Business Building Corner

To properly value your financial services practice, there are several key drivers that can deem your business profitable to potential acquirers. Service organizations can be difficult to value since much of the value is derived from intangible assets. An alternate valuation approach that can address specific retention and continuity issues could be the key to building a business with significant equity value. 

What Determines Value?

In order to build equity value into your business, you first must understand what determines value and how it is calculated. A financial planning or investment advisory practice would be considered a professional practice for valuation purposes. Here are several characteristics that set a professional practice apart from other small businesses:

• A professional practice is a service business with few tangible assets.
• The professional develops a trusted relationship with clients.
• New clients are usually generated from referrals from existing clients.
• Professionals must meet regulatory, licensing, and education requirements. 
• Majority of the value of the practice is tied to the professional and goodwill they create.

It’s also important to be aware of how value is calculated. Popular valuation methods include:

1. Income method- Expected or projected future cash flow is discounted to present value at an appropriate rate of return for the investment an acquirer will make in the company.
2. Market value method– Compares other market-based transactions involving companies that are similar to financial planning/investment advisory businesses, then adjusts for size and material factors that are dissimilar.
3. Asset-based method- Restates the assets and liabilities of the business from historical cost (book value) to fair market value. 

These traditional methods can sometimes fail to address continuity issues that make a business sustainable, thereby valuing the business too conservatively to ever affect a transaction. Valuation experts need to focus on the ability of a business to generate predictable cash flow and therefore, profit, which is dependent on recurring revenue streams and client and employee retention.

Recurring Revenue Streams

Recurring revenue is of much greater value than commission-based income. Potential business partners may evaluate recurring revenue in the form of advisory fees, planning fees, insurance renewals, mutual fund trails, group insurance, or group retirement plan fees/commissions. The aspects of valuation depend on the potential partner’s business model. For many financial planners, the greatest recurring revenue gain will likely come from converting to fee-based investment programs. 

Client Retention

Looking at historical financial performance only gives potential partners a picture of the organization under the current owners and principals. The ultimate question any acquirer must answer is how much of the current revenue streams will remain post-transition. For your business to offer significant value, you have to ensure your clients are comfortable and confident that they will receive the same valuable advice and service after you’re gone and someone else takes over. As discussed in previous business-building articles, you have to institutionalize your business. Ensure that anyone in your organization can provide quality value-added advice because there are multiple parts to your business success equation. 

Employee Retention

When it comes to adding value to your business, retaining talented employees is also at the top of the list. You need to show prospective employees and current employees that you can help them achieve their goals and personal vision for their lives, just as you would look to establish for your own personal well-being. Develop incentive plans that will entice your employees to stay the course and push your business to further success. Profit and equity sharing is a good place to start, the sooner you implement this, the better. 

The DFCF Valuation Approach

Let’s turn our attention to something you may not have heard of before, the DFCF valuation approach. At the moment, you may be scratching your head and asking yourself what exactly this valuation method means for you and your business. This approach represents discounted future cash flow, and has two potential advantages over traditional valuation methods: it focuses on key drivers of goodwill, and establishes an empirical method for arriving at fair value for buyer and seller.

For a full list of goodwill drivers and valuation model components, check out Building a World-Class Financial Services Business by Don Schreiber, Jr. 

Generating predictable cash flow to produce recurring revenue, institutionalizing your business, and attracting and tying key employees to your company are ways to add value to your business. It doesn’t matter how small or large your firm is, your value will reflect your actions. The ultimate goal to attract buyers is to make your business profitable, sustainable, and scalable.  

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice or trade recommendations.

As the CEO of your business, you need to analyze your business. It’s crucial to perform a thorough analysis of your industry, target market, and competition. We’re going to discuss the importance of analyzing your business and what you need to accomplish your goals.

The key to analyzing your business is to look at the recent trends within your industry. It’s important to read anything and everything you can get your hands on to attain information and insight. Daily, you or member of your team should be reading daily news, magazines, articles, reports, and books pertaining to your industry. 

Below are a few examples of how specific trends within the financial industry can alert you to adjust your plan of attack:

• Low or no transaction costs through the internet. Trading that can be done almost free over the internet leaves little room for price advantage in offerings.
• A dramatic increase in access to information. The internet and personal finance media have given consumers access to information that in the past was available only to professionals at a high cost. The days of being needed for access to knowledge are over.
• Bull market performance. Favorable returns lull investors into thinking they can “do it themselves.”

