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Financial Blind Spots That Could Cost Business Owners with Alejandra Borgé · Financial Futures: A Measured Wealth Podcast

• 0:00
  SPEAKER_03: Are you a business owner?
• 0:02
  SPEAKER_03: Stay with us as we explore three financial mistakes business owners should watch out for.
• 0:10
  SPEAKER_00: The information and opinions presented in this podcast, including the views of guests not affiliated with measured wealth, is for general informational and educational purposes only and should not be considered investment, tax, or legal advice.
• 0:23
  SPEAKER_00: Any references to specific securities, products, or services do not constitute a recommendation or endorsement.
• 0:29
  SPEAKER_00: All investments involve risk, including the possible loss of principal.
• 0:33
  SPEAKER_00: Past performance is not indicative of future results.
• 0:35
  SPEAKER_00: Listeners should consult their own financial professionals before making any financial decisions.
• 0:40
  SPEAKER_00: Measured Wealth Private Client Group is registered with the Securities and Exchange Commission.
• 0:44
  SPEAKER_00: This registration does not imply a certain level of skill or training.
• 0:51
  SPEAKER_02: Welcome to Financial Futures, a Measured Wealth podcast powered by the team at Measured Wealth along the beautiful New Hampshire Seacoast.
• 1:00
  SPEAKER_02: Each episode, we're bringing you fresh insights on retirement, investing, and everything you need to take control of your financial future.
• 1:07
  SPEAKER_02: Whether you're preparing for retirement or already living it, we're here to help you make informed choices with confidence.
• 1:12
  SPEAKER_02: To kick off today's conversation, here's your host, certified financial planner and chartered financial analyst, George Zaharopoulos.
• 1:25
  SPEAKER_03: Hey everyone, I'm joined by Alejandra Borgay.
• 1:30
  SPEAKER_03: Alejandra is a wealth advisor at measured wealth.
• 1:32
  SPEAKER_03: And Alejandra is based out of South Florida, and Alejandra is a certified financial planner.
• 1:37
  SPEAKER_03: How are you, Alejandra?
• 1:39
  SPEAKER_01: Hey George, thank you so much for having me once again here at Sunny Portsmouth.
• 1:44
  SPEAKER_03: That's great to see you again, and thanks for joining Alejandra.
• 1:48
  SPEAKER_03: So tell us a little bit about your practice.
• 1:50
  SPEAKER_03: What's going on down there in South Florida?
• 1:52
  SPEAKER_01: Yes, as you mentioned, I am based in South Florida, but my practice serves primarily business owners and families or individuals across the country and also some international, helping them connect the dots between a business, personal wealth, um, taxes, and long-term legacy.
• 2:08
  SPEAKER_03: Excellent.
• 2:09
  SPEAKER_03: So you've got some specialty working with international clients.
• 2:12
  SPEAKER_03: Some of those clients are business owners, which is going to be like one of our topics for today, right?
• 2:16
  SPEAKER_01: Yes.
• 2:17
  SPEAKER_01: In fact, the main topic.
• 2:19
  SPEAKER_03: Awesome.
• 2:20
  SPEAKER_03: So what what are some of the mistakes that you're seeing business owners make uh these days?
• 2:25
  SPEAKER_01: Well, yeah, there's quite a few, but I think we should focus on three that are very uh, you know, current and very um recurring, as I must say.
• 2:35
  SPEAKER_01: Um, one is separating their business wealth from their personal wealth.
• 2:39
  SPEAKER_03: Interesting.
• 2:40
  SPEAKER_03: Why is that an issue?
• 2:42
  SPEAKER_03: And how often do you see that happen?
• 2:44
  SPEAKER_03: What could happen if business owners are commingling, you know, their personal finances with their business finances?
• 2:50
  SPEAKER_01: Well, that's one of the biggest things I see in financial planning and in risk management is that the majority of these business owners have concentrated wealth in their operating businesses.
• 3:00
  SPEAKER_01: But what happens if um these businesses are you know cyclical with the economy?
• 3:05
  SPEAKER_01: What happens if they have a bad quarter, bad year, bad five years, let's say, you know, their personal wealth comes down with them.
• 3:13
  SPEAKER_01: So the separation of the business wealth versus your financial wealth um as a family or as an individual is very important to keep that kind of separated for your well-being and for the business's well-being as as well.
• 3:29
  SPEAKER_03: That's interesting.
• 3:30
  SPEAKER_03: How how can that, you know, if people are commingling their finances with their business, can that affect their liability protection?
• 3:38
  SPEAKER_03: You know, can can someone or a creditor come after their personal assets for uh as in a lawsuit or creditors?
