Guided Path 6-3 Invest in Your Business & Your Retirement

The Financial Call

Guided Path 6-3 Invest in Your Business & Your Retirement

Knowing how to effectively scale your business can greatly impact your retirement plans. Just imagine the opportunities and challenges that come with taking that leap!

In this episode, Zacc Call and Laura Hadley discuss investing in your business and retirement as a business owner. They differentiate between business creators and solo practitioners, emphasizing the importance of scaling up a business to increase income potential.

They also caution against relying too heavily on the value of the business as a retirement plan and discuss the challenges and trade-offs of scaling a business.

Zacc and Laura discuss:

  • The difference between business owners and solo practitioners: How does this affect how you exit your business?
  • How to diversify your retirement savings as a business owner
  • Mitigating the common challenges of business ownership (Scarcity of resources, time, money, talent, and a diverse network!)
  • How to scale up your business and increase your retirement income
  • And more

Read the Full Transcript:

[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 in season six, all about business structures for business owners. We're about halfway through, we're on episode three, investing in your business and in your retirement. I think this is a really valuable episode.We talked about business structures last time, retirement plans you can set up for your business and then how to actually set up your business was actually the first episode. But I think this is a common question that people have, you know, they're investing so much time and so much money into their business. Sometimes they forget about. Investing for retirement. So today we're going to dive right in talking about ways to

[00:01:00] actually save for retirement while also investing in the business, how to manage that, how to grow the business. Basically at the end we're shooting for more money in retirement and we're figuring out the best way to do that is that investing in other assets. In retirement accounts, is that investing in yourself and in your business and in people? I think we're just going to dive right in. Zacc has a lot of experience in this, so I think you're going to run a lot of this conversation, but I think it'll be really valuable for our listeners. Thanks, I don't know about the experience. I mean, yes, with Capita, being a business owner and working for the business, I guess I feel like I've seen that and seen quite a few of our clients go through this and see this. So, I guess I've had the experience as an observer for a lot of people. Which is valuable because you have the outsider view, the unbiased view of what actually happens. So I think that's helpful. Right. Which has been interesting to learn it. Hopefully I'll share some of my thoughts around this. Learning it as a business operator as well as, you learn things when you do them way better than when you observe them. But yeah, this has been combining those two

[00:02:00] things together should be pretty interesting, hopefully. It feels like it's been a long time since we've recorded. Is that It's been a few weeks Yeah, it feels like it's been a while. For those listening, we have a schedule and Lara keeps us really on top of this. She does a great job. We put these out every two weeks. But we may record like once a month or even once every other month it seems like and we'll knock out a bunch of them at once. So today, diving into invest in your business and in your retirement. Before we go too far, I'm talking to you business owners today. Because this is a difficult conversation and I think you constantly are torn. You have a scarcity of resources. You have a scarcity of time. You have a scarcity of money. You have a scarcity of talent. You have a scarcity of your network. And you feel that scarcity. As a business owner, you always, even if you have great clients and more coming in a good pipeline, you feel like

[00:03:00] you have a scarcity of prospects and new customers. It's just constant change within the environment. In other words, you're feeling scarcity on so many levels that for you to feel comfortable with your financial decisions. Let's just throw that notion out for a minute, like you're never really going to feel like, Oh my gosh, I'm doing everything I'm supposed to do. There are very, very few people out there that ever feel that good about their finances, especially business owners, because business owners are oftentimes the highest risk takers. Now, I do want to be clear, though. There's a difference between two different types of business owners. And that fork in the road changes the advice completely. So we have to really understand the two different types here before we go too far down the road. So are you a business creator? Or are you a solo practitioner? So there are a lot of people out there who practice in a business, may have one or two or three assistants

[00:04:00] or other professional staff that help them, and have no intention to grow it any further than that. Their business basically is their job. They make good money usually. They provide their own benefits. They either get their own private health insurance, sometimes provide it for their employees, and retirement is basically either the value of their clientele, or the value of the contracts that they have. Maybe if they're a construction company and they have certain contracts in place that are long term, or maybe they have certain inventory or equipment, but that oftentimes becomes their retirement. So I actually think that's a mistake to rely too heavily on that because... You don't want to be subject to the business valuations of the particular time when you turn 60. Like, who knows? Maybe the particular business is worth a lot at that time, or maybe the industry has changed. My dad was a photographer, and When he started, they were taking pictures on film and the ability

[00:05:00] to take a roll of film. Laura, I don't know if you know this stuff because you're so there are 24 shots on a roll of film. That's what I was going to Okay, I didn't know that. That's fair. They were like either 36 or 24. And the different rolls of film had different Speed at which it lets the light through and so you had all like ISO is that's where that comes from, by the way, if you ever Stock option. Exactly. You know what ISO stands for in our world. The acronym something else somewhere else. Anyway, the point is the ability to take those shots and quickly one handed rip out that roll of film and insert another perfectly and get it slid in and closed in seconds at the floor of a jazz game or something like that was actually a big deal. And then the ability to take those and develop them in a dark room, turn them into large prints that had the right color and the right exposure, and then take those over to the other room where the editors would put it all on the page. Like, all of those were skills that mattered and then became obsolete