The industry is continually changing, and you have to be ready for any change. In the early 1980s, financial planners wrote elaborate comprehensive financial plans for clients. In the late 1980s, traditional financial planning was forsaken as planners emphasized tax savings through partnerships. When this didn’t fare too well for the industry, in the late 90s with the development of new technologies, planners now tried to fit their clients into prepackaged investment plans. This example alone is why it is essentially to participate in the new directions the industry is heading. You don’t want to fall behind the times. 

As a business owner several opportunities can present themselves pushing one to proceed in a new direction:

1. Product superiority. You would need to spend a large amount of money on research and development. 
2. Price. You may need to compete with the price scale of big players within the industry.
3. Customer Service. Develop an ongoing relationship with individuals. 

The most obvious and perhaps most straightforward choice is to focus on giving value to your customers. At a minimum, you will need to examine specific questions to attain a proper analysis of your industry. 

As a financial planner, if your desire is to not only get the money but to keep the money, you’ll need to focus on generational planning. Seniors control much of the money invested in the United States, and if you acquire their money at the senior level, you may get to manage it through the proceeding generations. In my opinion, seniors are an extremely profitable target market. 

In addition to seniors, small business owners can also be an ideal target market because they tend to have complex financial situations and require a lot of help. This group of consumers may not be particularly price-sensitive, so they should be willing to pay top dollar for turnkey financial management advice. 

Are enough prospects in your chosen market willing to purchase what you offer? At the price you want to charge? It’s important to conduct a methodical study of the market you plan to reach. Feel free to utilize these questions to clearly define and assess your target market, which is crucial when it comes to analyzing your business. Don’t forget — your client niche has to be sizable to sustain a profitable company. 

It’s pertinent to remain aware of the competition that lies within your industry. You will need to focus on your strengths and overcome your weaknesses. The service-related investment business is a fast-growing sector. These days, competitors range from accountants, brokers, banks, investment advisors, insurance agents, and more. Follow these questions to learn how to identify key competitors within your industry. Though you may think you’ve identified the largest players in your industry, they may not all be your competitors. Think of your competition in terms of tiers. 

First-tier- Advisors and planners with your service who are direct competitors within your geographic locality. 

Second-tier- Competitors who offer similar products in a different business category or who are more geographically remote. 

Third-tier- Providers of other types of products.

You’ll need to put yourself in the shoes of your customer. Look at all the alternatives from the customer’s viewpoint and determine advantages your business could provide over your competitors. You may even feel compelled to borrow ideas from second- or third-tier competitors, and by all means, this could propel you to compete more efficiently with first-tier competitors. 

When it comes to the competition, you need to study all aspects of their organization. Take a close look at any promotional materials they send out, speak with their clients, analyze their ability to innovate. Are they doing anything well that you can replicate? Are they doing anything poorly from which you want to shy away?

Overall, you need to satisfy and retain customers who love your services. Selling to the same clients is more efficient than continuously searching for new clients. I can tell you from personal experience that you need to measure your plans against the competition carefully. As I learned the hard way in 1980, you need to have a plan in place to be able to overcome any competitive disadvantages. Remember, the industry is constantly changing and people are continually innovating. You must analyze your business to set up your defenses and prepare for any situation that may arise. 

To analyze your business, use our downloadable worksheet.

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice or trade recommendations.

Corporate websites are the first introduction to your business. The “About” page is often the most visited page on your site, and is the most important as it tells the story of your business. In order to build a better About page, you first need to outline your story. 

Start your outline by reviewing your corporate history. Corporate history gives you and your employees perspective on how long it took for you to get where you are today. It allows you to appreciate your accomplishments along the way and to set goals and strategies more reasonably in the future. 

Next, work on a narrative that explains how your company came into being and what major milestones you’ve passed. This story need not be lengthy and filled with facts and figures. The emphasis should be on conveying the broad outline in a way that presents a very positive image of your company. It’s a good opportunity for you to express your personal style. 

Use this worksheet to answer questions about your business to help set the stage for your company. The information you assemble may contain some pleasant surprises and will surely enlighten you to what may have been false starts, when you headed in the wrong direction or went in too many directions, or simply some unnecessary efforts.

