3 Key Steps for Financial
Success: Part 3
May 2010
How close am I to financial
independence and what should my action plan be for getting
there? These are two common questions I’m asked by
new clients at my wealth management firm. When you lack
a road map for implementing your plan, you can’t answer
either question.
Do you know how close you are to achieving financial independence
and having the ability to stop working if you wish? Are
you a quarter of the way there? Ninety percent there? Are
you taking the most direct route? If you were planning a
trip from New York City to Washington, D.C. you’d
recognize that going through Ohio would not be an effective
route. You need to select a sensible path to achieve your
financial goals and set landmarks to help track where you
are in your journey. Unfortunately, that’s not as
simple as going to Mapquest.com.
Working with your wealth advisor — who should also
be a CPA — map out exactly how far along you are today
on the road to financial independence. Together, you should
identify and write down what actions you need to take to
build your wealth to achieve your goal. These should be
steps that are specific to both your personal financial
situation and to that of your business. Your action plan
should include counsel from your wealth advisor about what
things you need to look out for — at home and at work
— that may be a drain on your financial future. A
competent advisor should counsel you on how to plug these
drains on your wealth.
One Road Map landmark for the business owner
Owners of privately held businesses have an additional
factor that affects building their road map. A key required
element for building a financial planning road map for a
small business owner is knowing what to do with the business
upon retirement and how to do it. When an employee retires
he leaves the business he worked for behind. Not so for
the owner of a privately held company. Selling or passing
on the business is a key landmark within the road map of
a business owner. But if he hasn’t made a decision
about the fate of his business any financial planning work
he has done remains incomplete.
So, with these clients I listen to learn their wishes. Some
may want to sell. Others may want to leave part or all of
the business to one or more family members, some of whom
might be too young or inexperienced to run the company at
the time of the owner’s retirement. All of this needs
to be looked in to. In some cases, estate planning and establishing
trusts may become part of the business owner’s financial
action plan and road map.
The first step, however, is to determine a valuation for
the business. Surprisingly, many small business owners do
not know what their businesses are worth. So, one of the
first action steps I recommend to them is to get a valuation
done on their business.
Once a valuation is completed and we know what the business
is worth I can combine that asset value with the other assets
of the business owner to determine where we are along the
way toward having his wealth meet the amount needed to achieve
and maintain financial independence. From there we can run
some numbers to determine the next steps he needs to take
to reach, and then maintain, his financial independence
wealth goal.
Would the business owner want to sell his business immediately
if it made him financially independent or if he would rather
stay in the business because that is part of his life that
he enjoys? This, too, affects how we build the road map
and the landmarks we establish as guideposts to track how
far we are on the wealth building journey. So, if the owner
wishes to stay in the business longer, for example, I may
come up with ways to pull cash out of the business, while
he continues to be the majority owner, to get him to his
wealth goal. Whatever strategy we choose to use to pull
cash out of the business and into his personal finances
would be listed as an action step in his financial plan.
New second home changes Road Map plans, but that’s
OK
A couple who was two years away from achieving financial
independence according to their financial plan decided they
wanted to buy a second home in another state; a condo on
a golf course that was selling at half the price it sold
for three years ago.
Before going ahead they came to me to learn how far off
track this home purchase would take them from what we had
worked out together in the financial planning road map they
were following with me for reaching their specific accumulated
wealth sum.
Running the numbers I was able to show them how it affected
their journey. The down payment, new expenses and diminished
contributions to savings was going to put them off achieving
their financial independence by six years instead of two.
The couple was able to accept the change in their road map
and, if the real estate market recovers during those years
and they can convert some of their equity into cash flow,
they may be able to reduce the number of years it will take
to achieve financial independence.
As a wealth advisor we look at every significant financial
decision clients have to make to see how it could affect
their journeys toward achieving their specific dreams and
goals. But we couldn’t do this if a client lacked
a financial plan and a road map for achieving it.
Steps to Success
To recap, here are three steps to put you on a clear road
toward wealth management success:
To recap, here are three steps to put you on a clear road
toward wealth management success:
- Establish goals and determine your
specific numbers.
- Put your financial plan in writing.
- Construct a road map in your financial
plan that guides your wealth building journey and tracks
your progress. (This includes creating a timetable to
complete the action steps necessary for the business to
achieve your needed numbers.)
By following these steps you won’t
fall prey to practical financial planning obstacles and
you’ll become more successful in your efforts to build
and preserve your wealth both at your business and at home.
Guy McPhail, CPA, CFP®
President of Zdenek Financial Planning (www.zdenek.com)
and a personal financial planner, Guy McPhail is nationally
recognized for his expertise in cash flow management and
financial planning for small business owners.
A Certified Financial Planner® professional and a Certified
Public Accountant (CPA), Guy manages the personal financial
planning area at Zdenek Financial Planning, providing clients
with strategic analysis and support in the areas of cash
flow management, business management, tax planning, estate
planning, retirement planning, stock option strategies and
investing.
©2010 FiLife.com |
All Rights Reserved
Guy McPhail, CPA, CFP®, is president of Zdenek
Financial Planning, LLC.
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