[00:06:00] because of digital photography. In other words, if your business is something that could change, which most businesses will, we're seeing that with AI changes today. That you do not want to rely on something that could become obsolete. So in other words, if you are a solo practitioner, we're going to talk more about this and how you should be thinking, but I'm going to give you a little bit of hint towards the end. You actually should be thinking about saving to retirement like you are an employee of a business. Because you are an employee of the business, you just happen to also own it. But it's more of a job than a scalable business. And even your assets might not be as valuable because a film or all the cameras that your dad had might not. All those were. Even be valuable. Yeah, exactly. Obsolete back then. So, let's talk about the other side though. The business creator. The wealthiest people I know are business owners. In fact, in some of the wealthiest neighborhoods I get to talk with people and it's really interesting. They'll tell me that the neighbors that they have that are the most poor in their neighborhood are the doctors. Oh,

[00:07:00] interesting. Because. Because that's the stigma, you know. Doctors and lawyers are the richest people. Exactly. And in some of the wealthy neighborhoods, they are oftentimes the less wealthy. Interesting. Interesting. Because. And you can take pretty much any business and if you scale it up, you could take the limitations off of earned income from it. Let me give you an example. If you are a dentist and you decide you are going to, you just love dentistry and you're going to have your hands in the work constantly and you're going to hire some hygienists and other assistants and receptionists. You're basically limited to your time. But if you created a dentist franchise or firm that was able to hire multiple dentists across multiple locations, you can see how that could scale up. Another example that is pretty interesting, let's talk about landscaping. Typically considered low income profession. I worked landscaping when I was in high school and we installed sprinkler systems. And I made very, very little money doing it.

[00:08:00] I worked all summer to barely pay for a few things throughout the year. I was going to say, do you remember what you made that summer? That'd be interesting. Um, yeah, I made nine. dollars an hour, which actually was pretty good at the time. I think the year before I made eight something and he gave me a raise when I came back the next summer and got nine something. That's not bad. But anyway, moving back to landscaping, if you are a solo practitioner, really good landscaper, let's say, and I actually pulled some numbers based on what I think today is probable based on because I just paid for some landscaping work. So it. If a solo practitioner can profit maybe 5, 000 per project and they can average one project per week, they're probably working on multiple, but they probably take more than a week to do. And so if you can average finishing one project per week, and then maybe because of landscaping's a very seasonal work, you might get 40 good weeks out of that. So 5, 000 per project, one project per week for 40 weeks is 200, 000 of income. Great income. You're

[00:09:00] limited to that based on how much time you have, both from weather and your own personal time in the week. Now, let's scale that. Let's say that you cut back on half of your time and you chose to run four other landscaping teams in place of that time. You're down to 20 projects per year instead of 40 because you were down of your own. So you're only making 100, 000 of income from your own work. Now, paying other people to do the work, you will profit less per project. Let's just say it's about two thousand, because you have to pay three of that towards other people for getting those done. And each person, each team, something you just need to understand is the people you delegate work to are just not going to be good at it. In your mind. They're just not going to be as good. I should say it that way, right? They're just not going to be as good as you at getting it done fast. Laura and I were talking about this, that anytime you delegate a task, people will do it different and they will oftentimes do it slower than you did it. And I think part of the reason they'll do it slower

[00:10:00] is because you're trying to get them to do it your way. The more you can have quality control about how things get done, but also allow people to have their own systems and processes, the faster they'll do it because they'll do it as it's intuitive to them. That's kind of a side tangent here. I'm just, I have a lot of thoughts on this and Laura's probably like get back on track. No, I think this is important. I think that is something to recognize as you are scaling your business. Your profit margins are probably going to come down and it's not going to be as fast and it's not going to be the same, especially if you want to keep your quality up. It's just going to be slower. And I think that's hard for people and they don't want to scale because they see those profit margins coming down, but we'll talk through these numbers. It's still can be an overall, or they don't want to manage people. That's a huge factor. Sure. Like, and there's nothing wrong with that. There are people that make great money as solo practitioners. As a solo practitioner. Because they don't want to deal with people. And that's okay. Let's talk about getting a smaller piece of a bigger pie. So the landscaper has four other teams. Each of the other teams does 30 projects per

