DGS 65: The NARPM Standard of Accounting with Brad Larsen

Want to make your life easier when it comes to property management? Once it’s adopted, try the National Association of Residential Property Managers (NARPM) Standard of Accounting. It’s going to positively change the industry!

Today, I am talking with Brad Larsen, who played a major role in the development of the Standard of Accounting. Also, he’s the founder of RentWerx (formerly Larsen Properties) and host of the Property Management Mastermind podcast.

You’ll Learn…

[04:28] Why: Standardize language and charter accounts for industry.
[05:15] How: NARPM participation and vendor selection of ProfitCoach.
[08:33] Going from General to NARPM Accepted Accounting Practices (GAAP to NAAP).
[09:31] System/process to get it adopted; won’t be a perfect solution immediately.
[10:38] NARPM’s value add and thank you to industry; training provided at conferences.
[12:45] Embezzlement: It’s going to happen to you as your business grows and scales.
[14:05] Examples of how to use NARPM Standard of Accounting.
[17:56] Goals: Create common language, adopt industry standards,compare metrics.
[18:02] Acquisitions: To acquire or be acquired, NARPM standard makes you look better.
[18:17] Comparing numbers, data, and metrics; and knowing what to do with them.
[20:20] Transition to follow Standard of Accounting is simple.
[22:16] 87% of statistics are made up – people believe almost anything; businesses need to be comfortable with numbers.
[23:41] Need designation/certification for stamp of approval on Standard of Accounting.
[26:51] Concerns about who controls what and how much of standard.
[29:10] NARPM standard helps improve property management industry’s reputation.
[31:12] Audits are available to build a level of confidence, safety, and certainty.
[32:13] Examples of metrics that help your business make the right decisions and compare against competitors.

Tweetables

Resources

Property Management Mastermind Show

Property Management Mastermind on Facebook

RentWerx

NARPM

ProfitCoach

Intuit QuickBooks

DoorGrowClub Facebook Group

DoorGrow Live

Transcript

Jason: Welcome, DoorGrowHackers, to the DoorGrowShow. If you are a property management entrepreneur that wants to add doors and expand your rent roll and you are interested growing your business and life, and you are open doing things a bit differently, then you are a DoorGrowHacker. At DoorGrow, we are on a mission to grow property management businesses and their owners. We want to transform the industry, eliminate the BS, build awareness, expand the market, and help the best property managers win.

If you enjoy this episode, do me a favor. Open up iTunes, find the DoorGrowShow, subscribe, and then give us a real review. Thank you for helping us with that vision. I’m your host, property management growth hacker, Jason Hull, the founder of OpenPotion, GatherKudos, ThunderLocal, and of course, DoorGrow. Now, let’s get into the show.

Today’s guest is returning to the DoorGrowShow, and it is Brad Larsen. Brad, welcome to the show.

Brad: Thanks for having me on, Jason. That was a mouthful you just put out, so you might have to take a knee and drink some water after that one.

Jason: I’m quite the talker. Brad, I’m really excited to have you back on the show. I’m going to introduce you. Brad, the last time you came on our show, shortly after that, you launched your own podcast, which is awesome, the Property Management Mastermind Show. If you guys haven’t heard that yet, make sure you check that out. One of the things that I like what Brad brings to the industry He is tactical, he gets into nuts and bolts, he is real world, he is raw, and he showcases behind the scenes how he actually is running his company. You don’t pull any punches like you…

Brad: I try not to. I like to be very honest and sometimes blunt, and sometimes it pays off or sometimes it doesn’t.

Jason: I love it because, as my wife sometimes says, I’m just an asshole, and I love putting out there what really works and the real message that people need to hear, so I like that. I’m a lot more big-picture of a thinker, and I’m looking at the whole industry as a whole, and I love this different perspective you bring to the table that really showcases what is going on in the nitty-gritty details. I love that. I’m excited having you on the show.