Now that you’ve outlined your business story, it’s time to build a better About page for your corporate website. It is likely that anyone who is visiting your website is a prospective customer. They may even be interested in buying your products or services. Let’s face it, customers are more apt to do business with you if they feel like they have a good sense of who you are and can trust you. If you outline your mission and objectives clearly, you’ll be outlining the value that you feel you can provide to your customers. You want to make your customer aware that their needs come first. Are you committed to your clients, employees, and community? If so, you need to let your prospective customers know. 

 Has your company been nominated for an award? Have you launched new products? These are all aspects of your business that you need to convey to your customers. Many times, prospective customers want to see that your company is established. If you have a long history in business, have achieved certain goals, and reached certain milestones, your customers want to know. Milestones help you maintain a level of progress but they also help the customer get a sense of what you have accomplished and what you can offer them going forward.

It’s important to let your potential customers know what they can expect from you and your company. You may want to think about including a brief section which explains your product or service offerings and the thought behind these offerings. This brings us back to value — why you have created the products and/or services you did and what benefit can be derived from utilizing these products or services.

Whether you simply want to display key leadership personnel within your company or you want to post each and every employee that works for your firm, potential customers enjoy learning about your employees. Think about it this way, if you’re attending a meeting with a patron you haven’t met prior, would you feel more comfortable going to the meeting having read their biography and seen their photo? In my opinion, the answer would be yes. Having a leadership page adds a personal touch to your business, allowing it to be raw and real.

Adding photos that portray company events, your corporate office, or any other positive representation of your company will give your About page a personal touch. Again, this coincides with the idea that a prospective customer will feel more comfortable doing business with you if they feel like they know you and your company on a more personal level.

Social media has been a key aspect of running a business over the past several years. Many potential customers will utilize social media for their own personal use, which means you have the opportunity to organically connect with thousands of professionals within your target market. It’s crucial to link any social media platform you utilize as a company to your About page so your customers can easily find your content. If you’re willing to connect, potential customers may be willing to connect. Whatever your target audience, a substantial portion of your customers and leads are on social media.

They’ve read your story, the value you can bring, and the milestones you achieved, now it’s time to make contact. It’s important to link to a secondary page which includes your contact phone numbers, a built-in contact form, applicable email addresses, company addresses, and more.

 Now that you’ve learned how to build a better About page, it’s time to get your business rocking and rolling. Directing prospects first to your About page can be a strategic business move. Your business story, offerings, and leadership will all live on one easy-to-access place. It’s time to build trust and increase sales conversions. 

For more on this and other business-building topics, check out our Business Building Corner.

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice or trade recommendations.

Defining your business may seem like an extremely intricate and difficult task. After all, how you define your business could make or break it. Starting a business is exciting, so you may often be early to rise and eager to plan, but it’s important to be thoughtful about the steps in the process. Vision is the first step to starting a business. Your vision is where the company wants to bring the community and the world around you. It’s important to create a personal vision plan before you do anything else because your personal values should define your business. You wouldn’t be starting a new endeavor if you didn’t have the vision to create something. Once you have your vision, then before you suit up and start selling there are three important items to outline: your mission, corporate philosophy, and strategic objectives. 

The Ultimate Goal: Defining Your Mission

A mission statement is what the company does to create the vision. Your mission statement defines the purpose of your business. When considering your mission, you must reflect your unique purpose for starting the business in the first place. Why did you decide to embark on this new venture? You need to be clear and concise when communicating the purpose of your business. Don’t be too specific when providing details about your product and target markets within your mission, you want to keep this simple and clear. Flexibility is also a key component of a mission statement. You should consider how your mission can be achieved over the long term, but build in enough flexibility to adjust to if circumstances may change.

Here are examples of a mission statement and a vision:

Vision: All hard-working people should enjoy a comfortable retirement.

Mission: To offer responsible, accessible retirement planning solutions.

The Way You Go About Achieving the Ultimate Goal

Your corporate philosophy defines your values, what your business stands for, and how you go about achieving your mission. As we’ve mentioned before, it is crucial to institutionalize your business, and ensuring everyone in your organization embraces your corporate philosophy is a large aspect of this. Let’s compare our mission to our corporate philosophy. If a firm’s mission statement is to achieve high return for its investors, but the corporate philosophy is “by any means necessary,” that’s a far different company than one whose mission is to achieve high returns but whose philosophy is to maintain ethical standards. It’s important to be transparent and honest when establishing your corporate philosophy. 

