Outside Economics

Last week I wrote about Leadership and Self Reliance with the idea that this week I am following up with how this works with a particular professional business. First let me explain a little about self-reliance. The idea is for people to become self-reliant or to rely on themselves, their own powers, resources, etc. This does not mean that a person does not use the services of other people, but it means that they have prepared their lives in such a way that those services add value to what they are doing on their own. The concept is the opposite of the entitlement mentality wherein people believe that they deserve something without any effort on their part.

It should be part of everyone’s vision to become self-reliant in this world. I love my children, and I am thrilled at their successes, and I love helping them succeed, I am most proud when they accomplish their goals on their own. Each one is a great person in their own right, some are more self-reliant that others (they are all at different and stages in life where we would expect this). The vision is to help them become self-reliant in their own family unit. That does not mean they won’t need help now and then, it means they are figuring things out for themselves and then seeking help with their own plan.

As a Personal CFO, using the composite leadership principles, over the years I have worked with clients who are chiropractic physicians, (while this works with all businesses in this article I am going to reference chiropractors). I like working with them because, as part of their medical training, they are taught that the body has incredible healing powers on its own, it needs a little adjusting now and then to keep it going. They also realize that other complications arise and a person may need medical care beyond their specialty. The chiropractors I have had the pleasure of working with have a sincere desire to make people’s lives better. They are, for the most part, self-reliant.

In my work as a strategist, helping chiropractors fulfill their vision, often starts with defining what their long-term vision is, (the direction they want to go), complete with all their ideas, which generally goes beyond ten years or more. This may include building a self-sustaining practice that helps patients improve their health. A practice with all the right policies and procedures in place, so if a team member is missing for a few days or out on maternity leave, others know how to fill in. Implementation and monitoring can provide a more profitable stress free practice. After all only when a business is profitable can it continue to provide the services necessary to the public. The vision also includes the most important benefit of all, a quality family life with time for the spouse and children. Remember that ALL businesses are family businesses.

What makes the vision, come about is setting and accomplishing specific measurable goals. These goals are more mid-term in nature answering the question: what specific things can we do to accomplish the vision? The change agent is active in this role, defining these goals and designing measurable ways to accomplish them. Implementing certain strategies to bring about greater success in the practice. In the case with a chiropractor, it may involve additional marketing, to see more people at certain times of the day. Writing the policies that employees need to follow to make that patients receive the level of service and care they are seeking. Establishing an office budget to better manage the office’s financial resources. Designing strategies to minimize taxes. Risk management and how to protect against exposed risks. Many of these goals can be implemented in as little as a few months to a year.

As items are implemented in a manner of priority to the chiropractor, the practice begins to change in the practice and home life. Stresses are reduced as items on the “to-do list” are accomplished. The Manager (in this case the Chiropractor) sees the things that are necessary to accomplish day in and day out to accomplish the goals set. This direction provides a charted course that ultimately makes the practice easier to manage. Employees know what to do in their areas of responsibility as well as understand the responsibilities of others, thereby creating a cohesive team effort.

A challenge that has always occurred is the monitoring of what is happening. Through constant outside monitoring, small lapses are able to be caught and corrected. As financial issues arise they are dealt with right then. Providing counsel at that time is easier than trying to fix a problem months later. We can’t predict the future but we can be prepared for what may come. Monitoring the practice allows the chiropractor to focus more on patient care, which helps the practice become more profitable.

In all of these areas the chiropractor and Personal CFO work closely together to accomplish the vision. It is through long-term goals, mid-term implementation, day to day work and continuous monitoring that accomplishes the goals. Together we are able to review progress, maintain the course, and accomplish the vision. This is how the chiropractor shows leadership in their practice. These principles can be applied to any business that wants to get ahead.

A couple weeks ago I went to a dinner meeting where Dean Lee Perry spoke, he serves as the dean of the Marriott School of Management at Brigham Young University. Moral and Ethical Leadership was his message, specifically, issues around a composite view of leadership. This message was of particular interest to me because assisting business owners and professionals to become financially self-reliant, is what I enjoy most about my work.

The composite view of leadership breaks the rolls down into three separate, but equally important types of leaders: the strategist, the change agent, and the manager. This applies directly to my business of helping small business owners/professionals get more out of their businesses and secure their future happiness by engaging sound financial principles that lead to self-reliance. As a Personal CFO to business owners/professionals I help them find and address the right questions and answers to financial issues they face.

The Strategist

The strategist has a long term view with a vision, typically two to five years out. Some financial issue extend well beyond five years. The strategist works closely with the owner/professional to develop a vision for their business. This is where, for many clients, questions about business planning strategies, income tax strategies, retirement planning or estate planning come into play. These events are usually off in the distance, sometimes so far off that we cannot see them over the horizon, but the date will come sooner than we may think.

What strategies should be employed to make this season of life well prepared for, planned, and most of all enjoyed. The abundant life is possible for each of us; long term planning is necessary to obtain the fruits of our efforts. An apple tree must be planted before we can harvest apples years later.

The Change Agent

The change agent works on more immediate mid-term goals, which are necessary to put the proper habits, tools and mental attitude in place to make the vision a reality. Goals that support the vision in a plan may have a dozen or so recommendations. Together the change agent and the owner/professional work through implementation and continuous monitoring of a comprehensive financial plan. Many goals can be accomplished in a few weeks to two years, each supporting the long-term vision.

