[00:00:00] Welcome to The Financial Call. We are financial advisors on a mission to guide you through the financial planning everyone should have. Whether you're doing it yourself or working with a financial advisor, these episodes will help you break down complicated financial topics into practical, actionable steps. Our mission is to guide motivated people to become financially successful. Welcome back to The Financial Call. We are wrapping up the business owner season today. We brought Tyson back in and we have Zacc here as well. We're talking about having the right network when selling or, you know, even owning a business and things that you need to be aware of to make sure you're not missing anything with your business plan. So we want to talk through. Really the five categories that business owners need to solve. So I'm just going to outline these and we'll talk through each one, but number one, a wealth planner. That's huge, you know, investment savings, income decisions. You should have a wealth planner in your corner helping you to

[00:01:00] make the right decisions. The next would be taxes. strategies for that, how to file them, three would be legal risk. There is state planning, you know, business risks that you may have consultants, legal consultants, contracts, make sure you're not tied into anything that you don't want to be tied into. And then four would be insurance covering risk. for yourself, your family, your business. Five, enterprise management. Making sure that the business is gonna continue without you there. You know, how to scale the business, taking care of issues with key man, and then business valuation. So, that's an overview of what we want to talk about today. We're just gonna dive right in. Alright, I think we're done, right? That was really it. It felt like one minute in. Laura did it. Great job, Laura. Simple enough. You have all the answers now. Yeah. Good luck. And in reality, I think we're a little biased. Of course, we put wealth advice up at the top. I think a lot of business owners end up with tax first, which is okay. I think taxes are usually one of the first things to address. All five of

[00:02:00] these are important. And whether you swap one and two, the wealth planning and the tax considerations, whether, whether they happen in that order or the reverse order. They need to happen in approximately this order, wealth planning, tax, legal, insurance, enterprise management. Let me give you an example. Let's say you're trying to figure out how much your business is worth and you're thinking about maybe whether it's doing a loan against your business, doing other financing, bringing on other partners, merging with another firm. I mean, that's all. part of maybe why you would be doing a business valuation, but in the meantime, you're not saving enough for your own retirement or your tax filing is super messy. For example, if you go back and listen to Megha talk about in exiting your business, she talked about. How one of the very first things they do is they help the business owner create an income sheet to actually show profit and loss and balance sheet to show assets and so if

[00:03:00] your tax situation is not organized, it's way too early to be talking about the enterprise management and if you have risk of things like You're not covered for errors and omission insurance like E& O or property and casualty or a few other things like that. Again, you're way too early to be talking about whether or not the business will survive without you. It might not survive with you if we haven't addressed So anyway, this is why that's in that order of tax and wealth planning first, legal, insurance, and then enterprise management. So we'll talk about some of the network, like the professionals that help fill in to those five. categories, but we were hoping, because we have a list of what, like 10 to 12 different types of professionals, but they all fit within one of those five categories. And so that was the idea. Before we start going through these individuals, Tyson, anything else? You work with a lot of business owners,

[00:04:00] whether they're like in the middle of scaling up their business or even seems like you've been involved in some that have exited their business. Like what have you seen? What would you add to this before we begin? Yeah, for sure. I think two things that have stood out to me over the time is number one, not working with or having a wealth planner to help them earlier. You know, I think that's a critical piece to it because while the wealth planner may not be an expert on filing your business taxes or an expert on drawing up contracts between your vendors, your employees, whatever. They are going to be a great person to lean on to help organize all the different people on your team and making sure to pull the right player off the bench at the right time and make sure they're communicating with one another. Because I think sometimes business owners are so busy running their business, they don't have as much capacity to worry about some of these other things. And I think that's where a wealth planner can help give them more time or just, you know, be a good resource for them. And then the other one I think is. We talk about this with our people who are preparing for

[00:05:00] retirement that aren't business owners, maybe they're an employee preparing with the end in mind is a term I think you've used a lot. I think for business owners, that's obviously very important too, because, you know, at some point if you're wanting to pass your business on to family or sell it to family or other people, like, Starting to think about that process earlier is really helpful so that you know what things you need to be doing over the next 5, 10 years to put you in a position to be able to do that can tell you how many times we start talking to somebody who's like, Yep, I'm ready to sell the next year or two. And it's like, you know, there wasn't any plan, there wasn't as much preparedness that went into that. But when you say there wasn't any plan, I mean, they may have planned to retire, but what are you saying that they failed to plan to do? You know, the best example I can think of is for certain business owners. They do so much work for the business and so much of the value is tied to what they do that they maybe haven't done as good a job starting to include other people in the business. Decision making processes in the running of the business so that