[00:11:00] year instead of 40 like you could do. But that's okay. They're doing fewer projects because they're not as fast as you, and maybe you profit 2, 000 per project. And so you're making 60, 000 per team. Now you have an additional 240, 000 of income, a total of 340, 000. Now, if those teams get up and running and are efficient, you can move on to your next. Team, you can hire another one and take it up to five, take it up to six, take it up to 10, get the contracts in place and get the prospecting in place. Maybe hire a marketing person and the more you can hire to create systems around the machine rolling forward, then the higher the income potential is for you. So that is a business creator. I'm basically differentiating between these two because the advice that we would give to a business owner is drastically different. for those two people. For the solo practitioner, and I really want to be careful here, I actually know solo practitioners that make over a

[00:12:00] million dollars a year. So don't take me saying that one is better than the other. As well as I know solo practitioners that find immense value in what they do every day and are way happier than the person making a million dollars a year. Success is relative. What are you trying to accomplish? Don't take one or the other as being good or being bad. Just recognize who you are. Because oftentimes, we see people get this confused. And one of the big mistakes is they're a solo practitioner and they're thinking they're a business creator. So they go along thinking like, Oh, I'm building this big business. It has all this equity, has this huge value, or has unlimited earning potential. When to their time. And then they get to 60 years old, nobody wants to buy the business. The most they can sell is maybe the assets, the inventory, or some of the contracts. And they end up retiring, somewhat expecting

[00:13:00] more out of their business than they actually got. Especially if they were making a lot while they were working. Someone can't do that work without them there, and so the income drops off. You got it. And so even somebody who's making 250, 000 a year, their business, sometimes I see businesses that produce that much income that are only worth 800, 000 to a million dollars. Once you strip the key person out of the business, the buyer, most people would say, holy cow, a 250, 000 stream of income. That's a great investment. I'll buy it, but it won't continue without the key person performing. So they oftentimes are worth quite a bit less. So anyway, the point is, if you are a solo practitioner, Because your time is limited, you also need time to work for you, meaning you need to invest early, and you need to invest often. And all of our other podcasts about how to save, where to save, tax structures, all of that, they all apply to you. This episode is basically for the business creator. So I'm trying to

[00:14:00] differentiate here. If you are the business creator, Your income is unlimited, and let's talk about maybe 5, 000 you could have put into a Roth IRA versus 5, 000 that you might need to spend on getting a website. That website... And unfortunately, they do cost a ton of money if you're paying somebody else to help you with it and to make it look really good. That website, probably going to produce way more financial value for you than the 5, 000 to the Roth IRA. And that's coming from a financial advisor. I'm telling you, sometimes it makes. Way more sense to spend the money in your business than to invest it elsewhere. We talk about this at Capita all the time. We think about the cost of investing into a new employee, a new financial advisor that we might pull from another firm or from outside, and it's expensive for us. Maybe in this industry, and probably in lots of

[00:15:00] industries, investing in people is probably the most expensive. It really is. Expense of a business. Salaries and payroll are absolutely our biggest expense at Capitant. Like way more than rent, way more than software, way more than everything. It's finding really good people and then keeping them happy is. What we have to do at Capita, that's more because we're a service business and a knowledge based business and advice based business. If we were selling some exact product, I'm not sure, it would always be that way. But the point is, it is expensive for us to hire a financial advisor to the tune of like more than six figures in a short period of time. People don't realize like even if you pay someone 50 or 70 a year. The FICA tax, the health care, the 401k, the office space, the computer, the software. It adds up to an extra 30, 40, 50 really quickly. That's for an entry level kind of new advisor. If you're hiring someone who's seasoned and making really good money

[00:16:00] outside and. We need that talent level to take care of complexities that we might be dealing with, with clients. That's more expensive, but we think about that. If we were to put, as a business, 100, 000 into that advisor, or 100, 000 into an investment account, it will create way more income for the firm, putting it into the advisor. Because we're also putting our blood, sweat, and tears into it. There's sweat equity also training and helping and growing. And anyway, so business owner, think about this for a second. I'm telling you that your income is unlimited if you are able and willing to scale. If you are not able or willing to scale, you need to immediately convert into thinking more of, I need to save money away into other accounts and other savings and things like that. As a business creator, once you have created some traction in your ability to exist as a business, you know you're not going to go under because you're finding

[00:17:00] success, you're getting income. And then once you are starting to scale your business and you're seeing success in your first, let's call it wave one to wave two of scales, like for us at Capita, that was Bart. When we hired Well, I was probably wave one, so like when Mike hired me and then I came in and then I was able to help create some of the systems and then bring in Bart and Jason and advisors behind at that point, the business, the snowball was rolling and growing big enough that it wasn't just going to disappear. It didn't all rely on Mike. It was growing. So at that point, then the business owner needs to then convert their mindset to diversify by saving into other areas like retirement accounts and non qualified investment accounts. And business owners in general, you make so much money that you're not going to have, I say you make so much money because I'm talking to business owners that have created. If you've created a business, you probably are making somewhere between 200, 000 to 1, 000, 000 and more every year.