Within two to six months most all recommendations of a financial plan are implemented, then the plan is monitored long term. An example of implementation may be setting up a particular retirement plan, or implementing an income tax strategy to help save tax dollars. The change agent’s work may finish in a few months only to start work again the next year as life events, business conditions, the economy, may require alterations.

The goals are best reached with regular monitoring, which keeps the whole plan moving forward instead of operating from financial one crisis to another. Bumps in the road happent, but they are often smoothed out with continuous monitoring and interaction with the business owner/professional and myself the personal CFO. Many issues are easily solved when dealt with immediately rather than trying to fix them after the fact, thus keeping the goals on target.

The Manager

The manager is critically important to the whole process of successfully completing goals and making the vision a reality. (Note: in this case the manager is not the typical middle manager in a company, the manager is the owner/professional.) The manager works the plan minute by minute, hour by hour, and day by day. The position of building profitable efficiencies into the operations of the business, is where the “rubber hits the road”! Particularly in small businesses where the owner may work closely with the employees, or often the case in professional practices, where they may do most all the work.

In a small business the owner/professional is often the manager, change agent, and strategist. The work of doing all three positions affectively is often overwhelming. My practice is centered on assisting the owner/professional with the strategist and change agent positions so they can spend more time focusing on what they are good at: growing their business, providing their customers the best service from the day to day operations of their business, and spending more quality family time.

Working closely with the owner/professional on creating a vision and the goals to accomplish that vision, we are able to make progress towards a life of financial self-reliance. Look for my article next week where I will look at how this works with a particular profession.

A small business owner typically has a relationship with a banker, a lawyer, insurance agents, and an accountant or tax adviser. But what about a wealth manager or what I call a Personal CFO? Further, what is a wealth manager and why would a small business owner want to have one working on his behalf?

In a business a CFO manages the finance side of the business; he will pull the banker, lawyer, accountant, insurance agents, and investment advisor, together on behalf of the business owners and make sure they are all working toward the same goals. A good wealth manager will save the business owner time as well as help him address issues that will create the most value. This is different than a typical investment manager who manages assets such as stocks, bonds, cash and mutual funds towards a specific future goal such as retirement or college funding.

Some areas of focus a wealth manager would address would be a privately-held business, personal residence, vacation property, insurance, loans, taxes, employee benefits, estate planning, investment advisory, cash flow, debt elimination, the needs of beneficiaries and so on; basically anything that impacts an individual's net worth.

A good wealth manager will pay attention to the estate planning, a critical part of a business owner’s conservation strategy; because he knows that the owner’s family is a part of the overall picture and they need to be provided for. If these crucial elements are avoided or ignored, the end results can be devastating to the business as well as the family members.

A case in point that hits home for me, happened with my oldest brother who was an architect. He along with his two business partners owned an architecture firm for over thirty years. When the business was initially set up they put a stipulation in place that would be activated upon the death of any of the partners. It was modified and updated about 35 years into it, however, the modifications were short-sighted and not set up well. Two years ago my brother passed away suddenly, activating the stipulations. Unfortunately, what they had thought was a wise plan ended up not providing for the business or the two remaining partners in a way that would enable the doors to remain open.

A personal CFO could have foreseen the fall-out of the short-sighted stipulations and made the proper provisions. He would have factored in the legal considerations, taxes, accounting and insurance considerations, and any other assets or special conditions that would be impacted with the death of a partner and ensured that the family heirs, business, and remaining partners would be provided for when faced with such a loss.

There are many details that come into play when one considers net worth and the best way to manage it. Business owners often do not have the time nor the expertise to handle all the details well. If a business owner is working 80-hour weeks, how much time can they really spend considering how assets are titled, or whether there are methods of shifting tax burdens to family members in lower tax brackets, or whether there's too much risk in an investment portfolio?

The needs of a business will vary significantly from one business to another. For example, a family farm can utilize a family limited partnership, where a publicly traded tech firm cannot. On the other hand, the shareholder of a publicly traded firm can sometimes gift stock options to an irrevocable trust. There are hundreds of income and estate tax strategies. The job of a wealth manager is to assist in the decision making process so the right approach may be selected for each individual situation.

Besides the varying needs of a business, business owners each have very different wants. Wants, such as what does the owner want to do with his business? What is important to them? Do they want it handed down within the family or do they want the business to go public? How do they create lasting value in the business, so it can be sold in the future? These answers are more about the individuals owning/running the business rather than the economics of the business.

A wealth management strategy cannot be implemented all at once. There are a number of gradual steps that must take place because it is a process, not an event. It takes years for a business owner to build a company, as the company gains wealth, strategies are implemented. By the same token, it may take years to properly enhance and protect that wealth. A good wealth manager will take the time to evaluate all the issues, then he will start with those things that are easy for the client to do. At the same time, a wealth manager should emphasize the strategies that are most critical for the client whether they are easy to accomplish or not.

A Personal CFO needs high levels of expertise and an ability to work alongside other professionals who are currently serving business owner's legal and financial needs. He needs to understand the cash flow of the business, their tax bracket, cash-flow projections, and the risk involved in the business as well as other assets. Business owners will come to value a Personal CFO's advice as they see details of the business resolved and the wealth and sustainability of the business protected.