In the downtime of waiting on closings, permits, bank accounts to catch up to ambitions, etc., it is important for us to take stock of where we are at and where we are heading. Part of this is "rearview mirror" assessment, but most of it should be "looking through the windshield" of our business. What is meant by this is that so much of traditional business is reliant upon past facts and actions. So much of business is looking at past performance as an indicator towards future results. We think that this is a mistake. Not a complete mistake, but too much emphasis is placed here. The rearview mirror should be limited to vital facts.
While your past numbers may give you the best kind of lessons -such as where are we making the most, what neighborhoods, what kind of rehabs, or flips, or apartments, or... (pick your poison), they will not necessarily tell you what systems you should be working on. They won't give you a sense of the market or of what might be coming next, or even where you should necessarily put your resources.
So, with that in mind, here is something we use quite a bit: PSM. (This is the total opposite of PMS, by the way.) PSM is:
Prioritize those actions that you take towards your flip, rehab, rental, what-have-you. Not all of your actions make you money. Prioritize based on those that do and those that move the ball forward the furthest. Chances are you will see on your action list that you are spending the majority of your time on actions that do not result in paychecks or profits. You will probably see that you spend about 20% of your time on those things that actually bring dollars over the doorway of your financial house. You want to reverse this. You want to set things up so that 80% of your time is spent on those actions, and 20% of your time is spent on the admin, detail, tax, permit type of work. How?
Well, now is the time to pretend that you are Ray Kroc and you have just discovered the McDonald brothers cranking out consistent and congruently good products while your are roaming around selling milkshake machines. ("Nice Machine, Ray!") How are you going to set up systems that turn out consistent results while making the business about business and less about you or a hobby? One way is to focus on those priorities that make you money. Make those your focus and outsource, automate or hire your kids to do the rest of your action list.
You may make money swinging a hammer, but you will probably make more by directing others where to swing that hammer. And you will probably make even more if you can direct one to direct others on the where and when. You will probably make even more money if you don't micro-manage the contractor or GC, and spend even more time on the important tasks of filling the pipeline while carefully monitoring cash flow. (Remember: It is not a lack of profits that kill most businesses, it is a lack of cash flow.) This is what we mean by monetizing our systems. We want to put into place systems for the rote and less important garbage. And we want to put in systems for the more important, money-producing, areas of our business. The more levers that we can use to move these heavy objects, the better. So... What is your time really worth? Well, Atlas, you are not going to do it at scale by carrying this world on your back alone. Sooner or later you will end up shrugging and the whole thing will come crashing down.
Obviously, you cannot ignore the rearview mirror. To do so is to invite an accident in your blind spots. Yes, it is important to know where your money is coming from... you can use a RFM Model that we heard about on the Joe Fairless podcast. RFM is "Recency Frequency and Monetary/or Money." What that means is, in our case, which area is the most recent, which area that we work in has the greatest frequency, and which area or what kind of typology gives us the most money for our efforts. If you are doing enough deals, you will see that the hot ones may be coming from the same place. We want to treat our deals as customers. Which group of customers bring home the bacon? And then, which actions did we take towards those customers? Which actions were the most critical from that list that we just created? (Prioritize). Which actions (money-centric or not) can we outsource, hire for, or automate? (Systemize in order to focus on priorities.) And how do we increase our revenue/cash flow and profit by focusing on those priorities?
We do this on Excel in our day-gigs, and we do this in Google Drive in our business. We set up almost an outline in the spreadsheet of our actions from deal generation to closing. (In the case of renovations.) We then highlight those areas that are the true money makers -the critical actions. And we highlight the rote tasks with another color. We also highlight those tasks that just seem unnecessary or stupid to us. We use an ugly color for the unnecessary or stupid. We then start a column of priorities. We place a number "1" next to the most important task, a "2" next to the next one, and so on. What this gives us is the ability to sort these actions by priority.
We then set up a column for Systemization. How can we automate, outsource or hire for a specific task? Our notes on this go into the Systemization column.
We then set up a Monetization column or two. This includes things like what we think the task is worth in terms of actual dollars per deal -first column. And how can we magnify our efforts for the money making critical tasks? Our notes on this go into the second Monetization column.
Combined with a similar spreadsheet on the RFM Model, and even another on individual deal analysis, and we start to kick out patterns and actions that have a positive effect on our business. That's it... It is a 1-2-3... or 1-2-3-4... or 1-2-3-4-5 loop. Do. Repeat. Do. Modify. Do. Repeat. Do. Change. Do. Repeat.
Everything else is just waiting.
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