Last week we discussed the first two items of an advisor’s end-of-year checklist (see An Advisor’s Year-End To-Do List, Pt. 1: RMDs and Harvesting). Please note that the list is not all inclusive. In this post, we will look at items three and four on the list.
To review, the EOY checklist contained the following five items:
2) Tax Loss Harvesting
3) Examine Budget for Following Year
4) Reevaluate Technology
5) Refine Marketing Plan for Following Year
One of the most important factors when operating a successful independent advisory firm involves managing expenses and projecting revenue. In other words, creating and adhering to a well-constructed budget is of paramount importance. The budgetary process should begin around September-October each year. If your deadline were September 30, then the budget would include a revision of the final three months of the current year and a full projection for the following year. If you have not done this, it would be wise to do so before year end.
Here are some thoughts to consider when creating your budget. We will assume you are using an Excel spreadsheet where each column is a different month and each row a different item. You should also consider having three columns per month, with one for the projection, one for the actual number, and one for the percentage of total (i.e., percentage of total expenses for each item).
The top portion of the budget should contain all business expenses. You might divide these into fixed, variable and debt payments. Another approach is to categorize your expenses. Here is a list of a few expense categories to consider:
1) Office (e.g., rent, utilities, etc.)
3) Supplies (e.g., paper, furniture, etc.)
4) Technology (e.g., subscriptions, purchases, etc.)
5) Employee Benefits (e.g., retirement plan, HSA, etc.)