You also have your own property management business, Rent Werx, which you guys can check out Brad’s company. I think he’s somebody to keep an eye on. He does creative and innovative things with his own business, which I enjoy watching. Today, we’re going to be talking about something that’s innovative, something the industry needs, something new, and this is the NARPM standard of accounting. This is something pioneered largely by you, correct, Brad?

Brad: Right. We’ve recognized this need a long time ago, and it all boils back to the conference in 2014 where Tony Drost was a prior NARPM president, and he tried to do a compilation of different management companies’ numbers. He turned as good as he could make it. He did a great job, and it also shed light on the fact that everyone is speaking different languages. Literally, everyone is speaking different things, and nobody can get on the same page.

When we were rookies and wanted to start our chart of accounts for our own management company, we had to take his presentation, take it to a virtual assistant, and create our own GL code, our own chart of accounts. We had to create it. There was nothing that we could just go out there and assume, or copy, or adopt. We had to create our own off of that one presentation that they put out, taking that hit list, and the best, and the all stars from other companies.

I’m really glad you gave me this forum to talk about the NARPM standard because this is going to be potentially industry-changing for a lot of different folks. Let’s go into some of this, if I may. I want to be doing a lot of talking, and please bounce some questions off me as we go.

Jason: Absolutely. Let’s start with why does this even matter because nobody cares about the whats, or the details, or what we want them to do until they first understand why. Why does this matter?

Brad: Currently right now, there’s nothing in the industry that is a set standard of acceptable chart of accounts. There’s no definitions, there’s no equations, and there’s no standardization on metrics. It’s causing property management company owners to essentially create their own like what we had to or they have to adopt something from a different industry. As a national trade organization, we identify this with NARPM that it’s really up to them. It’s their duty with our help to establish such a standard for our industry, and they’ve been very receptive of this.

That was the identifying of the why. Now, the actual how is the tactical side of it. The leadership as I’ve mentioned, especially the incoming president, Eric Wetherington, was instrumental in helping us put this in front of the NARPM Committee because it’s an organization like any other. Like any other political organization, you have committees, sub-committees, boards, directors, presidents. Everybody wants to make decisions. You have a finance committee that actually has to bless off on the money. All that was going to be taken into account.

Getting back to the why, who’s going to set the standard and why we have to do this, is a lot of it is if I want to compare myself to your company or your organizations that you represent, there is no standard language. I’m literally looking at your numbers as your GL codes, 10,000 to 12,000, and mine are 8000 to 7000, and they’re just backwards so you can’t compare line to line. That’s really dumb because it’s just really easy to get an old chart of account, all the information in there, and re-label it into a new chart of account.

Yeah, there’s going to be some outliers, but you’re going to get 80% to 90% going into a funnel that we wanted to go into. At the end of this, what we’re looking at doing is we want to standardize chart of accounts, GL codes, names. We want definitions and best practices on how to use that chart of accounts. We want rules on applying those charts. This is all part of the NARPM standard. We want to standardize reconciliation practices. We want common industry metrics to include definitions and formulas. We want industry studies we focus around the NARPM accounting standard to produce acceptable and common ranges for company revenue and expenses.

What all that means is really straight off the presentation that we put in front of NARPM. I’m showing up the paper so that we can see it. If you can see it, that’s straight off of what we presented to them. Wholeheartedly, they all said, “This is a great thing. We need to adopt this. What do we do next?” To their credit, they allowed the committee to be formed. I’m the chair of this committee, and we had eight members on the sub-committee, and two of them are CPAs.

Jason: Nice.

Brad: They’re pretty high-level folks. I don’t need to drop names because I’m going to forget somebody and offend somebody. Let’s just say there’s a lot of really good, solid, current professionals in that group that we’ve been bouncing this off them for several months. We organized this, put it in front of NARPM, and said, “Hey, we want to get this particular thing done,” and then we went to a vendor. The vendor that we chose was ProfitCoach.

ProfitCoach is Jordan Muela and Daniel Craig. They’re super sharp because at a prior conference, they put on a drill. They went out and put 50 companies’ books together, and it took them 1000 man-hours to do this for 50 companies. Not 500, not 5000, but companies that took them 1000 man-hours. Clearly, it was a nightmare because we couldn’t compare apples to apples. I know that’s a used saying that everybody hates, but people could not compare one to the other.