Learn More: Business Building Mistakes to Avoid

I like to follow the A-B-C approach. Your actions in relation to your stated value and standards will let others know if you are truly committed to your philosophy. When it comes to your beliefs, don’t include anything in your corporate philosophy that you don’t truly stand for. It’s also important to clearly communicate your corporate philosophy to those within and outside of your firm. 

How You Direct Resources to Achieve the Ultimate Goal

The final aspect of defining your business is to set your strategic objective, which identifies how you are going to direct your resources to achieve your ultimate goal. You’ll need to break down the ultimate goal into smaller strategic goals. Strategic goals are an important part of strategic planning which involves a step by step approach to problem-solving and operational efficiency. Strategic goals are generally short-range goals that may take a year or two to complete, whereas a strategic objective could take five or six years to reach. Your strategic goals must align with your vision, corporate philosophy, mission, and ultimate goal. As they say, you must crawl before you can walk. 

Write Your Plan and Set it in Stone

It’s extremely important to establish a clear vision and objectives for your business and to put this plan in writing. If you aren’t clear on your company mission, goals, and objectives, how will your employees, or worse, your customers understand your company and the value it can bring? Many business owners want quick solutions and end up taking shortcuts, failing to implement the full business plan they may or may not have written out. Once again, a written business plan communicates how your organization is to be run. You need to list and explain your goals so that your employees know how to execute tasks that align with your mission, corporate philosophy, and strategic objective.

REMINDER!

Many business owners find it difficult to identify a clear business objective because their personal life goals conflict with their business goals. I recently wrote a piece explaining why business owners should focus on personal vision to attain professional success. The goals you set will depend on the type of business owner you are and the type of business you want to run. You will save yourself a lot of time and energy if you survey your business goals while focusing on your personality profile to see if the two are compatible before you derive your strategic business plan. 

At this point you may have established your vision/mission statement, corporate philosophy and strategic objective but… have you written your conclusions down? Many business owners fail because they don’t adhere to the mission or objectives they have. 

Are You Ready to Suit Up?

If you’ve developed your personal vision and integrated this into the vision for your business, I believe you’re on your way. But make sure you’ve clearly established a company mission, philosophy, and objectives before you suit up and start working. Planning, clarifying, and implementing these strategies are the keys to define your business. 

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice or trade recommendations.

Do you have a personal vision for your life? Most of us do. We all dream of the things we can have, the places we can go, and the things we can do. Unfortunately, though many of us have ambitions and goals, we don’t always put in the work required to make those goals attainable. It’s important to go back to the beginning and focus on these key questions:

1. What matters most to you in life?
2. What is your definition of success?
3. What do you hope to accomplish in your career?
4. What do you hope to achieve through your practice?

Do Not Turn a Blind Eye to Personal Frustrations

If you turn a blind eye to your personal-life aspirations and focus only on your business objectives, you’re bound to create an internal conflict within yourself. In reality, people own businesses to shape their destinies. It’s crucial to align your business to your personal goals and make sure your business will enable you to accomplish them. If these are currently out of sync, I encourage you to make changes to your business. While I understand that change is difficult and can often be a grueling process for everyone in your organization, change is often needed.

Salary Does Not Equal Satisfaction

If you’re taking home a decent salary from your business, say half a million dollars in sales, you’re probably thrilled. However, I’ve met financial advisors who were working ridiculous hours, depriving themselves of balance and personal time to keep the success going. If everything personal in your life is left until the business’s demands are met, attaining true satisfaction will be like going through the eye of a needle.

Do Not Let Your Business Grow Beyond Your Management Skills

Are you the sole executive in your firm, and personally responsible for accomplishing all high level, client-centered functions? In turn, are you also responsible for financial planning, problem-solving, sales, marketing, relationship management, and more? If you answered yes to many of these duties, you’ve likely reached the end of your rope. 

It’s vital not to let your business grow beyond your management skills. Not all of us can be trained in business management, therefore,  let’s shed light on a strategic plan to help you see through the fogged lenses that separate your personal vision and corporate objectives. 