[00:06:00] if they're trying to sell that business to somebody, there's got to be a value attached to that. And if I is the business owner, I'm the one that's doing all the heavy lifting and all the work and I leave, my business isn't going to be viewed to be as valuable in that case, as opposed to if my name is still on the company sign, but In reality, I've kind of stepped away from the day to day to where I'm just kind of a face on a billboard and it's really my team and all the people I've put in the business that are doing the work. That's a lot more valuable to somebody that wants to come in and buy that because they know when they buy that, that business is going to continue to run on without me. So it seems like, and I completely agree, it seems like professionals who are, you know, highly paid service professionals, whether it be in the medical field, dentists, doctors, in the finance fields of accountants or legal attorneys and somebody who who They are the talent. They have a lot of expertise or knowledge or experience just themselves. Mm hmm. Right? Yep. They often are the ones that have the hardest

[00:07:00] time selling their practice because it is a practice instead of a business. And so you have to convert your business from a practice into a business and then it can be sellable. I think that's the hard part. So we'll talk a little bit about enterprise management and that's actually a lot of my role at Capita. So I'd be happy to even... Chat a little bit about that because I get really excited about some of those things. But let's talk about, let's go through some of the different people. Spouse, we put that at the very top of the list. If your spouse is not involved or is unaware, even if he or she is uninterested, the spouse needs to be aware. And it's so sad. We see it so often where you guys know the story where one spouse doesn't know what's going on, one spouse passes away, and it's a complete nightmare for them. Now, ideally, they have a wealth advisor. The worst scenarios are where there's no wealth planner, there's not really that great of a tax contact, and then the spouse wasn't involved.

[00:08:00] That's about as bad as it can get from a family finance continuation plan that you can create, right? So start to incorporate your spouse and a wealth advisor and a tax professional and make sure the spouse is comfortable and knows those people. So I feel like we are constantly talking about what we do as wealth advisors. I almost don't want to go too far into that today because I feel like, yeah, that's a little bit self promoting. But just in summary. Someone should be organizing your finances. It might be you, great. It might need to be somebody else, or you might need somebody else to hold you accountable and keep the ball rolling for you. And somebody, either you should be managing your investments, or you should have someone organizing and managing your investments. It doesn't have to be complicated to be good. We do know some people that manage their own investments just fine, but we would be happy to run through it and talk with you, but let's move on. So the next three are all within the tax category, a

[00:09:00] bookkeeper and then a business tax expert or CFO and then a personal tax expert. So most let's go through them in that order. Most business owners do not want to log all their transactions. categorize the transactions and create an income and expense monthly sheet. Even for people who like money like us and investments. And that sounds awful to me. Sounds terrible. We have a company that does this for us. They have access to the bank account to pull data. Not to transact. They get all the data. They're familiar with our transactions. They know how to categorize them and every month they create a monthly income statement so that we can see exactly how much money we made on things, how much money we spent on things. And what the net profit might have been. So that's a bookkeeper. That person gives us no advice. They don't tell us what we should be doing differently. It takes then a business tax expert

[00:10:00] to periodically review those types of transactions to then say, hey, maybe These could be categorized as this deductible expense, or I noticed you only had a certain amount of a certain expense. Really? Your business doesn't, most of the other customers I have in your industry spend more on X and then the customer says, Oh yeah, we do spend more on that. It's like, well, why am I not seeing that? Where else are you logging those transactions? We should be deducting that. That's a business tax expert. Or the business tax expert might say, Hey, if we file in a different status, maybe an S corp versus LLC, actually a C corp may make sense. Or if we do a C corp, may make sense to do a founder stock where you don't have to pay capital gains or any income on the sale of the business later. This is where a business tax expert is super important. If you are a small business and you're just trying to make the thing work, you don't need this person yet. You're probably just needing to make sure that you have high