They recognize this. We went to them and said, hey, we have a NARPM accounting standard that we want you to do. Essentially, what we’re going to be basing it off of is the GAAP. The GAAP is the General Accepted Accounting Practices or Principles, whichever you want to find in Wikipedia. That’s what all the CPAs, all the accountants have to abide by, is the GAAP. As a play on words, we’re calling this particularly new initiative the NAAP, the NARPM Accepted Accounting Practices or Principles. Again, you can use those different practices or principles depending on what definition you want to take.

The NAAP standard is going to set that standard for the industry. Once this is fully adopted, brushed off of, and looked at legal, and all the checks are going on, it’s going to be adopted. Now, it will not be a perfect solution upfront. Everyone’s going to have to know that, but it’s going to be at a point where we can modify it, and fix it, and make it better year after year, after year to where it just improves itself forevermore.

Where we are right now, it is November of 2018 if I have that right. I’ve got a lot going on–we’re getting ready to do a presentation with the NARPM board next month, December. That presentation should shore up most of what we’ve got done with the ProfitCoach putting this all together. Then, at that point, NARPM should be ready to adopt this sometime in the first quarter. They’re even talking as soon as February, getting ready for the Broker/Owner Conference

That’s part of the system to get it adopted. Of course, we’re going to have back-and-forth iterations, and there’s going to be some changes, and everyone must understand the definitions, and it won’t be a perfect solution. Everyone’s got to understand that it’s not going to be 100% solution because I looked at it initially and I had five gripes already, and that was just me. ProfitCoach, to their credit, listens to us. They listen to the board. They make some tweaks. I’m only one person, so imagine releasing this to 5000. They’re going to come up with a list of 500 gripes, and that can be taken into account.

From what I understand with NARPM, they’re going to adopt this as a value add for free to the industry. I hope nobody holds me to that because I don’t know for sure, but the last conversation we had is they were going to push it as just part of the membership, just a thank-you for being members of NARPM. Here’s everything you need to include your chart of accounts, your definitions, your standards, your metrics, everything you need to do a bunch of different things.

One of the things we really didn’t touch on is, on the adoption side, once NARPM adopts this, they’re looking at doing their training sessions at the Broker/Owner Conference, the national conference, state conferences, local conferences. They’re going to have their own training initiative with this to be ever more popular. It’s going to be evermore to where it’s not a mandated thing. People need to understand this: They’re not forcing you to adopt these standards.

If you want to do studies with a pencil and crayons, go ahead, but if you want to compare your business to other businesses in a legitimate format to where we can actually speak the same language, this is what people are going to want to adopt, and it should be released sometime in the first quarter of 2019, and it’s going to be a first iteration. We’ll train on it, we’ll take feedback, and we’ll improve on it.

Jason: Will there be a designation or a certification that a company can achieve to showcase that they’ve adopted these best practices in accounting?

Brad: Great question, and we don’t quite know yet because we’re still working with NARPM on that. That idea of creating a designation, I think, is fabulous. I really do like that, especially on the company level. I think that should be something that we could or want to implement to show everybody that we have a standardized chart of accounts, a standardized method of accounting, a standardized method of reconciliations.

If anybody standards accounting and how screwed up it is, would be me. I don’t understand accounting. I’m a horrible accountant, but I’m going through some of the worst stuff right now with my business because we’ve had a large loss. This is basically from an embezzlement of a prior employee. Now, I’m not going to be getting into it in this podcast, but I can just tell you from firsthand experience, had we been on a more regimented system…

Jason: It’s common. In a lot of businesses, that’s common that it happens, embezzlement. Often times, it’s the CFOs or the financial people that are most closely involved.

