I run my little house building company like it's a private equity firm. I do vendor management. Every single person that touches my product, including the architect, I know their financials, I know their cash flow, I know their HR problems, right? I know everything about every vendor that works with me on any of my projects, which enables me and empowers me to be able to build presentations that make people feel comfortable so they'll give me their money without asking me what my credit score is. So it's a different way, it's safer. What I don't like and I've encouraged people away from it, I actually won't work with people that want to do this is where they look for the 100 leverage through a private money lending platform of some sort, whatever that might look like. And there's a few different kinds. 100% leverage on real estate is a bad move and it should never be done.
Very hard to predict an exit strategy, especially the 15 to 1 return model on 100% financing for a piece of real estate. Especially if you're building spec, you know, spec houses or trying to buy apartment buildings on spec, things like that. There's just a lot of differences. I had apartment building in L. A for years. I sold not, you know, a few years ago and I watched the news today and you know, rents are going down by one and a half percent a month and have been for the last three years. So I took a little bit of a haircut on that property. I wasn't thrilled about it at the time, but man, I wouldn't want to be managing that property now. You know, with 15 reduction in rent fees and you know, 150 increase in maintenance costs.
[00:47:17] Speaker A: Yeah, yeah, that's so it's, it's a double, it's a double edged sword. So that leads me to probably my last question of the evening is that the lending landscape has definitely changed. You just mentioned two of those examples specific to la, but I know there's some nationwide models. So whether you want to ask for more regionally and locally, if you want to expand on the national model, how is that lending landscape change? Like again, you just gave those two quick examples. And what can we look to to make sure that we're not taking haircuts on everything and eventually we'll just run around bald.
[00:47:47] Speaker B: Yeah, the lending landscape right now is, is very much in flux. And that's for two reasons. One, a lot of these big lenders got burned pretty bad in 2008. I know that's a long time ago, but it's still carrying forward even today. And then again through coveted, they got burned twice. And so you see a lot like even with SBA today, you have to put a personal insurance policy on your life insurance policy to protect your loan.
A lot of lenders are doing things like that where you're putting insurance in place or you're building up reserve accounts or they're lending you money and 15% of the money has to go into an escrow account or an attorney account to make sure that the bill can be paid for three to five years. So that's a big shift in how lending has worked. I think there's still a lot of people on the sidelines in terms of institutional lending nationwide, especially with all the taxes and tariffs and cost replacement and all the insurance problems that we've been having in this country.
Insurance is a big driver of how successful a mortgage will perform. And so if you can't predict insurance and you can't predict mortgage performance, then Wall Street's going to sit on the sidelines. And why wouldn't they? Right now Wall Street's on the verge of getting 5% on T bills. Right. In the next six months, we think T bills are going to be a 5%. Well, why would I put my money into a 7 1/2% risky real estate with all the costs and expenses of foreclosure and management, everything else that could go into it when I can just clip a 5% guarantee and wait?
[00:49:16] Speaker A: That's great.
[00:49:17] Speaker B: And that's a big change that people understand.
[00:49:19] Speaker A: So, Kirk, that's a great answer about how to watch the market, navigate the market and make the right decision. Obviously advisors like you are going to be pivotal in that. So how do we find somebody like you? I know we have the QR code, I know you gave us, but what's the single best way to get you a message and start process with you?
[00:49:34] Speaker B: Yeah, if you want to reach out to me directly, call my cell phone. Don't worry about it. I have two, I have a business phone and a personal phone. So the personal, the business phone is 818-469-2189. You got the QR code KirkJaffe.com or go to the website KirkJaffe.com and you can always click on the contact me form. It comes straight to my phone and we have a whole team that follows up. So we'll take you through the process. If you call us, we have an absolute process of how we qualify people and what they need. We're not going to oversell you on anything. If you're best for the mastermind, we're going to put you in the mastermind. If you're best for one on one, we're going to offer it to you. If we just want to give you some free advice because send you on your way, we're going to do that. We're here to help people and help companies grow. And that's what our, you know, what our philosophy has been for my entire career.
[00:50:21] Speaker A: That's a beautiful thing. Thank you so much for coming on the show. And that's going to wrap up another episode of Pivotal Change for us. So everyone watching, if you liked Kirk, you're going to get more of him in the future. And I want you to go out into the world, and I want you to see the change, and I want you to be the change. And we'll catch you next time on Pivotal Change.
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