Mini Episode: A Dead Simple Formula For Building Wealth Without Selling Your Brand
Episode Summary
In this mini episode of the Free to Grow CFO podcast, Jon Blair discusses how DTC brands can build wealth without relying on a big exit. He outlines a simple three-step formula that includes optimizing cash flow with a CFO, investing in long-term rental properties, and working with a tax advisor to maximize tax benefits. This approach allows brand owners to create a stable income stream and build wealth over time, independent of the sale of their business.
Key Takeaways:
Many brand founders mistakenly believe wealth comes from selling.
Building wealth takes time but is achievable without selling.
A good tax advisor is essential for maximizing benefits.
Episode Links
Jon Blair - https://www.linkedin.com/in/jonathon-albert-blair/
Free to Grow CFO - https://freetogrowcfo.com/
Transcript
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Jon Blair (00:01)
Think the only way to build wealth through a DTC brand is through a big exit? Think again. Welcome to another mini episode of the Free to Grow CFO podcast, where I break down one key concept that will help your DTC brand increase profit and cash flow as you scale. I'm your host, Jon Blair, founder of Free to Grow CFO, and today I'm gonna break down why you should stop waiting for an exit to build wealth and instead use your business to buy assets now.
Okay. So I think during the COVID era, many brands saw that it was relatively simple to get your brand purchased by a strategic acquire or private equity or something like that for really high multiples. And quite frankly, ⁓ irrational multiples based on revenue as opposed to EBITDA and the true earning power of a lot of brands got caught up in that and there started to begin to be this prevailing kind of ⁓ thought across the e-commerce world that like, hey, the way that you really build wealth through an e-commerce brand is you sell it for a large sum of money. And when that bubble burst and M&A activity really, really kind of dried up in the space, I just hear a lot of brand founders say like, man, it's not super likely that I'm going to be able to sell my, my, my brand for a big payout. And so, ⁓ you know, like there's just not a lot of money to be made here, but here's the reality. There's actually a dead simple formula for building wealth without selling your brand.
And here it is. One work with a CFO to optimize your cashflow. So you can pay yourself monthly distributions of profits. Two, take the distributions from step one and work with a real estate investing team. That's an agent, contractor, and a property manager to build a buy and hold long-term rental portfolio. And then the third step is to work with a tax advisor who can help you maximize the tax savings of investing in real estate.
So let's break these down. Step one, work with a CFO to optimize your cashflow so you can pay yourself monthly distributions of profits. In simple terms, profit never equals cashflow, especially in an e-comm brand. A good CFO can help you make tweaks to your financials on the P&L and the balance sheet side to free up cash so that you can maximize how much you can distribute to yourself as the owner every single month.
Step two, take those distributions and invest them in real estate. And so ⁓ it's really actually very possible today if you go find the right markets that you can go purchase cash flowing long-term rentals. These are effectively when you take the cash flow that you bring in every month by charging rent and after you subtract mortgage payment, ⁓ mortgage interest, insurance, property taxes, repairs, and even future capital expenditures still have positive cash flow left over. So you can ⁓ earn a return that way plus your tenant is paying down the loan which is gonna earn you an additional return plus over time, over a long period of time, that real estate is going to appreciate. So between appreciation, the loan pay down and your monthly cash flow, you're actually generating a very stable cash on cash return that in my opinion is actually less volatile than the stock market. So you're taking cash flow from your cash flowing brand that your CFO has helped you optimize how much cash flow you can take out. You're working with a real estate agent, contractor and a property manager to build a long-term rental portfolio.
And then the third step, is hire a tax advisor who understands how to take advantage of long-term rental real estate portfolios ⁓ tax benefits. In large part, we can't go through all the details here, but effectively you can leverage things like depreciation so that you can actually be, a lot of times generating a total return including your cash on cash return, your loan pay down and the appreciation of the property, you can oftentimes, over time, generate a 10-15% total return, but with depreciation on your tax return, it actually looks like the return is zero or negative. And if you hire a really good tax advisor that helps you set things up legally and correctly, you can actually offset the taxable income that you make in your brand these losses from your real estate.
And so, if you follow this three step plan, you do this for five to 10 years, you'll be amazed at how wealth you've built. Even better, you don't have your wealth tied up 100% in selling your brand, which may or may not ever happen. And I'll tell you, step one, working with a CFO to optimize your cash flow, that just makes you a more sellable brand. If your brand is generating like, really healthy cashflow to the point where you're paying yourself some nice distributions on a monthly basis, people are going to want to buy that because there's only so many businesses out there with strong cashflow.
So, in summary, follow this dead simple formula for building wealth without selling your brand. Work with the CFO to maximize cashflow and monthly distributions, invest those distributions in long-term rentals, work with a tax advisor to harvest all of the tax benefits of long-term rentals. Do this for several years and you'll be shocked at how much wealth you build without ever having to sell your brand.