Brad: Here’s the thing on that exact comment, Jason. Everyone that’s listening out there right now, when they hear the word “embezzlement”, they all assume, “I can trust my person. It’s not going to happen to me. No worries, whatsoever, I’ve got everything covered.” That’s what everybody says, and I would love to choke them right now and just say wake up and hear it’s going to happen to you. People are going to somehow at some point steal from you as a business owner because, once you start to get large and those seven figures start to grow in your business from $500,000, to $1 million in revenue, to a couple millions of revenue, and you keep going up, those big giant numbers start to really attract people as ways that they can get away with things. As you grow in scale, the owner can’t keep an eye and micromanage everything, so you just have to make the assumption that you’re going to be stolen from.

Jason: The car you don’t see is the one that hits you.

Brad: Getting back to the NARPM standard here, I’m very excited about this, and I’m going to give you some examples of how we can best use this. For example, if you and I were talking to define vacancy, this could be a knockdown, throw-down fight just to define vacancy. What is a vacancy? Do you understand there’s probably five or six definitions for vacancy that I can come up with right now? All of them could be different.

Jason: Give two examples for the listeners so they get this.

Brad: Does vacancy mean only when rent is being collected? That’s one of them. Vacancy could mean when there’s no tenant or owner occupying a home. Vacancy could mean anytime between the tenants because that could be a vacancy, but it’s not vacant; it’s under a lease agreement even if they overlap. People, when we start talking about one word like vacancy, they can have three or four definitions distinctly meant for their business. That’s what this is meant to define, stuff like that.

Another one would be client acquisition cost. That’s another favorite. You hear that thrown around a lot. What is the client acquisition cost formula exactly? If you and I start talking about client acquisition cost, my definition is different because I include my overhead: my pens, my pencils, my toilet paper, my notepads, my office space, et cetera. Others would only include their leads and their business developed. That’s it, and that’s where there’s a big discrepancy there as far as your client acquisition cost.

That’s what ProfitCoach is doing, is they’re defining those types of metrics, client acquisition cost, profit per unit, numbers of home managed. There’s all these different definitions that they’re coming up with and putting it on paper so once we start to apply these definitions, when you and I have a conversation at a bar someday at a NARPM event or one of your conferences, you can say, “Hey, Brad, what’s your client acquisition cost?” According to the NARPM standard of accounting, my client acquisition cost is $605, and you’d say, “Wow, that’s really good.” Okay, great. Mine is $405, and we’re calculating it exactly the same.

Example three, and another good one: On a chart of accounts versus everything else is a leasing fee versus a leasing commission. In your head, you’re thinking, what’s the difference? Is there a difference? There probably is because somebody has been only using the term “leasing fee” to an owner versus “leasing commission” to a tenant or a tenant’s agent. Do you understand? We’re trying to define those now, and it’s been very difficult, but I think we’ve got a very good handle on it.

Those are just a couple of the deep-down reasons why we’re doing this because we want to standardize general lists of accounts, of course, and we want to be able to define those terms that mean something to us. You’ve been in NARPM events and you’ve talked to people that say they have 10,000 billion doors. Okay, what’s your profit? Well, my profit is this.

Jason: They’re making $400 a year a door or something.

Brad: It just doesn’t make a lot of sense, so they’ve gone down to that granular side and given you the capability of telling you, okay, we can include maintenance or not include maintenance. We can include sales or not include sales. That’s a different term. What’s your profit per unit, excluding maintenance, excluding sales, Jason? What’s your profit per unit? What’s your PPU? which really the bottom line in my head, is profit per unit.

My profit per unit is only $5 a door per month, but we make all this in commissions and we make all this in maintenance. There’s a lot of folks that justify not making a lot of money on the management side because they’re making a lot of money in the other ancillary businesses, which I think is great. I’m not knocking that, but it’s nice to understand that, and that’s a big part of it. Common language, adopting industry standards, we compare metrics. We cannot forget the fact that we can now look at an acquisition in a different light. That’s a big part of it.

If you’re going to go acquire or be acquired and if you are on the NARPM standard, you’re going to be looked at a lot more favorably because you can now compare their numbers to your numbers in a very quick fashion. Part of it is once we start getting this really rolling, our dataset will go from 50 companies like what we had. With ProfitCoach last year, 50 companies is all we could do. What if we quadruple that, expand it, 500, 1000, where we can put quickly put it into basically an algorithm, a metric, a spreadsheet?