[00:11:00] revenue, meaning high income. So maybe that's quickly talk about words. Revenue is how much money the business brings in, in income expenses. Take away from that, profit is the net number after that. They call it top line is revenue, bottom line is profit. Bottom line, that's what you get. And so anyway, most people in the early stages just need to focus on top line revenue. They need to find a way to get money into the business. As fast as possible and they need to try 30 to 50 different ways to get money into the business. They find two that work and then they pull that lever over and over and over again. Get really good at it and then all of a sudden your top line grows enough. You can cut all the expenses on the other areas and then you start to do expense management. And thus profit management. So that's, but the point is you don't need a business tax expert at that point. You just need to find out how to get top line revenue. Okay, but a personal tax expert, you probably need those. You need that person pretty early.

[00:12:00] Either you're filing your own taxes through something like TurboTax. Or you need a CPA and most people when they start a business, they start to get into complexity around business tax filing that they don't want to spend their time learning. It seems like to me, very few people I know file their own taxes with an LLC or S Corp or anything like that. Yeah, I've seen that a lot where TurboTax user, their whole life, start a business, that changes pretty quick once the business becomes, becomes part of their life for sure. Not always, but usually. That was me. That's exactly what I did. And that's okay. I even like taxes. It's okay. It's probably worth it. For the happiness sake of it. It's so funny. My family, I was raised to be frugal and not just spend all the time. Laura is crazy frugal. Can we just throw that out? Some people use the word cheap, cheap skate, intensely frugal, frugal. I learned it from, you know, my family, my dad, and every year around tax year, he's like, that's the best money I

[00:13:00] ever spend all years paying my. Accountant. My dad's a business owner. He loves writing that check. He's best check I write, which is funny because my dad's not a spender, but it's so worth it for him to not have the headache of trying to figure all of this out. So it can make sense, you know, just to have somebody else do it. If that's not your thing, your business owner, you're probably really good at what you do and this might not be it. Right. And until you're really good at what you do, you don't need the business tax strategist, but you do need a tax filer. Everybody needs one. So it's either you or you're paying someone. So this is, that's the difference. So those three different professionals within tax bookkeeping and a business tax consultant, let's call it. Those two can come a little bit later as your business grows. Right away, you need someone who can help you file so you don't do something wrong right out of the gate. Okay, so we move on to legal. So this has to do with estate planning, business risk, consultant and contract agreements,

[00:14:00] things like that. So right out of the gate, we think you should have an estate planner. Everyone should have an estate plan. We talked about this in the estate planning season. It's something you can do and get set up even if you have a simple estate. You might not think you need an estate plan, but if you have young kids, and if you have a house, you need guardianship, and you need a trust. That's the bottom line. So we're not going to go too far into that, but this is one that you just need to check the box, get it done, get foundational planning done. When you make a lot of money in the future, we can move on to complex estate planning. But right now that number's pretty big. You know, 25 million before you really need to worry too much about that. But get the foundational estate planning done. I know that sounds like a personal thing, not affecting your business too much, but it is part of the legal team that you need and your business folds into that. As you create enterprise value within your business, that needs to be factored into your estate plan and how

[00:15:00] that will transition, at least the value of your business, how that will transition to your family and your kids. You might not be passing your business on to your kids, but your business partners may need to buy out your family. And that creates cash, which creates an estate issue to work on. And I think that part of like estate planning in general, I feel myself like estate planning is. 50 percent talking to attorney and doing legal documents and 50 percent having family conversations about what we want to have happen, especially if there's a business involved, like talking with family about. Do family members even want to participate in this business down the road? Yes or no? And if they do, what does that look like? Who wants to be involved? Who doesn't? You know, there's a lot of stuff you can be thinking about and talking about pretty early on in that process, I think. That sometimes gets put on the back burner until much later and sometimes it's harder to... Pick it up later. Right. How do you quantify, let's say two out of five kids are working in the business. How do you