Developing a Clear Vision

It’s time to go back to the drawing board and develop a clear vision of how you want your personal life to look. Many entrepreneurs start by focusing on how they envision their professional success. What if I told you that it’s possible to work less but earn more? I’m sure you became wide-eyed at that statement. Now is the time to figure out how your business can help make your dreams a reality. The demands of a company are often unsatisfied, so what are your personal-life priorities? 

If you can’t confidently list your priorities, now is the time to try and see them more clearly. 

Use our downloadable worksheet to create a personal vision for your business.

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice or trade recommendations.

Are you building a sales practice or a business? It’s important to consider the road ahead for your business and the consequences that can emerge when you don’t focus on corporate sustainability. You need to focus on building a business that is sustainable and sellable as opposed to keeping a sole focus on getting sales in the door. Fees are declining, and if they are the only factor that supports your business, how would anyone be able to take over once you retire? As the hit song goes, “hit the road jack, and don’t you come back.”

If the revenue you generate within your business is dependent on you continuing to work the business every day, this presents a major challenge. I’m sure you would like to know how you can maximize your current income (sales) and still build a business (equity) that can be sold down the road. Can you confidently say that you would be able to sell your practice for what you feel it’s worth? The honest answer is that most business owners would have to say no. Many business owners have built businesses that earn well over $1 million per year but have little inherent equity. It seems that most don’t own businesses, they own “jobs.”

Is your main revenue source from commission-based sales?

You may want to convert that to recurring fee revenue. Let’s face it, everyone has eyes on your clients but it’s important to keep your eyes on the roadmap ahead because corporate America is targeting the financial services business as the high-profit sector of the future. Commissions are heading toward zero since technology, such as online trading, has continued to advance. Some companies have opted to lower their commission fee per trade, or worse, opted to do away with commission-based trading altogether.

Business models today are shifting towards the independent planner/investment advisor model which is based on providing turnkey financial advice and management…for a fee. It’s important to not only offer turnkey financial advice and management but to build trusted relationships and act as an individual who is a knowledgeable professional within your field.

Don’t be the guy or gal who can sell anything but your business.

Commission-based businesses have little value to anyone other than the salesperson. Don’t get stuck going the route of immediate gratification by closing the door on gratification for investing in your future. The only income source attractive to a buyer is the equity trails your business leaves behind from recurring income. If your business was dependent on you, the owner, hitting the road and repeating the sales effort, that means you would have to continue to work for your business. Recurring revenue streams are of much more value than non-recurring streams when it comes to building a business.

Are you ready to change the structure of your organization from a sales practice to an actual business?

You can increase the value of your practice by making one simple change. Say you invest $30 million in mutual funds that generate a trail commission of 25 basis points ($75,000 a year) and put it under management at a one-percent annual fee, you would still bring in $300,000 a year but in recurring revenue. This alone would increase the value of your business to about $580,000 because a buyer would not only pick up the commission trails, they would pick up $300,000 of sustainable fee-based revenue.

Next, I suggest transferring your client relationships from you as an individual to your business. Buyers want to be sure that the revenue will be there even after they’ve purchased the business from you. In a commission-based practice, the client retention level is low. Converting from commission-based revenue to fees can increase client retention levels from 15 to 50 percent.¹

The most important roadblock to overcome is institutionalizing your business. Empower your organization to deliver value-added advice and service to your clients. This can help drive higher client-retention and allow your clients to see the value in your business as a whole and not just you as an individual. It’s important to formulate a strategic business plan and formalize best practices.

Can you confidently say that you can leave your business in the dust and not look back in your rearview mirror? Buyers are looking for businesses that do not function from being owner-dependent. It’s important to take the emotion out of it and deflate your “can do all” attitude so that your employees can confidently handle client service and planning on their own.

It’s time to reconsider the road ahead for your business. Are you putting too much focus on hitting the pavement to generate sales? Are you and you alone the core value of your business? You may want to pump the brakes on your commission-based business and make sure you develop a sustainable business by creating best practices that will allow your employees to add value to your business once you’ve hit the road. It’s time to focus on the important aspects of building a business and establish a solid foundation for your business.

For more business-building tips and insights, check out our podcast Bull|Bear Radio.

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice or trade recommendations.