They send me your numbers and it uploads into some sort of automated system and, now, all those industry-wide metrics are being compiled, averaged, spun, and you know all the different deviations you can get inside those metrics. If you can put it into all one-coded format, that can be quickly compiled and put into something that we can all use. That’s a big part of it, too, is sometimes you see somebody’s studies, and they give you these numbers, and you’re like, what the F am I going to do with that number? I don’t know what that means to me.

You can tell me the cost of blue pens is $10 billion and I’m like, great, I don’t care about blue pens, I don’t. Are you telling me what the cost is? Okay, good for you. It’s great that you can compile the information. I don’t understand what a blue pen is so I don’t care, and that’s sometimes what you get in some of those studies.

Jason: I can tell you’re passionate about this, and that’s great because if somebody’s chairing this and pushing this forward, they should care as with any initiative. This reminds me of something of I’ve heard somebody say about statistics, which is it’s lying with numbers. I think sometimes in the business, we can lie to ourselves with numbers. We can say what the amount of money we’re making per unit is. “I’m getting all this maintenance,” or, “I’ve got this,” but they’re not focusing on maybe the core product and are they profitable there or making money there.

I love the idea of creating this language of communication that allows acquisitions to be easier. Now, how difficult would it be do you think if, say, somebody was on this system? They are a NAAP standard company. They’re looking to acquire another business. How difficult would it be for that business for them to say, “Here is the standard we need you to get your books in alignment with so that we can have a conversation about acquiring your company.” How beautiful or difficult would that transition be for them?

Brad: That’s not going to be that hard at all. You could easily pay a consultancy to come in and do it for $500, $1000, $15,000, whatever they charge. It’s just a little bit of groundwork to take one line and put it in the other, and then any deviations outside of that can be talked through with the business owner. “You have a GL code for blue pens, Mister Owner, and I know you love that geocode for blue pins. Where do you want that to be combined into? What bucket do you want that to go into?” and that can be rolled up into the buckets.

Now, the same goes for anybody who wants to create their own GL codes because we’re giving buckets out. The buckets are going to be there. Management fees are going to be in this bucket, maintenance fees in this bucket, et cetera, and there’s going to be plenty of room to create Geocode 1005, and that’s going to be a blue pen geocode. I know I use blue pens, but I’m just trying to give you a point. Anything you can think of in a deviation side of geocodes can be added in there because there’s rules for that.

Understand this: There’s rules for that. All the buckets still equate to the same accounting standard across the metric side. If you lead and comply to that, all of our numbers should match up. It can be broken down in a thousand different ways. Your management fees at the very top can be broken down a thousand different ways if you want to break it down to the miniscule, but it still goes to the top line. “What’s your Line 4000? Line 4000 on our side is X, and it’s X for you.” That’s our talking point. Anything below that all totals up to the top, so you’re still speaking about Line 4000 at the same level. Here’s a good saying about statistics, did you know 87% of statistics are made up?

Jason: I’ve got this brother who has a PhD in finance. He went to Brandeis and he’s an educator now. What’s funny is he realized he loves numbers, he’s a really smart kid, and he realized that in high school that he could just make up a statistic and anything or a fraction or anything like that using numbers, and people will just believe it. He would just test people. He would say the most outlandish things. Just for kicks, he would go to somebody and say impossible numbers. He would say, “Nine out of seven brush their teeth with something other than toothpaste,” something really random, and they would go, “Really?” He’s sitting there going, “Did you not hear what I just said? Did you hear that that’s not even possible, nine out of seven?”

People would just abdicate any decision-making instantly and say, “Oh, it must be true,” and I think that’s a danger that happens inside of a business when we feel uncomfortable with numbers or we feel uncomfortable with the financial side and somebody we put in control of this because we want to just get rid of it and get it off our plate. It puts us in a dangerous situation.