[00:16:00] quantify how much the two get versus the other three? How much is their work from a day to day standpoint worth in the transaction and how much should they have to buy out the other three for? I mean, there's a lot of considerations there that an estate planner has. examples, they have experience, they have people that they've walked through it, they have people where they've seen families blow up, and they've seen families do it successfully, so they should be able to tell you, okay, here's where I saw success, here's how they managed it, here's how they communicated. Here are the rules, you know, those types of things. That's estate planning. Beyond estate planning, you do need other legal professionals in your life as a business owner. And it's important to have a legal professional that understands your industry when you feel like you get in, like, in deep water. Where, and I'm not talking about, like, trouble. I'm not talking about legal, like, being sued. I'm just talking about Like, we run into this all the

[00:17:00] time where we may have contracts that we need to write. I'm not an attorney. I'm not gonna feel super comfortable writing in a contract exactly how it needs to be laid out to protect the business in the future, or I might not understand choosing one path or another which is the best in terms of risk management from a legal standpoint. Having someone, and don't get me wrong, it's painful to pay these fees because Usually this person is paid the most because they are helping you manage risk and so you end up having to pay more for that. But we have someone, it's gosh, I think they're four or 500 an hour right now, which is just, it just feels painful, but it's worth it. Every once in a while, we'll spend a half hour, spend an hour, we'll send a document to them and say, Hey, this is how we drafted up the. The contract, what do you think? And they are an attorney specifically working with financial advisors who are owners of registered investment advisor firms. So that's like very hyper specific business

[00:18:00] attorney that can help us understand. And they also specialize in complying with the Securities and Exchange Commission. And that's an important thing for us as well, because that's our regulatory body. So they've done it before. They have experience. I think talking through each one of these experts, that's the benefit of using them. They've done it before. They've seen it. They know what holes to watch for, what things to be aware of. So I just like the idea of, going to somebody who's done it before for that experience. And I think on the legal, like on the consultant contract points, like Laura mentioned, I think, and you too, Zacc, I think an example I thought of. It's good to have that impartial third party to sometimes and can help you avoid pitfalls. Like I'm thinking of a client that early on in the business, they brought their brother, their sibling into the business with them. It was very early stage. This particular client was the one that was kind of at the head of the business though and probably doing most of the work and reinvesting back in the business. The sibling was definitely helping, maybe not doing quite as much though to really push the

[00:19:00] business to new heights. And for a certain piece of their business. You know, it's just family getting together. They said, yeah, we'll just do 50, 50 ownership. It's 20 years down the road now, and they're going to sell the business. Life has changed. Families have changed. They're still on good terms, but now they're going to sell and The client that is looking to sell, you know It could get a potentially much bigger payout because they're the one that's primarily in charge of this business But they can't get agreement for the cell unless the sibling agrees to it because it's 50 50 ownership or if it had been 51 49 that small change could have made a bigger difference. So, you know, it's just those things I mean and you know families tough to sometimes but Those are the things sometimes it's helpful to have a second set of eyes on. Yeah, and I think this is a whole different subject, but don't walk into this with delusions that your kids can just resolve this on their own, like that, to your point, like 1 percent difference might have given the right power to the right person to be able to make it happen quicker. Okay, let me give you a quick example.

[00:20:00] Capita is a registered investment advisor firm. I'm going to tell you how we ended up with three different professionals. In this one space, okay, we needed a firm to help us because it's really complicated to do all the little, like, little things you have to do to comply with the Securities and Exchange Commission, all the filings we have to do every quarter and all the, the reports we have to generate and the random things we have to do and never send it to them, but log it and say we did it. Just to be ready for when they do show up, you know, on a random audit and say, Hey, show us that you're still doing all these things. That is how it works with the Securities and Exchange Commission. And we ended up hiring a firm called Northpointe Compliance. And there's a woman named Vicky over there that is our contact. And she used to work with the SEC and now she consults firms like ours. So she is into the weeds with us. Like, very into the weeds. Checklists and did you get this exactly done, right? But she's not legal.

[00:21:00] She's very compliance with the SEC, and that's it. Okay? But compliance with the SEC blends into legal in our space a little bit as well. So when it gets a little bit more to the legal side of we're trying to figure out how to structure contracts or whatever we can do. or need to do, we bring in a woman named Betsy Voter with Michael Best. And Betsy is, she's been a chief compliance officer and she's worked inside firms before and she's an attorney that specializes in advising to register and investment advisor firms on the compliance side of their business. But then when we get a little bit further away from the compliance side and want to look at just the pure doing business and legal side of owning a registered investment advisor firm like partnership documents and drafting up documents for a new partner to buy in or operating agreements. And what rules are we going to establish within our company as to what all the partners will do and what do we vote on and how does that get structured?