¹ Schreiber, Jr. “Building a World-Class Financial Services Business.” 2001. June. 18

Too often owning a business can make one feel like they’re stuck on a hamster wheel. We go round and round through the motions but repeat the same common business owner mistakes and fail to make progress. It’s time to jump off. This installment wraps up my three part series highlighting 12 common mistakes made by business owners. I have seen these mistakes repeated by financial services business owners around the country seeking my advice throughout my career. That’s why I wrote Building a World Class Financial Services Business, to help you avoid getting stuck on the hamster wheel!

Did you miss the first two articles written about the most common business owner mistakes?

Mistake #9 — Failure to Clarify Partnering Relationships

Most financial planners and advisors create professional networks from which they can garner referrals. You might work with CPAs, plan administrators, broker-dealers, custodians, or lawyers. With any vendor partner, you want to make sure that you have a written agreement of what services are provided by each party.  Take time to clarify your partnerships and assess the value you bring to relationships. Because if you can’t readily identify your value — your partners won’t perceive it either.

Mistake # 10 — Not Institutionalizing Your Business

The fundamental difference between having a business as opposed to a sales practice is institutionalizing the relationship between the clients and the business. If you are “the” guy /gal who is the value proposition to your clients, let me tell you, you are really limiting the success of your business. I’ve been there. I once was the value proposition of my business, and it made me feel awesome — good for the self-esteem. My clients depended on me to solve their problems and I took that very seriously. But the more successful my business became and the more clients I needed to provide service to, the more difficult it became for me to be the only person giving advice, service, and relationship management. The clients were no longer receiving the level of serviceI felt they deserved. You can see why this is on my list of common business owner mistakes. I knew I needed a different way of delivering advice and service to all of my clients. I put systems in place so that when clients call, they feel they can work with anyone in the organization and get the same satisfaction as if I was the one giving it to them personally. The bottom line is that institutionalization is the difference between having a job and building a business.

Mistake #11 — What Cash Flow Management System?

How often do you monitor your business’s cash flow? If your answer is a frequency any less than every single week, then you’re putting yourself at serious risk. Cash flow management is critical and understanding the movement of money in and out of your business will help you make better financial and business decisions. We are constantly enhancing our financial reporting to provide the kind of detailed information that is important to us. And you should too because if you don’t know exactly what’s going on in your business from a cash flow standpoint, then you have the greatest risk of going out of business. Remember, Cash Flow is King. 

Mistake # 12 — Not Preparing for Exit

When we start a business, most of us can’t fathom heading for the exit. Most of us have no exit strategy, but in reality we should be prepared from day one. Luckily the same ingredients that will be attractive to a buyer someday will also help our business run more smoothly. If you don’t have a vision for what someone might want to invest in — or buy someday — then you might end up with nothing left. And if you’re like me, after so many years of giving it my all, that would be a bitter pill to swallow.

If your business depends on your presence, you may not have any equity to sell. Even if you can find a buyer, you may be required to become an employee of the new owner for three to five years. Plan your exit strategy accordingly.

Ready for Change?

Avoiding these 12 common mistakes will get you off the hamster wheel and help you become a more successful business owner. If you’re serious about transforming your financial services business, sign up for our Business Building Corner newsletter to get more helpful tools like this right in your inbox. 

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice. All economic and performance information is historical and not indicative of future results. This is not an offer to buy or sell any security. No security or strategy, including those referred to directly or indirectly, is suitable for all accounts or profitable all of the time and there is always the possibility of loss. You should not assume that any discussion or information provided here serves as a substitute for personalized investment advice from WBI or any other investment professional. If you have questions regarding the applicability of specific issues discussed to your individual situation, please consult with WBI or your chosen professional advisor. This information is compiled from sources believed to be reliable, accuracy cannot be guaranteed. WBI’s advisory operations, services, and fees are in the Form ADV, available upon request.

There’s a good reason why well-meaning, hard-working advisors and planners find themselves with an all-consuming job and very little to no equity in their practices. Most have copied the methods and structure of their seemingly successful mentors rather than creating a written, detailed strategic business plan designed specifically to meet their own objectives. In my book, Building a World Class Financial Services Business, I outline common mistakes business owners make that really limit their ability to achieve the level of success they’ve envisioned. So let’s dive in to the next wave of common mistakes. You can catch up on my list of mistakes in my pervious article about wearing too many hats. 