Connected to all of this, in my eyes, the way that this is really going to be successful in the long run is there probably does need to be some sort of designation or certification so that people can put that stamp or seal on their chest, saying, “Our company has done this. We’ve got this.” Then, I think, also, some sort of certification, or stamp, or seal of approval that accountants can achieve that want to be affiliated or serve the property management industry as vendors that would be connected to this might make sense, like they are a NAAP-certified accountant. I think that’s a game-changer.

Brad: Tying into that, one of the initiatives that ProfitCoach is working on–and I don’t know where they stand in this point–is to get Intuit involved with standardization. Intuit is QuickBooks. One thing I should have explained in the very beginning is this standardization is for all the different software you can think of that you want a name to manage or properties inside of X software, and we could probably rattle off five of them, and QuickBooks.

I think you’re saying the same thing, but all those together should talk to each other. You can use this for managing of the homes and managing of your business, so they do work well together. That’s the design. It’s meant for the entire umbrella of your business, not just the homes, not just to profit and loss of your certain accounts; it’s meant for the entire thing that you run, and it can be applied to 10 different other businesses.

If you have ancillary businesses like a maintenance company, with the same type of ancillary business, you can put that GL code straight onto your maintenance company that applies. Management fees won’t apply, but a lot of those other things would on a P&L for a maintenance company. You can easily compare line for line from your maintenance company to your management company, and so on and so forth. There could be a real estate brokerage in there that you have. Some people can do title companies like you all do in California. You can do closing of escrows. There’s all kinds of ancillary businesses that can be added onto the GL code list, and that’s going to be really neat to see people compare.

I can’t stress enough the acquisition side. That is giant. Everybody I’m talking that talks acquisitions, they hear this and their eyes just get huge because they know their life has just potentially become so much easier because if they can go in and either look at somebody who’s already on the NAAP standard or put them on the NAAP standard, that’s going to make them comparing and valuing that company easier and better.

Here’s what a little side-effect is, if you forget everything I said, by going on the NAAP standard, the NARPM standard, this will raise the value of your company because, essentially, what’s this going to do is raise the value of everybody’s company that’s going to adopt this because it’s going to make their numbers easier to read, it’s going to document them better, and it’s going to get you a higher multiple. When that starts to happen industry-wide, you’ll start to see the multiples of management companies increase, and it all starts with the NARPM accounting standard.

I know that’s really pie-in-the-sky stuff, but I totally see that happening, and maybe you can, too.

Jason: Yeah, it makes perfect sense. Related to that, how much of this is controlled by ProfitCoach or controlled by NARPM? Because I think some people would have concerns. Here’s a for-profit entity, here’s a non-profit entity, and who’s really in control of the standard, who is going to be able to trademark this, and how free and open will this be?

Brad: NARPM has hired ProfitCoach. ProfitCoach’s a vendor. Everything that they do will be turned over to NARPM, and it’s all NARPM’s property. I think they’re going to release it as a value add for free so it won’t be hard to get, but I also think that they’re going to continue to engage with ProfitCoach on an annual basis to improve, tweak, train all those different things that you can talk about. They’re going to want to be able to come in and do classes. They’re going to want to be able to update the NARPM standard. Here’s NARPM standard 1.0. The next year is 2.0, and you start going to where it’s always going to improve every year.

I don’t think we’re just going to be able to set it and forget it. I think it’s always going to need to be tweaked and trained on, and that’s what we want. We don’t want to change a lot of definitions from year to year, but what we do want to do is improve it. It’s not an overly-expensive venture to do this. Somebody just has to sit down and do it. NARPM’s got to adopt it, which I believe they will with no problem. They ponied up the money to get it done so they’re going to want to adopt it.

Once it starts to get released, people will just naturally want to get into it. Again, I don’t think it’s going to be that hard to transition your current books into the NARP accounting standard. You’re changing some geocodes. Yeah, there’s a little bit of work. Yeah, there’s a little bit of understanding it, but once that’s done, all the definitions come out of those formulas. That’s the cool part, man. If you really want to ask somebody what’s a client acquisition cost, for example, going back to that, once you put that into the field that it belongs in, that’s all formula it just all spits out at the end. You’re taking X divided by Y equals something, and that’s, across the board, the same. That’s what it is.