[00:22:00] Well, that moves on to David Angerbauer with Dentons. So we have three attorneys depending, or three different resources, I should say. The first one's not an attorney. Depending on how compliance with the SEC it is. Versus how legal it is and there's a gradient and we have to decide, Oh, is this a David issue or a Betsy issue or a Vicky issue? I think this is a Betsy issue. And then we go there. But the important part is having these different people available to you in the right capacity. Betsy is there on tap when we need her. Same with David. But Vicky, she's the one actually coming to us and making us do work. And we pay her to make us do work so that we stay on top of things. But hopefully you can convert that to your own. Business and think about the right legal and compliance people that we need. And by the way, that's on top of having Scott around, who is our chief compliance officer here every day in the office, right? So that gives you a little bit of insight into our business. Okay, now if you are looking towards the end of

[00:23:00] your business, you should, well, I should say, if you're thinking about selling any time in the next five to ten years, You need to start thinking about valuation experts and merger and acquisition consultants or brokers. These people are also within legal, oftentimes their attorneys or their CPAs. Who have left the CPA work to do because accountants are the ones that really pour through the books and determine how much your business is worth oftentimes. And so we have CPAs that leave accounting and get into business valuations. Those are important, but usually only around transactions, like if you're adding partners, merging, buying another firm, or selling your own, that's when these become much more important. I don't know if we go into that too much because we already had an episode on exiting your business. We move on to insurance now. So insurance, I would say this is one of those areas to check the box, get it done, and then

[00:24:00] review it periodically. But don't spend crazy amounts of time here because you can really slow down the growth of your business by overthinking and spending too much time on property and casualty insurance, errors and omission insurance. healthcare or Medicare if you're, if you're older and still working, but anyway, get the right amount, talk to someone who understands your industry. And then we also mentioned, have two to five peers within the industry that you trust that have an abundance mindset, that are willing to talk to you, that you can coordinate. Ideas with each other and maybe ask them, Hey, how much coverage do you have for this? Do you set up, you know, for that? How much do you pay for? What's your deductible? Who do you use? Have you found a company that you feel is reasonable? You know, that's why you work with each other. You're not, you're not taking anything away from your competitor. They're not giving you anything too much by telling you that they use a certain 10, 000 amount or something like that, but you get the idea. Insurance, get it done, and then set yourself a reminder

[00:25:00] for the future when you should hit it again. And then, within your network, have two to five peers, not just for insurance, but just for any question that may come up. Of course, be sensitive. You're not going to ask them a question. We get this all the time. It drives me nuts. People come up to us and be like, Hey, how do you find all your clients? It's like, you're right, you're right. I'm just going to tell everyone how we do things. Right, like we get a lot of referrals from a lot of different resources. You don't want to ask people questions that they're not gonna be comfortable with, but find a couple peers within your industry and use, you know, that relationship to help them in ways that you feel comfortable and, and it'll come back to you as well. I think a lot of these professionals end up working together and they know the good ones from the bad ones. So don't be afraid to ask one of your professionals. Who they trust, you know, who's a good resource. If you have a CPA that you love, ask them if they work with a financial advisor that they like or an attorney that they work with. So a lot of these experts have their own network of professionals who they trust, who

[00:26:00] they've seen do a good job for their own clients. So they can be a good resource to you. So don't be afraid to ask. So we hit the first four pretty deep. Wealth planning, tax, legal, insurance. The last one is enterprise management. So the professionals that fall within this category are going to be very specific to your industry. There are probably consultants that you will need as your business grows that have hyper specific knowledge that's available to you if you pay them for it. And that most businesses in other industries don't need it at all. So that's one, but the thing I want to talk about here as we wrap up this season of business owners is scale, key man issues, and then preparing yourself for the eventual, like, succession or exit. If you have to show up every single day to keep the business running, Then that's a good sign of you haven't quite eliminated key man issues. So key man dependency is a big deal.

