Where Is Your Wealth?

"The best time to plant a tree was 20 years ago,
the second best time is today."

 - Chinese Proverb

Great information from a study done by CNBC on the lack of financial planning and succession planning by small business owners.

Take it to heart and remember what Greg Crabtree says:

"You cannot build wealth without paying taxes, so don't spend a dollar on something you don't need in order to save 40 cents."

In other words, has your CPA ever advised you to "invest" money in something for your business at year end to reduce your earnings and save taxes? Think about it, was that new vehicle or computer absolutely needed, was it a good investment for the company, did it have a good return or was it what Greg says above - spending a dollar to save 40 cents.

Only 4% of small business owners build enough equity in their companies that will fund their retirement. 96% end up locking the doors and selling the assets. Few get what "they think" the business is really worth. All that money invested in the business and little or no return.

Read on and see why every business owner should be building wealth and diversifying the investment of that wealth as they go along. 

Small-Biz Owners Don't Save Enough For Retirement: CNBC/FPA Poll
By Lori Ioannou, Senior Editor, CNBC.com

Business owners are shortchanging their financial future with a lack of focus on retirement planning, reveals the first CNBC/FPA Small Business and Financial Planning survey.

America's small-business owners are wealth builders, driving GDP and job growth. But when it comes to their personal finances, they get low marks in asset diversification and retirement planning. That's because the vast majority of their invested wealth is tied up in their businesses, a tactic that is shortchanging their personal financial futures. These findings were revealed in the first CNBC/FPA Small Business and Financial Planning Survey, released today.

The survey, conducted in conjunction with the Financial Planning Association, sampled 178 financial advisors nationwide that service small-business clients ages 35 to 70.

A whopping 70 percent of small-business owners' wealth is invested in their business, and only 30 percent outside their firms, according to the survey. Assets they are investing in are stocks (89 percent), real estate (64 percent), bonds (63 percent), commodities (19 percent) and other sectors.

Jason York | iStock | Getty Images

The most pressing financial challenge facing small-business clients today is developing a retirement plan and exit strategy (42 percent). That's followed by managing cash flow (23 percent), business tax issues (14 percent), health insurance (6 percent) and raising working capital (6 percent). Other issues cited include growing revenues and succession planning.

Despite these concerns, less than one-third of small-business clients worked with their advisor on a business plan, the CNBC/FPA survey revealed. Of those that do, only 25 percent met with their advisor to review their plan quarterly. Seventy-two percent met with their FA annually.

Among those that have retirement plans in place, the most popular vehicles among small-business clients polled are profit sharing 401(k)s (54 percent), followed by SEP IRAs (19 percent) and SIMPLE IRAs (12 percent.)

"Small-business owners are very myopic and tend to focus on the viability and growth of their business, ignoring much else, including their long-term financial needs," said Michael Branham, a certified financial planner who is chairman of the FPA and president of Cornerstone Wealth Advisors in Minneapolis, Minnesota, a firm with about $200 million of assets under management that services small-business owners. "There needs to be balance between their personal and professional money goals."

Leslie Beck, a certified financial planner that runs Compass Wealth Management in Maplewood, New Jersey, a firm that services small health practitioners and other small businesses, agreed. "Most of my clients have their business and personal finances so intertwined they cannot untangle what is what so they can analyze their broad financial picture."

Work-Life Financial Balance

Neglecting a personal financial investment strategy and just plowing money into a business is fraught with risk. "It means the only way to fund retirement is to sell and cash out," explained David Yeske, a principal in Yeske Buie, a financial advisory firm with offices in San Francisco and Vienna, Virgina. "There is always uncertainty on how successful the owner will be in finding a buyer at the right price. If he or she dies before this is accomplished, all can be lost."

The CNBC/FPA survey highlighted that most advisors servicing small-business owners had the same concern. Over half of the respondents, 54 percent, felt their small-business owner clients did not have enough protection against financial risks, and 19 percent were not sure. Twenty-eight percent felt their clients were well protected.

The immediate risks involve the owner's disability or premature death, which would leave the businesses subject to liquidation at fire-sale prices, or possibly dissolution, leaving the owner's family with little or nothing.

Crafting a Grand Exit

To mitigate risk for small-business owners, financial advisors are using an array of insurance products, the survey showed. Disability insurance was employed by 81 percent of respondents, followed by liability insurance (73 percent), key man insurance (70 percent), health insurance (63 percent), property/casualty insurance (56 percent) and business-interruption insurance (37 percent).

Despite this fact, 47 percent of FAs who took the survey noted that only up to 20 percent of their clients had any succession plan in place to ensure a smooth management transition.