• 3:46
  SPEAKER_01: Well, yeah, we see that often, especially in South Florida, where you know, a lot of clients or a lot of business owners don't protect their business wealth versus their personal wealth, and and you know, sometimes they commingle, as you mentioned, which is a key word here.
• 4:01
  SPEAKER_01: They don't structure their businesses correctly to the point that then, you know, these lawsuits or these big financial responsibilities should come after them in the in their personal assets.
• 4:12
  SPEAKER_03: Yeah, and I bet you that can also create some sort of tax issue as well, because you know, there might be some deductions that if you're paying a personal expense out of a business account, you know, that could really uh that could mean that some of those aren't really qualifying as deductions.
• 4:28
  SPEAKER_01: Right, yeah, we see that often where um you you know business owners use their personal assets to fund business operations and vice versa, business operations to fund their personal assets and their personal, you know, lifestyle.
• 4:42
  SPEAKER_01: Um again, you know, they collaterize their businesses um to use it for per personal lifestyle expenses, which then you know begs to begs to ask the question like, hey, at what point are we diversifying our exposures?
• 4:56
  SPEAKER_03: Yeah, good point.
• 4:57
  SPEAKER_03: Because I think a business owner really should have a business balance sheet as well as a personal balance sheet.
• 5:04
  SPEAKER_03: Correct.
• 5:04
  SPEAKER_03: And you mentioned that um a business owner a lot of times if if they don't have that separated, they really can't see how concentrated their wealth is with their business.
• 5:14
  SPEAKER_01: Yeah, one big thing is how over concentrated their net worth is in the operating businesses, and a lot of the times, because that's the industry they know of, that that tends to be a lot of their personal assets being invested in this in this same industry that they work out of.
• 5:29
  SPEAKER_01: Because hey, it's it's easy.
• 5:30
  SPEAKER_01: It's it's an industry that I've known and I've grown to know with my own business, so why not invest in something I already know?
• 5:36
  SPEAKER_01: So if we look at it from a risk management perspective, it just the clients or the business owners' overall wealth is extremely concentrated in the same industry or in the same cash flow per se, they don't diversify their cash flow either, which adds a risk component to how they operate their business and also to their personal um financial wealth.
• 5:58
  SPEAKER_03: Yeah, and I can also see that this might affect their ability to borrow.
• 6:03
  SPEAKER_01: Right.
• 6:04
  SPEAKER_03: Okay, and maybe even their ability to sell the business in the future because if there's personal mixed in with business, the financials may not be as accurate, and that may delay the process for getting qualified for a loan or selling your business.
• 6:19
  SPEAKER_01: Right.
• 6:20
  SPEAKER_01: I think it's extremely important to have like um, you know, clear divider between, you know, the bookkeeping on your personal side versus on on your business side and keep those completely separate just in case you want to ever sell your business, you want to leave it up for for as a legacy for to family members, whoever you want to leave that to, or whatever decision you want to make in your business going forward.
• 6:40
  SPEAKER_01: Um, I think it's extremely important to have those separate, especially as you you mentioned, you know, um in terms of lending um and borrowing for your business for you know capital or working capital, I'm sorry, you're gonna need to set have those b um assets separated, those financials separated to be able to get the loan.
• 6:58
  SPEAKER_01: So we talked about over concentration, diversification in terms of risk management, commingling of your financials between personal and business.
• 7:07
  SPEAKER_01: But we, you know, at what point also I want to make an awareness here is you work or you have your business because you want to accumulate personal wealth.
• 7:16
  SPEAKER_01: So at what point do we realize that we're not accumulating any assets on a personal level because we've basically have a mess going on in our business?
• 7:25
  SPEAKER_03: Mm-hmm.
• 7:26
  SPEAKER_03: Yeah, great point.
• 7:27
  SPEAKER_03: And I want to just back up one one moment too, because uh you made a good point about managing the books from the business side versus the personal side.
• 7:35
  SPEAKER_03: So what I'm hearing is uh especially for the new business owners out there, just starting a business where some of this commingling might occur a little more frequently.
• 7:45
  SPEAKER_03: Right.
• 7:46
  SPEAKER_03: Make sure you have a separate business bank account from your personal account.
• 7:51
  SPEAKER_03: So that was a good takeaway.
• 7:53
  SPEAKER_01: Yeah.
• 7:54
  SPEAKER_01: I think that's step number one.
• 7:57
  SPEAKER_03: Awesome.
• 7:58
  SPEAKER_03: All right.
• 7:58
  SPEAKER_03: I know we're gonna we have a couple that we're gonna talk about today.