Jason: I love this also for NARPM because this increases the value of having a NARPM membership. It increases the value of being associated with NARPM. It increases the value of having a business that is connected to this by having this, and I believe that helps the whole industry and sets a higher standard for the industry. I believe the property management industry doesn’t have a great reputation as a whole right now.

The whole industry is caught in the cycle. It’s in hell, basically, and I think a rising tide raises all ships, but I believe, in this industry, the tide is so low, there are ships sitting on rocks right now. They’re sitting in the sand, and they might have big, gaping holes in them accounting-wise, like we’re talking about, or customer service-wise, or in a lot of areas. I think a rising tide won’t raise every ship. Some ships are going to sink or they’re going to have to pass some freaking holes on their ship.

I think this is an opportunity. If we can raise the sea level, if we can raise the tide, the best property managers are going to win. It’s going to up-level the entire industry. It’s going to set a higher level of standard. It’s going to earn the industry a lot more respect as an industry and as a whole, and I think it’s going to squeeze out some of the companies that are not willing to get on board, not willing to do things like this, not willing to shore up the leaks and holes. They’re going to sink, and they’re going to sell off. Who knows? Maybe right before they sell, they will go do the NAAP standard in order to get their business sold for a better multiple.

Brad: Yeah, it totally is. There’s a couple of things I want to mention real quick about the NARPM release of it, is it’s really going to benefit the startups. Some of the old players, they might look at it like they don’t need it, they don’t want it, they know everything, but the startups coming in will adopt it because that’s easy, too. Here it is. It’s in front of you. Just adopt this. How many homes do you have under management? Five? Good, do it now. It’s very easy versus 500 or 5000 doors.

You’re going to see that in 5, or 6, or 10 years. This will just be “the wait”. This will be the road. No one’s going to question it because everyone’s doing it in front of them, it just seems so much common sense. The other part that I want to talk about is audits. If people can start getting on the same page with their financials–and California is notorious for this–they’ll be walking audits in you guys. If you have a system to get easily pre-audited by somebody on a yearly basis because you’re on a standardized format, they could make your pre-audit or even your audit that much less painful than as if you just had jumbled stuff every which way.

Jason: If you know that things are on point with your accountant, with your books, with everything, it provides this level of confidence, and safety, and certainty. If somebody comes in to audit your business, you feel a lot more comfortable, and you’re going to be able to weather that a lot stronger. You’re like, “Hey, we’re on point. We’ve got this taken care of.” When somebody goes to purchase a company, they want to see that everything looks healthy, and make sense, and is shored up. Yeah, I see a lot of benefits to this.

Brad: I’ve got a good list of example metrics they’re going to be coming up. Do you want me to read off some of these to get you really fired up?

Jason: Yeah, let’s bounce them off, and then we can wrap it up by talking about how do people support you in this or get on board with this.

Brad: Sure. Really quick and then we’re going to wrap it up: growth metrics, cost relieved, customer acquisition cost, customer acquisition cost with sales, unit term, customer lifetime value, customer lifetime profit, customer lifetime profit before marketing, customer lifetime profit before sales and marketing, time to pay back in months, a lot of these productivity metrics, labor efficiency ratio, direct labor efficiency ratio, management labor efficiency ratio, revenue metrics, management fees percent of revenue, leasing fees percent of revenue, renewal fees percent of revenue, application fees percent of revenue, expense metrics, direct labor percent of revenue.

It goes on and on. That’s just a couple I wanted to throw out there. You might have heard of that and just caught one of those and you’re like, “I don’t know what that is. What is that?” and that could be good because, then, you can learn about it or learn how to compare to other companies in the industry to see where you are. It’s not necessarily going to be a good or bad indicator; it’s just going to be, “Hey, I know my client acquisition cost is high, and I’m cool with that,” or, “It’s low, and I’m cool with that. I get all referrals.” At least you know.

