I got a call the other day from an owner-advisor who wanted me to work with him.
He told me a story about his mother (now deceased) who was a doctor and had selflessly helped many people during her life, including taking in foster children over the years. She’d had little concern for her own happiness, with one exception: She’d bought a beach house where she’d spend time whenever she could. But she’d had to sell it to make ends meet after her retirement.
At this point in his story, the advisor started choke up and told me: “I see this happening to me. I just don’t have enough time to focus on my personal finances, and they’re not in very good order.”
Now, I’m not a financial advisor (although my degree is in financial planning), but I talked with him about the relationship between his advisory business and his personal finances.
It turned out that rather than having a financial plan for either his business or his personal life, he was simply increasing his personal spending, and taking more money out of the business to pay for it. It shouldn’t be surprising that this was creating problems on both sides of his life.
(Related: Zen and the Art of Advisory Firm Management)
The vast majority of advisors who own smaller advisory businesses that I have come across have exactly the same problem. It stems partly from a failure to understand the importance of a profit and loss statement, or reinvesting in the business to grow that bottom line.
However, it’s also the result of the reality that very few financial planners have financial planners of their own to help them balance their personal finances with those of their businesses.
So, the main message of this blog to owner advisors is this: Get your own financial planner, and listen to her or him. Now, as my experience tells me that most of you aren’t going to take that advice, here’s what I tell my clients to do until they see the light:
1) Stop treating yourself as a client.
You can’t approach your personal finances the way you do your clients’. Unless you work in a special niche market, your clients’ annual incomes are largely predictable, as are their future increases as their careers progress, but the cash flow from most advisory businesses isn’t predictable. It fluctuates with the markets and with the coming and going of clients.
2) Find your “number.”
Finding “The Number” made millions for author Lee Eisenberg, and it can work for you, too.
You need to take a different approach to your finances, both business and personal. If you’re going to use your business as a cash cow to fund your personal life, then you have to figure out just how big that cow needs to be. (I feel like we need a “moo” here.)
Start by sitting down and calculating in dollars, as accurately as you can, how much it will cost each year to fund the lifestyle that you want for you and your family.
Boil it down to one number. This is very important. There is great power in having a very clear goal: “I want to be able to take X dollars out of my advisory business every year.” The clearer your goal, the better you can focus your mind on attaining it.
3) Build a business that will pay you your number.
Your target income will dictate what kind of advisory business you need to have: the kind of clients you want to serve, how many clients you need, what services to provide, what and how you should charge, how many employees or partners you need, whether and how to market, etc.
Don’t forget to build in market cycles and the occasional setback — a good plan also expects things to go wrong. Still, all the questions and choices that perplex advisory business owners suddenly become much more clear when you have a specific goal in mind.
4) Periodically revise your number and your business plan.
While focusing on your number is the key to both business and personal success, don’t fall into the trap of thinking it won’t change. Life changes, wants and needs change, and so will your number.
When it does, simply start the whole process over again — what’s my new number? What changes will I have to make to my business to give this number?
In the interest of full disclosure, I should tell you that I haven’t always run my business this way either. Yes, I, too, was an “I’ll just build the best business I can” owner.
But about a year ago, at the suggestion of a friend, I started thinking about just what kind of lifestyle I wanted and calculated how much it would cost. Turns out, it doesn’t cost as much as I thought, which motivated me to rethink my entire business strategy.
Today, I’ve reached my number, and I’m happier with my business than I’ve ever been. I am also reinvesting the rest back into building a bigger business to serve … well, you. Bottom line, until you reach what you want for yourself and your family, getting the bigger business will not serve you either.
— Read These Millennial Advisors Are Killing It With Younger Clients on ThinkAdvisor.