[00:18:00] You are going to not qualify for a ton of the tax benefits, but you want to take advantage of all of them that you can, and then start to save excess money in a non qualified brokerage account. And that way, you can have access to that money whenever you need it. If the business was in a lot of trouble, you could either sell those stocks and bonds and other investments, use them, or you could borrow against that account. I have a client that every once in a while, he needs money and just borrows against his stocks, a couple hundred thousand dollars. And he can put that into the business and use it for inventory or whatever he needs. And then once that sells, he can send the 200, 000 back in a couple months. There are ways to actually access the money without. selling and causing a bunch of tax ramifications. So what I'm trying to say here, let's see if we can summarize and then we'll talk about the last thing, which is getting the habits in place. So summarizing this is first, identify who you are, solo practitioner or business creator. Two, recognize if you are the

[00:19:00] business creator, you are making a conscious decision. of taking on risk. It's a trade off. You've chosen, I believe in myself, I believe in this business, more so than compound interest. I am going to grow this faster than I could elsewhere. And I'm going to throw pretty much everything I can towards the business to get the plane up to cruising altitude and then I'll come back and save. That's a pretty risky thing to do and that's why business creation is so hard. And then the hard thing to do later is to then, once you're at cruising altitude, to actually convert. Switch over. Yes, switch over and actually start to sock money away into other places. The smartest business owners I have do it. They still invest in their business. They never give up on growth. But they always are peeling off a little, they take chips off the table. It's like they're at the blackjack table and they don't leave them all on the table. They're pulling a couple off here and there and putting it elsewhere and letting it be a little bit more consistent, a

[00:20:00] little bit more high probability of growth. That's the trade off. Are you comfortable with that trade off? Are you okay with higher risk and higher reward? Are you okay with investing in yourself for a while? And are you honest with yourself enough to know that at some point You will convert over and actually start to save towards other retirement goals. So here's how you make that last step happen easier. Even if it's tiny amounts, you create the habits. You set up the accounts you think you need. For example, let's say you make 100, 000 a year. And you're barely scraping by, you've got three kids or four kids, and dance and soccer like they are so expensive. That takes 60. All too familiar. 60 of the hundreds. 60, you're left with 40, your mortgage is 30, and you're living on 10, 000. There you go. That's how it feels. Even if that's the case, set up the account, the IRA, the Roth, the non qualified account, the things that you think you will use. And we can talk

[00:21:00] individually for each of you about that. And put 10 a month, 25 a month, 50 a month, have it automatically set up to pull from your bank account and deposit in there. Because there will come a day, so 10, 20, whatever, that's nothing. And you can buy one share and you can wait till you have... 50 to 100 in there and buy one share of a total market blended, diversified fund. We can tell you the ticker for one of those if you want to call us, we're happy to chat with you about that and get you started. But the point is you could do that on your own, super easy. And at least the idea here is you've eliminated friction to success. Get rid of the friction in between you and success. So even if you can't put very much in, set it up so there's at least the river for the water to flow. flow when you have more volume, it'll be more successful, but get rid of the friction so that as your income goes from 100 to 500, 000,

[00:22:00] you're gradually changing your contributions to that account from 10, 25, 50 to maybe it's 3, 000 a month all of a sudden. And then you'll be super surprised at how much money you actually have in those accounts later. Again, do a summary. Who are you? Solo practitioner, business creator. If you are a solo practitioner, start saving early and as often as possible. And treat yourself like you would if you were working for another business, budget your income, make sure you're saving enough, shoot for normal standards of, 10, 15, 20% of income towards retirement and then actually run projections. That's. That's the plan for the solo practitioner. And then maybe factor in the business sale at the end. Maybe don't. But for the business creator, you're going for broke here. Go for it. If the only way to make your business work is to really go for it, go for it. Don't go for it for 20 years. Like if it's not working after a certain amount of time, you need to be honest with yourself, but go for it. Invest in your business. Create a tiny little stream

[00:23:00] so that when the water flow is heavier, you know how to easily allocate more money towards retirement and you give yourself the habit now, so that the friction between you and success is less and it becomes easier. I think that's it. Yeah, that's great. Next episode, we're going to talk about exiting your business. So if you are the business creator or even a solo practitioner, you've gotten to the point, you do have a valuable asset on your hand, you're trying to get out, how do you do that? How do you control taxes? That'll be a helpful one for you. We have some guests coming in for that one too. We do. Yeah. That'll be good fun. Okay. 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 of future results. There can be no

[00:24:00] 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, information, and opinions, including descriptions of

[00:25:00] anti anticipated market changes and expectations of future activity. Capital believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, Forward looking statements, information, and opinions 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 or training.


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