Jason: I think the key magic in that is contrast. That’s something, as business owners, we need. Whether we’re high or low or how to gauge things, it’s hard to even know unless we have at least two or three examples and we’re speaking the same language. Just being able to create contrast is going to cause a big benefit. I love that idea. I’ve noticed that, with clients, they were so few calculating their acquisition cost with their lead-gen efforts, and so they were doing all this cold-lead marketing.

I just created this calculator that will help them calculate their acquisition cost, including how much time they were putting into that themselves or their salesperson was contributing into the effort of closing and following up and selling on cold leads, and then we would calculate and have them factor into what’s the hourly wage that they would attribute to themselves, or the BDM, or whoever, and put all of that together in one cost.

Just them seeing that created so much transparency or contrast that they were able to see that, “Hey, we’re getting the majority of our deals and leads through word of mouth, and we’re spending all of our money, and time, and energy on these cold leads.” I have one client come through this that recognized he was spending $1700 or $1500 a month on SEO, and he could attribute to getting leads and deals. He was attributing maybe a deal every other month that he could actually link to his website or to that, but he said he was closing five or six deals a month.

I said, where are those coming from? He said, “They’re just word of mouth. They just were referred.” He was spending over $3000 on average for one acquisition just based on that to get on a deal, and I said, why are you doing that still if it’s not giving you that return? He signed up the next day. Sometimes, we just don’t see things because we’re not looking at it. I think by having all those numbers that you were listing, they can suddenly see things they couldn’t see before so much more clearly, and they can start making some healthier decisions. That would change the entire industry.

Brad: Yup. They’d make good, strategic decisions on hiring, firing, making different markets, adding different fees, all kinds of stuff they can go into. It’s really a great way to keep track of your business. To shore this up, give me the last word. If anybody wants to get the updates, I’ll be posting them on the Property Management Masterminds Facebook page so they could join that group along with your group, which I’m sure most of your listeners are already by this point.

We’ve got a lot of cross-talk there so I think it’s a good complement to each other on both groups. That’s where we’ll be posting the updates. Pay attention to NARPM. In the next first quarter of ’19, we’ll see things come across, things being flashed up there, and I expect it to be released here fairly quickly the first or second quarter of ’19. Man, that’s going to be a game-changer. I’m so excited to get it done in the industry, get it implemented into our business, and really start to see the positive effects of it.

Jason: Awesome. Brad, this was really interesting. It was fun to converse. This is right in line with our vision to transform the industry, and so I’m excited. Keep us updated and posted, and, like Brad said, check out the Property Management Masterminds group on Facebook, and make sure you guys stay abreast as to what’s going on with this NAAP standard for NARPM. Awesome, Brad. Thanks for coming on. I appreciate you.

Brad: Yeah, like I said, take care, man.

Jason: All right. There you have it, Brad Larsen dropping some knowledge on the future of accounting and property management. I would encourage everybody to support that effort, and I think that would be phenomenal for companies to get on the same page. If you are a new listener, make sure you subscribe to us. If you’re listening here in iTunes or if you are watching this live, then we appreciate you watching us.

Make sure you are inside our Facebook group, which is the DoorGrow Club. We get between 15,000 to 20,000 interactions in a single month. It really is quite ridiculous, the engagement level that we have in there, and we only allow the property management business owners and entrepreneurs to get into that group. They have to be entrepreneurs in the industry, and we make rare exceptions to that. Make sure you get into that group. You have to apply to get in.

We have a conference coming up. By the time this probably airs on iTunes, it is already gone and done with but, if you are listening, make sure you get this tickets to DoorGrow Live. This is going to be a game-changer, a new type of event for the property management industry, really focusing on entrepreneurs and on growing and scaling businesses, and the future, I believe, of what’s going to come in the property management industry, the surge that I believe is about to happen. We want you to be a part of it so join us at DoorGrow Live. You can check that out at doorgrowlive.com.

Thanks, everybody, for watching the DoorGrow show or listening. Bye, everybody.

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