• 8:01
  SPEAKER_03: So number two, I believe number two, we're talking about tax strategies.
• 8:05
  SPEAKER_01: Yes around so I think the number two, the one that I see the most often is um or that business owners express having to have a weakness here is missing tax strategies for tax savings, tax deductions in their businesses.
• 8:20
  SPEAKER_01: One of the things we we help structure and we manage here at Measured Wealth is retirement plans.
• 8:26
  SPEAKER_01: Often, I know this might sound boring, but they're very overlooked as to the power they have into a financial plan or a business owner's financial plan, is not having a retirement plan in place, whether that be a 401k, a cash balance plan, a profit sharing plan, one that is designed for you as a business owner that um encompasses also the scalability of the of your business.
• 8:51
  SPEAKER_01: Not only, you know, something generic that doesn't grow with you.
• 8:54
  SPEAKER_01: If we're gonna do something and we're gonna do it right, let's design it for you, for your business, and make sure that the owner is um taking a lot of advantage in terms of tax deductions and tax credits here for their business and for their personal wealth as as well.
• 9:07
  SPEAKER_03: You make a great point.
• 9:09
  SPEAKER_03: A business owner might have uh multiple objectives uh if they were to for their retirement plan, it could be to minimize taxes, could be to retain employees, or it could be for their own retirement purposes.
• 9:23
  SPEAKER_03: Right.
• 9:23
  SPEAKER_03: But um what really determines the right plan for for a company?
• 9:28
  SPEAKER_01: I mean, what really determines that the perfect plan for a company would be the size of the company, the cash flows of the company, the objectives of the owner.
• 9:36
  SPEAKER_01: Let's start there.
• 9:37
  SPEAKER_01: I should have mentioned that one first.
• 9:39
  SPEAKER_01: You know, how important it is for you to retain employees and the structure of how your business is is set up, I think are the main most important points um to address before we we start designing anything for you.
• 9:53
  SPEAKER_03: Who who are generally, just for our audience, who are generally the players involved in a group employer-sponsored retirement plan?
• 10:01
  SPEAKER_01: Um I would say first thing would be um your financial advisor, the one that's providing education to you as the owner, watching out for you as a fiduciary, and also making sure that that your investments are aligned to your growth in terms of the business and your personal assets.
• 10:17
  SPEAKER_01: Um then we have your third-party administrator, um, and you have your record keeper.
• 10:22
  SPEAKER_01: So all these three play like a specific tag team for you watching out for you, for your business, like a quarterback, like the Tom Brady's watching out for you to make sure this plan is aligned to you, to your business, and and make sure your employees are getting the proper education also needed so they can participate and they can, you know, we you encourage them to be loyal to you as an employee of your business and also grow their personal wealth as well, you know.
• 10:49
  SPEAKER_01: Everyone wants to make money.
• 10:51
  SPEAKER_03: Yeah.
• 10:51
  SPEAKER_03: I mean, with that type of team, a business owner can really stay in compliance by having the third-party administrator to help them with funding contributions, uh, understanding the IRS guidelines.
• 11:04
  SPEAKER_03: You have the financial advisor who's helping out with participant education, uh, also creating the fun lineup.
• 11:11
  SPEAKER_03: Right.
• 11:12
  SPEAKER_03: That actually brings up a good point.
• 11:13
  SPEAKER_03: What does a good retirement plan look like for an employer?
• 11:17
  SPEAKER_03: I would assume number one is having the proper participant education.
• 11:21
  SPEAKER_01: Right.
• 11:21
  SPEAKER_03: Uh having a good fun lineup.
• 11:24
  SPEAKER_01: Yes.
• 11:24
  SPEAKER_01: Which is that's important.
• 11:25
  SPEAKER_01: That gets often rebalanced as well.
• 11:27
  SPEAKER_01: Stay on top of the market trends and and you know the the the economy.
• 11:32
  SPEAKER_03: Excellent.
• 11:32
  SPEAKER_01: And make sure that your fees are appropriate to what the size of your company and the size of your plan.
• 11:37
  SPEAKER_01: That as well, I would say.
• 11:38
  SPEAKER_03: What what should a business owner be thinking about if they already have a plan in place or let's say they don't have a plan in place and they're thinking about starting one up?
• 11:48
  SPEAKER_01: If they already have a plan in place, maybe we could take a look at a second opinion and see if their fees are aligned to what they should be paying.
• 11:56
  SPEAKER_01: Um, if there's something better out in the industry that we can do, to make sure that the fund lineup is up to date.
• 12:03
  SPEAKER_01: Um, has it been rebalanced?
• 12:05
  SPEAKER_01: Has it been looked at?