[00:27:00] And can the business thrive and continue to grow, not just survive if you don't come in or if you don't do something, there are a lot of really great tools out there for. Creating systems and processes and documenting those. I believe that businesses go through this life cycle of we have a really talented person who does something really, really well. In fact, they do it so well that no one else in the industry has quite figured out how they do it so well and that's why they succeed. That's why they draw clients in. Then, the next phase is someone needs to be able to identify What they're doing, and this is what happened with Capita. We all know, if you know Capita's beginnings, like Mike Littledike has a talent that very few of us have in terms of his ability to organize the financial planning decision process, simplify it, make it easier on clients, and then execute it. I didn't know how to make that.

[00:28:00] But I at least was able to watch him do it and document it. So that was phase two, right? So Mike had it naturally and he, you know, bless his heart, he's not very good at coaching people on it. His version of coaching is just come watch me, right? And so I was grateful for that. So I just watched him and I started to document what he was doing so well. And then found 10, 12, 15, now we have 15 other advisors and basically helped them bring their talents but add on what Mike did so well. And now we have all of these advisors executing it. And it's something we have to guard with a passion because the natural tendency in our industry is to make financial planning complicated. It makes us feel smart, it makes us look cool or sound cool, and it is awful because clients can't follow you, right? So it seeps in and then we have to kind of remember our roots and pull, you know, Mike's influence back

[00:29:00] in and simplify it again. The spirit of Mike. The spirit of Mike. Ghost of Christmas past. He's still here. Yeah, Mike still works here. He's still around. So anyway, we have to pull that back in and re, not recreate, but reaffirm the Capita experience and why our clients like it. And then anyway, so bottom line is. Your business may be because you are very talented, but have you moved on to step two where you've documented why your business works and you've figured out how to hand that information in a clear enough way that less talented people like us compared to Mike can execute on it, you know what I mean? And then once you've executed on it, then you spend an insane amount of time creating the right software and the right. It lists that anybody can step in and help deliver that, that superior either experience or product. And once you get to that end, then you, phase three is how do you get the

[00:30:00] right people in charge of those systems? That's like a Cassie Myers here at Capita, right? The COO of Capita. How do you put the right person in charge of those systems so that it can run extremely efficient? And then how do you attract more people to come in? and expand it wider. So like those are the three phases and if you're a business owner and you're still on phase one where you are the talent and that talent has not been converted into processes and has not been managed by high performing executives who can oversee things you're not ready to sell yet and you might sell but you're going to fetch a much lower valuation. Then you would if you can get through those three steps. So anyway, that's just my parting thoughts around like, what is enterprise management that is scale that is managing key man issues. And that will give you a much bigger business valuation. And if you want to sell without that because that is a whole lot of work. That's okay. That is okay. But if you are looking to fetch the biggest

[00:31:00] valuation you can possible, this is a five to 10 year project and you need to work through it in that order. And if you, you're not the person that can help create like real clear processes around why your business is successful. In fact, if you look around and you're like, I don't know why everybody else isn't doing this well, then you're probably the person that can't identify why you're doing so well. And you need to bring somebody in to help. clarify that and then build systems around it. Anything else we add before we end? Love it. Go out and get it, business owners. Happy to chat with you. Hopefully this is helpful. This is a really different set of conversations probably for most of us, right? Good stuff. Good luck. Thank you. This podcast is intended for informational purpose only and is not a substitute for personal advice from Capita. This is not a recommendation, offer. or solicitation to buy or sell any security past performance is not indicative or

[00:32:00] for of future results. There can be no assurance that investment objectives will be achieved. Different types of investments involve varying degrees of risk, including the loss of money invested. Therefore, It should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or proposed by Capita, will be profitable. Further, Capita does not provide legal or Tax advice. Please consult with your legal or tax professional for advice prior to implementing any strategies discussed during this podcast. Certain of the information discussed during this podcast. Capitalist is based upon forward looking statements,

[00:33:00] information, and opinions, including descriptions of anti anticipated market changes and expectations of future activity. Capital believes that such statements, information, and opinions are based upon reasonable estimate and assumptions. However, Forward looking statements, information, and opinion are inherently uncertain and actual events or results may differ materially from those reflected in the forward looking statements. Therefore, Undue reliance should not be placed on such forward looking statements, information, and opinions. Registration with the SEC does not imply a certain level of skill

[00:34:00] or training.