#5 — Failure to Create a Company Bank

A lot of business owners fail to draw a clear line between business and personal assets. If you’re going to own a successful business, you must take the risk of owning the business away from your personal finances. You never want to be in a situation where the business doesn’t have a capital base from which you can build the business or cover a shortfall. Once you take the money out of your personal pocket you’re taking a fast spinning spiral down the drain. 

So simply put, build the company bank. Instead of taking all the profit out of the business, pay the taxes and leave the profit behind. This will create the capital foundation needed to build a bigger, stronger, and more competitive business. 

#6 — Mysterious Targets

In order to develop an effective financial planning practice you must know who your clients are and what they want. I always worked with three main target groups because if one school of fish doesn’t bite, there are plenty of other fish in the sea.

1. Business Owners
2. Highly Compensated Executives
3. Professionals

What market segment is your business targeting? You will need to determine if enough prospects are willing to purchase what you have to offer, at the price you need to charge to make a profit. You may want to consider several target markets because if one market for whatever reason begins to dry up, then you have a built-in fail-safe that you can pivot to. You must have agility in your business plan. Failure to clearly identify your target market is one of the worst common mistakes business owners make because every aspect of your business should be to better serve your market. 

#7 — Not Selling what People Want

That seems pretty simple to avoid, right? Well, I have to tell you time and again I have met business owners that are a little too akin to the lemming jumping off the cliff because all the other lemmings are doing it. Just because something is a fad, doesn’t mean it’s going to have staying power — and actually it’s usually just the opposite — it goes as quickly as it came. Getting this aspect of your business right is highly dependent on correctly identifying and understanding your target market. If you don’t have a clear picture of who they are then it will be impossible to deliver products and services they want. A key question to ask yourself is what purpose or benefit does each product or service offered provide to your clients.

Having the right product offering is especially important for financial planners right now. After over ten years in this roaring bull market phase, one would surmise that the end of that run could be near. Making sure you have the right products for what comes next will save you from a major withdrawal phase — where investors are leaving the market en masse due to a major downturn in the market — and could save you from compound liquidation on the assets you bill on. We suggest diving into what’s going to work in the imminent bear market phase that is upon us. Start putting to work those products with risk mitigation that are geared toward garnering decent return, but also protecting capital. 

#8 — PUT YOUR BUSINESS PLAN IN WRITING

The single most important thing you can do as a business owner is to write down your business plan. I cannot tell you how often I speak with business owners who “will get to it.” Don’t wait! Do it now!

• What is your business strategy?
• What is your value proposition?
• How are you going to brand the company?
• How are you going to separate yourself from the competition?
• Why should you exist in the marketplace?
• What is it that you do better than anybody else?

When you can decide all of these things and you can put together a business plan that’ll highlight those things and put it into action in an operating business plan, you’ve got a head start on most business owners. Strategic planning often takes a backseat unless time is scheduled. Even then, it is easily postponed — not because it’s so difficult, but because most of us just don’t know how to begin. However, we repeatedly perform these services for clients as financial advisors. When you think of planning as a facilitator to achieve personal life goals, it becomes fun. It’s like you’re throwing on a lifeguard uniform and trying to save your goals from getting swept under the current. When you document the process, others in the company can follow it. If you choose to carry your plan in your mind, you will always have to be physically present. None of your knowledge is transferable. And more importantly, the operations of your business cannot be systematic.

I would wager to say you became a business owner because you thought you could do it successfully. By avoiding these common mistakes business owners make you will be able to jump in and swim further than you thought possible.

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice. All economic and performance information is historical and not indicative of future results. This is not an offer to buy or sell any security. No security or strategy, including those referred to directly or indirectly, is suitable for all accounts or profitable all of the time and there is always the possibility of loss. You should not assume that any discussion or information provided here serves as a substitute for personalized investment advice from WBI or any other investment professional. If you have questions regarding the applicability of specific issues discussed to your individual situation, please consult with WBI or your chosen professional advisor. This information is compiled from sources believed to be reliable, accuracy cannot be guaranteed. WBI’s advisory operations, services, and fees are in the Form ADV, available upon request.