• 12:06
  SPEAKER_01: Are there any funds that are kind of outdated and we could do you know swap out for something better?
• 12:11
  SPEAKER_01: You know, make sure that there's like specific models that we can build out for for the employees and they can take advantage of of that instead of just a regular target date fund.
• 12:21
  SPEAKER_01: We can take a look at that.
• 12:23
  SPEAKER_01: And if you don't have a plan in place, we can build a proposal for you at no cost, and you know, we can see if that works well with your company or if there's something you want to structure for your company and make sure it's aligned with your taxes.
• 12:36
  SPEAKER_03: Yeah, and for those companies who that do have a plan, I think it's important to to review that every few years anyway, because the cash flows might change, the objectives of the owner might change as you get as the owner gets closer to retirement, they might want to you know have a greater level of funding, right?
• 12:54
  SPEAKER_03: Take advantage more of uh tax benefits.
• 12:56
  SPEAKER_03: Um, I know we're not on here for a long time, but you know, there's a cash balance option which which can generally help an owner with uh extra contributions.
• 13:07
  SPEAKER_03: Right.
• 13:08
  SPEAKER_03: Uh so it's key to work with a third party administrator or an actuary to determine if that's if that's relevant.
• 13:14
  SPEAKER_01: Yeah.
• 13:14
  SPEAKER_03: But great, okay.
• 13:16
  SPEAKER_03: Anything else regarding uh retirement plans for businesses?
• 13:19
  SPEAKER_01: I don't think though so I think we can jump over to point number three, which I think is very, very important and something every business owner as they get older after the retirement plan they take into consideration is they don't have a clear exit strategy for their business.
• 13:36
  SPEAKER_03: Yeah, this is interesting.
• 13:37
  SPEAKER_03: Most business owners probably start thinking about the exit plan when they actually want to sell.
• 13:42
  SPEAKER_01: When they're fed up of working.
• 13:45
  SPEAKER_03: But that's that's actually the wrong way to think about it, right?
• 13:47
  SPEAKER_03: Right.
• 13:48
  SPEAKER_01: Yeah.
• 13:49
  SPEAKER_03: So that that really, you know, it really starts much earlier.
• 13:53
  SPEAKER_03: That process starts uh a lot earlier.
• 13:56
  SPEAKER_01: What do you say would be like a timeline that um that a business owner should start looking into maybe like 10 years?
• 14:03
  SPEAKER_03: I want to sell my business ten years down the road, or yeah, I think that's a good timeline because I I think there's a lot to investigate, a lot of considerations.
• 14:12
  SPEAKER_03: You want to think about who your potential buyer is, how you're gonna transfer the company, maybe it's gonna go to a family member.
• 14:20
  SPEAKER_03: So knowing some of those things, you can kind of offload some of the risk to a buyer, which might increase the value to a buyer.
• 14:28
  SPEAKER_03: Uh, you certainly don't want your business to be solely dependent on the business owner.
• 14:33
  SPEAKER_01: Oh, yes, that's a huge one.
• 14:34
  SPEAKER_03: Nor do you want the business to be solely dependent on just a few clients.
• 14:38
  SPEAKER_01: Right.
• 14:38
  SPEAKER_03: So is there a marketing strategy?
• 14:40
  SPEAKER_03: Most businesses, you know, are valued or or transacted upon um uh some sort of uh cash flow multiple, right.
• 14:48
  SPEAKER_03: Like Ebita.
• 14:50
  SPEAKER_01: Yeah.
• 14:50
  SPEAKER_03: Uh earnings before interest taxes, depreciation, and and amortization.
• 14:54
  SPEAKER_03: So keying in on some of those financials and how do you grow that over time?
• 15:00
  SPEAKER_03: How do you increase that multiple?
• 15:03
  SPEAKER_03: So one of those ways might be through operational efficiencies where you can increase your margins.
• 15:09
  SPEAKER_03: Um, another way, of course, is gonna try to grow top line revenue.
• 15:13
  SPEAKER_01: Yeah.
• 15:13
  SPEAKER_03: And basically just how to increase that value over time.
• 15:16
  SPEAKER_01: Yeah, that's something that takes some time.
• 15:18
  SPEAKER_01: But you did point out something, George, regarding risk.
• 15:21
  SPEAKER_01: Um, and I I tend to come back to this topic risk because I think that's primarily what we we try to reduce as much so we can get more return on everything we do in life.
• 15:31
  SPEAKER_01: One big thing is can the business run without you?
• 15:35
  SPEAKER_01: That's a huge question that I usually ask business owners as they come on board for financial planning.
