By Jaimie M. Blackman, M.S.Ed., CWS
In the first part of this piece (which ran in the August/September 2016 issue), I provided a framework to promote impactful conversations to overcome technical and emotional roadblocks when conducting effective money conversations. I use, and continue to use, music metaphors to sweeten the message. As an aid to making sound financial decisions, I introduced a process that helps people organize their financial lives into seven issues of wealth I call MoneyCapsules: Values, Cash, Return, Tax, Risk, Time, and Giving
There are many obstacles to making sound financial decisions, especially during succession and business exit planning, which is the focus of this article. Due to the holistic nature of transitioning one’s business ownership, there are a myriad of issues to address, including financial, legal, accounting, emotional, and family. You name it, succession planning has it! As a result, it’s easy to get lost in the noise as your feeling of control diminishes. The language impedes the process by changing it from succession planning to “perennial planning.” In fact, two-thirds of public and private companies admit they have no formal CEO succession plan in place.
In this article, I will help you understand why being able to recognize and communicate your “financial self” to your family members and team of professionals is key and offer insights on how you can do it!
Once these principles are understood, you’ll be able to respond to the questions: Are my financial decisions in harmony with my personal values? What matters most to me about my business exit, and the business of my family? How can I ask my team the right questions so I’ll understand my choices as well as the consequences of my financial decisions?
Every business owner is familiar with the hazards of making incorrect business and personal financial decisions. Often the professionals you rely on are part of the problem. In fact, I’ve heard it estimated that 80 per cent of clients actually ignore the advice their financial advisor offers. If this is even partially true, it’s a shame.
Unfortunately, many financial plans are initially communicated exclusively with number values rather than personal values. This is backwards. It’s no surprise that according to Cerulli Associates, only 42 per cent of financial advisors implement comprehensive financial plans.
Comprehensive means moving beyond the traditional venue of financial planning, which is financial goal-driven. Comprehensive financial planning should begin with the more personal aspects of money. In other words, personal finance has more to do with the personal than the finance. That’s why I redefined what a financial plan is.
Financial planning is a series of ongoing values-based conversations designed to help individuals organize and understand all aspects of their financial life that are necessary for making sound financial decisions.
Capsulizing your financial life into seven issues of wealth is like having access to a roadmap to better communicate your concerns and understand the consequences of your financial decisions. After all, it’s much easier to swallow one small pill at a time than trying to swallow one large one. (To receive your ValuesMap, visit Moneycapsules.com and click on Contact Us. E-Newsletter subscribers also receive a ValuesMap).
Here’s an example: Let’s say you are sitting down with one of your advisors and you begin the meeting by saying, “John, here’s what matters most to me about my family and business:
- We need to make sure we have enough income to fund our longevity. Our parents lived until 99, and my partner and I are expecting a long run. (Cash-cash flow, Return, investment return on all your assets)
- Philanthropy is vital to us. Our goal is to set up some type of tax-efficient giving venue, while we are alive, to accomplish this. (Giving)
- We have been training our oldest daughter to take over the management of our business. We want to make sure we can transfer ownership to her within the next five years in the most cost effective way. (Tax)”
By using this approach, you are setting the stage for strategies that are aligned with your values. You are using the seven MoneyCapsules as your cue cards so you keep your conversation on track.
If you are talking with your financial planner, he or she needs to understand what your cash flow needs will be and the amount of return you require from the proceeds of your business or other investments you have. If you are speaking with your legal or tax advisor, he or she may have specific ideas for establishing a tax efficient charitable trust.
If you are speaking with your legal advisor, he or she will be able to craft a buy-sell agreement in a way that is suitable for your needs.
And in an ideal world, if they are all speaking with each other (which I recommend), all advisors will be singing the same song on your behalf.
An Artful Way to Talk About Money
So how do you speak artfully about money while creating optimal financial decisions for both your family and business? By first establishing a “values-based mindset” and knowing how to ask values-based questions.
You might be thinking that it is the responsibility of your advisors to ask the right questions. Remember, financial planners, accountants, and attorneys have a very technical language. Many suffer from the curse of knowledge. That is, they forget the importance of simplicity and slip into a monologue filled with technical jargon.
To keep it simple, use a values-based approach for understanding your choices and consequences. Asking the right question at the right time is key because even a great answer to the wrong question is of little value to you.
Here are some of the important strategic themes your financial, legal, and tax team should discuss with you and how you can sound like a financial virtuoso. Remember, you don’t have to know the answers; you just have to be able to ask the right questions.
- Keeping it in the family
- Buy-sell agreements
- Gifting of shares
- Retirement income
- Management succession planning
- Liquidation of the business
Admittedly, there are a lot of issues that will be brought up by your team. That’s why, before you begin these discussions, it’s important to have clarity on your personal values as well as those of your spouse, partner, or other family members. Grounded in your values, conversations with your team are more effective.
Here’s where your newly-learned process comes in handy. For example, think about what’s important to you about Cash, Return, Tax, Risk, Time, and Giving and ask: How will the strategy (i.e. valuation or keeping it in the family) you are recommending affect my cash flow? How will valuation affect my return? My tax? My risk? My time? My giving?
By using this process, you will maintain control of the conversation and invite your professional team to discuss strategies and consequences in terms you will understand.
Listen carefully to how your advisor responds to your questions. If you feel your advisor is unwilling or unable to respond to your questions in a way you understand, bring it to his or her attention. If you’re still getting nowhere, perhaps you should consider finding a new advisor.
Remember, money touches every part of your life, and the quality of your life is, in a very real sense, determined by the quality of your financial decisions. In part three, I’ll show you how to integrate a values-based approach to financial decisions into your own life by examining real world examples of music business owners who made sound financial decisions by honouring their personal values.
MoneyCapsules, Sound Financial Decisions, and The Sound of Money are trademarks of Media Solutions Inc. Mediasolutions.com.
This three-part series by Jaimie Blackman features excerpts from The Sound of Money e-Book: An Artful Way to Talk about Money.
Jaimie Blackman is the President of BH Wealth Management and Creator of MoneyCapsules. Jaimie’s team offers solutions to help guide music retailers and manufacturers through the complexities of succession planning. To subscribe to Jaimie’s newsletter, Succession Success: Insights for Music Retailers, visit www.moneycapsules.com.