This is a hot-button issue. "It's hard for a business owner to think about turning over the reins of the business to someone else," said Cornerstone Wealth's Branham. "Their personal identity is tied to their company. As a result, they don't adequately prepare an exit strategy."

According to the survey, 31 percent of small-business owners say the biggest hurdle they must overcome when creating an exit strategy is finding a buyer. Other major concerns: valuing the business (23 percent), the emotional toll (21 percent), determining what to do next (13 percent) and figuring out retirement (8 percent).

Financial advisors who participated in the CNBC/FPA survey pointed to three key initiatives small-business owners and their financial planners should follow in order to secure their financial future.

1. Diversify. Work to reduce dependence on the eventual sale of the business to fund retirement. Instead, strike a balance between reinvesting all profits in business expansion and diverting some funds to other investment assets.
2. Prepare for the worst. Protect your family and your business assets by buying insurance that covers the business owner's disability or premature death.
3. Plan for succession. The time for a business owner to start developing a succession plan or exit strategy is from the first day the firm is launched. That's because a well-designed strategy-including grooming the right individuals for succession-may take years or decades to implement.

The good news is, there is usually a fallout benefit. As Yeske pointed out, "Having a smart exit strategy boosts the odds of a small business's long-term success, since it guides the founder on how the business should be properly structured and managed on a day-to-day basis."
 

All the best,

Rick Wallace

The Real Work

"People who have too many distractions to actually do any real work are in that bind because they haven't invested enough time, effort or risk in their people, their organization and their processes."

 - Seth Godin

 

When you break it all down to the true essence of what it takes to build a great business it comes down to the following:

1. The owner/leader/coach focusing on the right things. The essentials, the "on the business" things, the "real work" that builds and leverages a great team who will deliver and serve the customer in remarkable ways.
2. The constant recruiting of a virtual bench of 'A Players' who are there to be called into the game when needed or necessary.
3. A rhythm in the business - a process or series of habits that include Team Huddles and Weekly Coaching Conversations to ensure alignment, motivation and maximum productivity from the team and an entire company that follows through and executes.
4. Goals, Core Purpose, Core Values, Tactics and Strategy - documented, tracked and communicated weekly.

The Leadership Matrix, is a 9 step process that is the blueprint to ingraining the 4 essential items above into your business. Watch this 45 minute presentation, it will be "real work" that you can leverage to improve your company.

All the best,

Rick Wallace

There's Only ONE Thing to Do

"Half of the troubles in our lives can be traced to saying yes too quickly

and not saying no soon enough."

- Josh Billings

 

What is essential? No - really essential? We believe, falsely, that more is better. We need to do more in our life and our business to succeed. We need to do everything and do it at the same time to get it all done. It is a lie, it is a false belief.

What really works is less but better! Seth Godin says, "if you want to be the best in the world make your world smaller."

Greg McGeown in his book Essentialism says "saying no to people is awkward for a few minutes but saying yes to every request will be a problem for weeks, months and even years down the road." He advises us to do less but better. You will be shocked how people respect you when you say no, politely.

Here is Steve Chandler's take:

 

"And that is the thing I have chosen to do right now.

If I do it as if it's all I have to think about, it will be extremely well done and my relationship with that person will be better and even more relaxed and full of trust than before.

Because a careful study of my past week shows me that I did a lot of things last week and they all got done one thing at a time. In fact, even in my busiest time ever, I was only able to do one thing at a time, even though I stressed myself and other people out all day long by always thinking of seven things at once....so when I talked to you all I could think about was the seven other people I needed to talk to....so all seven people felt that stress and that lack of attentiveness....that absolute lack of warmth.....doing more than one thing at a time produces fear and adrenaline and anxiety in the human system and people pick up on that.

 

The mind entertains one thought at a time, and only one.

The greatest cause of feeling "swamped" and "overwhelmed" in life is caused by not knowing this." 

Don't Worry, Be (Happy) and Actionable

"It's so hard when contemplated in advance,

and so easy when you do it."

- Robert Pirsig

 

From Steve Chandler:

"A foolproof piece of advice for the chronic worrier: and I promise you this will work.  For the next two weeks, take immediate notice of every time you worry.   

When you catch yourself worrying --- take an action.  Any action, but make sure you take one. Do something. Anything. And remember, you must do something every time you worry.  This is a great way to train yourself not to worry. Especially if you hate being in action. 

The truth is not that I worry because I care.  The truth is, I worry because I am in the habit of worrying. If I really cared that much, I would stop worrying and take some action.  

 
I worry in order to do nothing.  Doing nothing about a problem soon becomes the problem.  I'm not taking any shots at this thing, and, like Wayne Gretsky said, you miss one hundred percent of the shots you don't take."