• 15:41
  SPEAKER_01: And why I ask that is because if you the answer is no, that means that the the business doesn't run without you.
• 15:47
  SPEAKER_01: Like, what are we trying to sell?
• 15:48
  SPEAKER_01: We can't sell you.
• 15:49
  SPEAKER_01: And what if you get sick or injured?
• 15:51
  SPEAKER_01: Right, yeah, exactly.
• 15:52
  SPEAKER_01: So I think um, you know, starting to um let go of control of the business and let it run without you is where we start increasing the value of the you know the appraised value of of the business we're trying to sell.
• 16:05
  SPEAKER_01: So that takes some well, you know, quite a few long time to let go, especially if it's something you've built from scratch.
• 16:11
  SPEAKER_01: There's a lot of emotional value attached to that, I think.
• 16:14
  SPEAKER_03: Yeah, I think a good place to start is really focusing on on the financials and again diversifying that risk.
• 16:23
  SPEAKER_03: Right.
• 16:23
  SPEAKER_03: So if the business is dependent heavily on the business owner, how do you get away from that?
• 16:29
  SPEAKER_03: So th those are all key considerations.
• 16:31
  SPEAKER_03: And then as you get closer to that exit sta stage, that's when you really hone in on the financials, and you know, can a buyer uh sustain borrowing to purchase your business based on that cash flow is maybe another item or factor to consider.
• 16:47
  SPEAKER_01: Right.
• 16:48
  SPEAKER_01: But again, to your point, what if it's not a buyer and maybe we just want to pass hands in terms of family or children not looking for a third party to sell?
• 16:56
  SPEAKER_01: But what if you know we want to keep maintain the family business growing, you know, exchange of hands.
• 17:02
  SPEAKER_01: So three things to consider here, I would say, is who is gonna take over?
• 17:06
  SPEAKER_01: Is it gonna be your family, children, grandchildren, or is it gonna be third party outsiders?
• 17:11
  SPEAKER_01: And you know, determine the timeline of when you'd want to release control.
• 17:15
  SPEAKER_01: You know, how long do you want to let go of that?
• 17:18
  SPEAKER_01: And then number three would be control.
• 17:21
  SPEAKER_01: Do you want to keep some and uh to what extent?
• 17:23
  SPEAKER_01: And that's some three things that I would consider as we prep to you know start retiring, quote unquote.
• 17:31
  SPEAKER_03: Yeah, that's a lot to think about.
• 17:33
  SPEAKER_01: Yeah.
• 17:33
  SPEAKER_01: I know we we um we had discussed off offline George some action items that these business owners can make um as we wrap up the podcast, and I think what would you what would you say?
• 17:45
  SPEAKER_03: You know, in general for business owners, maybe you know, a few action items based on all all three of these potential mistakes.
• 17:53
  SPEAKER_01: Yeah.
• 17:54
  SPEAKER_01: One, begin with separating your business with your personal assets and make sure they both have a a clear-cut objective too.
• 18:03
  SPEAKER_01: You know, where do you want we where do you want to take both in life and your business and your personal wealth?
• 18:08
  SPEAKER_01: Um, number two is if you don't already have a tax deduction vehicle or tool in your bit implement it in your business or in your personal life, consider that.
• 18:17
  SPEAKER_01: And then I think number three, you know.
• 18:20
  SPEAKER_03: Start thinking about that exit strategy.
• 18:22
  SPEAKER_01: Yeah, if it's coming sooner rather than later, have that top of mind.
• 18:26
  SPEAKER_01: Maybe don't entertain it now, but hey, that's something that's gonna come at some point.
• 18:31
  SPEAKER_03: And if these are uh areas that you have questions about, you know, reach out to your financial advisor, reach out to measured wealth, myself or Alejandra, and we'd be happy to uh run any illustrations, talk you through some of these items.
• 18:46
  SPEAKER_03: Yeah.
• 18:47
  SPEAKER_03: Alejandra, thank you again for joining me today.
• 18:50
  SPEAKER_03: And thanks everyone for tuning in to Financial Futures, a Measured Wealth podcast.
• 18:54
  SPEAKER_03: If you enjoyed today's episode, be sure to follow or subscribe on your favorite podcast app so you never miss an update.
• 19:01
  SPEAKER_03: Want to learn more, get in touch, head over to measuredwealth.net where you'll find prior episodes, helpful financial planning guides, and more.
• 19:08
  SPEAKER_03: You can also call us at 603-431-1444 or email at info at measuredwealth.net.
• 19:16
  SPEAKER_03: That's info at measuredwealth.net.
• 19:19
  SPEAKER_03: Thanks again for listening, and remember the future will someday be the present.