Many business owners play a loser’s game without even realizing it. About 20 years ago, I wrote Building a World-Class Financial Services Business to help financial advisors and industry professionals be more successful business owners. I wrote this book because it was apparent to me that many advisors needed help figuring out how to be a business owner who could enjoy the life they created for themselves. Now, 20 years later I still see many advisors making these same mistakes and I want to get the word out and help fix it. This topic has been so popular on my podcast Bull Bear Radio, that we decided to dedicate an entire section of our blog to the Bussiness Building Corner. To get started, here are some common business owner mistakes I’ve seen repeated around the country.

#1 Wearing Too Many Hats

The first question I ask anyone seeking my advice in this area is “How many hats do you wear?” 

• Are you the accountant for your business? ✅
• Doing bookkeeping? ✅
• Are you the chief salesperson? ✅
• The operations specialist? ✅
• Answering phones? ✅
• Filling out paperwork? ✅

Often people get excited to check off all of those boxes, but this is one of my most common business owner mistakes. When owning a business, being the guy wearing the most hats does not equate to success. You cannot build an effective business unless you’re doing the things that give the business the highest value. Ask yourself, “What is your highest, best use to your organization?” Do that, and let the rest of those checked boxes be fulfilled by someone else. There’s only so much time to go around in life. The solution to this conundrum is to institutionalize your business and it’s a must to be successful. 

#2 Focusing on Gross Revenue

When I came into the business, the focus was on building a commission-based business. Today, continuing with that focus of growth for your business is extremely short-sighted. Gross income means very little in terms of building equity in your business. Focusing on building a business with recurring revenue that provides a more predictable cash flow allows us to plan for business expansion and profitability. By doing this, we can fund business expansion while increasing our personal income too. 

#3 We Eat What We Kill

I call this the hunter/gatherer syndrome. When I started as an independent financial planner, I focused almost exclusively on my payout — if I could get an 85 percent payout, that was great. If I could get 95 percent, that was better. And if a broker-dealer would pay me 105 percent of my commissions, that was ideal. Little, if any, money went back to into the business; I spent everything I made — no matter how much that was. Earn high current income and spend it has been the business model for many of us in the financial planner/broker community. This out-of-date model permeates most of our industry and may continue as the single biggest struggle many of us face. Building a business requires significant reinvestment of capital, but many planners take 60 to 80 percent of each sales dollar out of the practice as compensation. Most successful service companies have a direct sales cost of between 20 and 50 percent. To build equity, we need to pour some of our income back into the business.

#4 Personal Vision Does Not Match Corporate Objectives

Have you turned into a workaholic? Do you feel your life is a nonstop freight train that you can’t jump off? Feeling personally bankrupt? Too often business owners put the needs of their business ahead of their personal lives and feel drained when they finally spend time with their families. The best way to avoid this is to ensure your personal goals align with your business goal by drafting a solid business plan. When done well, developing a written strategic business plan is one of the hardest things that you’ll ever do as a business owner. This doesn’t need to be something fancy to market your company. The goal is to create an operating business plan, where you lay out what your vision for the company is, what your objectives are, what your goals are, personally and for the company, and make sure those things are working together. Because if you don’t, the company will become a rapacious creditor for your life. It’ll steal your life from you. 

Ask yourself first — what do you want your personal life to be like and what are your financial goals? Start here, then reconcile that picture to what your corporate objectives need to be to satisfy that personal vision. I decided long ago that our corporate mission would reflect the personal goals I set for myself — God first, family second, and business third. Let whatever this is for you to drive the strategic business plan. Don’t get caught playing the loser’s game and avoid these common business owner mistakes.

Use our downloadable worksheet to get started on developing a successful business.

Important Information

Past performance does not guarantee future results. The views presented are those of Don Schreiber, Jr., and should not be construed as investment advice. All economic and performance information is historical and not indicative of future results. This is not an offer to buy or sell any security. No security or strategy, including those referred to directly or indirectly, is suitable for all accounts or profitable all of the time and there is always the possibility of loss. You should not assume that any discussion or information provided here serves as a substitute for personalized investment advice from WBI or any other investment professional. If you have questions regarding the applicability of specific issues discussed to your individual situation, please consult with WBI or your chosen professional advisor. This information is compiled from sources believed to be reliable, accuracy cannot be guaranteed. WBI’s advisory operations, services, and fees are in the Form ADV, available upon request.