| When Financial Planning Becomes Business Coaching | ||
| David J. Drucker | 12-15-05 | Get practice-building tips and information from our team of experts delivered to your e-mailbox every Thursday. Sign up for our free Practice Builder e-newsletter. Unless you've pigeon-holed yourself as purely an investment manager with little interest in real financial planning, then you know clients come to you with all kinds of ideas on which they expect your advice. Not all of these ideas make sense, nor do they all fit neatly into your areas of expertise, but wanting to be helpful (and, in the client's mind, valuable), you try to help anyway. If it hasn't happened yet, a client will eventually come to you with an idea for his or her own business. I remember when my I first decided to change careers and become a financial advisor. I'll bet the conversations that went on between my wife and me (and between you and your spouse) were somewhat like the conversation you may need to have with your business-bound client, except now you're playing the role of the cynical spouse: Advisor: You're planning to do what! Client: I'm tired of working in a job I hate. I've decided to go out on my own. Advisor: But you don't really know anything about running a sushi bar, do you? Client: I like to eat sushi! Advisor: Have you ever had any management responsibilities in any of your jobs? Client: I was once in charge of supervising a summer intern. Advisor: Do you know anything about marketing? Client: No, that's why I hired you--to watch the market for me. Hopefully, the cautionary conversation you have with your client will inspire a bit more hope than this. But, suffice it to say, clients won't always have the skills or capital they need to really make a go of it. Yet, some will, with enough guidance and coaching from you. The question is, are you up to it? Mary Gibson and Glenn Kautt are, and they're happy to tell you how they do it. Kautt, president of The Monitor Group in McLean Va., is, like his predecessor in the firm--Lynn Hopewell--a Harvard MBA, and he has started and operated six different businesses. He says he's not a business coach, but his experiences tell a different story: "I don't do much business coaching, per se, but do have clients who had careers and then wanted to start businesses. It's a subset of our clients that's growing because some clients are forced to retire, or just want to stay active in retirement." The first question Kautt asks a client is much like that asked by the hypothetical advisor above: "The first thing I do is ask why do you want to get into business?" Typically, he says, clients name one or more of the following: financial security, the freedom to make their own decisions, family well being, building a organization that could survive and prosper against tough competition, bringing their creative ideas to the marketplace, and getting satisfaction from creating something that might last after years of hard work. "What most starting entrepreneurs forget is the end-game. While it’s enjoyable to look back, they still must look forward. As a financial planner, I've found it’s much easier to start, than to end, a business. So I tell clients, if they start with the end in mind, things usually work out better all along the way, regardless of the size or nature of the business they're contemplating." Sometimes, the best service an advisor can provide a small business wannabe is to give them a stiff dose of reality. Kautt does this by having his clients read Michael Gerber’s E-Myth and E-Myth Revisited. "In this way, they begin to understand what being an entrepreneur is all about, and how far they can take their business on their own. If these books don't scare them off, I discuss with them the financial exposure and tremendous uncertainty that goes along with any startup operation. We make sure they have the capital base to withstand the fiscal “shocks” that can happen with a startup." The next step in Kautt's process is to cover with his client the various business functions that must be provided for. Either the client has the skills himself, or he knows he must obtain the skills some other way. "The five critical elements of any business are sales and marketing, production and operations, distribution, accounting and taxes, and human resources." At this stage in the conversation, Kautt is still trying to talk the client out of going into business, but he's also providing a framework for the client to consider should he be qualified. Nevertheless, says Kautt, "If the client doesn't get all five parts right, the business will likely fail." Not least in importance is looking closely at the client's proposed product or service, and how it might fare in the competitive marketplace. "Usually, the client has little experience in that industry, and I encourage him to do significant market research before opening his doors--to assess pricing, market size, growth opportunities, and the regulatory environment, so there are as few surprises as possible. This also helps them realistically assess the chances for success." If the client's still engaged with Kautt at this point, Kautt says his firm has the technical expertise to help the client incorporate, get a tax number, get her accounting started, and take care of other mundane but important tasks, like payroll. "Our accounting department handles all of those things. We can also help them with a personnel manual and direct them to outside experts for additional help in the human resources area." He can, as well, help them find financing. And, if they've been at it awhile, he helps them assess whether it's time to sell or divest themselves of the business. Getting out is something Kautt knows about. In fact, one of his current projects is co-writing a book on that very topic. "It's a book designed for business owners and professional advisors on the most important deal of their life--cashing out with two to three times more value." Gibson is a financial advisor in San Juan Bautista, Calif., who's also been a small business coach for years, counseling many clients on starting new businesses. Much of her work was done during a 15-year stint as a consultant for her local Small Business Development Center doing, among other things, a monthly workshop. Employing a process not unlike Kautt's, Gibson makes subtle attempts to discourage the client--or inform them--depending upon how you look at it. Where she does things differently is in the personal assessment she has clients do to determine their personal goals, value system, strengths and weaknesses, and skills and tolerance for mood swings and failure. "It is during this process that the nature of the business and the personality of the prospective owner either mesh or not. It's at this time we talk about their idea, whether it suits them and whether it will meet their needs in all areas, not just financially. I usually don't have to ever come right out and say that they have a bad, crazy, or unworkable idea. The process lets them find out for themselves. It is a kinder, gentler way of self-realization that doesn't make them go away angry. Instead, they go away congratulating themselves on not making a big mistake." It's also crucial to help the client create their partnership agreement at this time--if a partnership is part of the plan. "Just agreeing to conditions in the partnership agreement is impossible for some clients, so it becomes a reality check to learn they might not be able to work together." This is an especially good exercise for friends and relatives to go through, she says, so they can remain on speaking terms by not entering into a disastrous business relationship that might lead to a costly emotional and financial falling out later on. If the client's gotten this far, Gibson helps them prepare a formal business plan along with an exit strategy. "If, after all of this--the soul searching, the research, the many decisions, and the just plain hard work--the client's still around, then their business usually has a fair to middling chance of succeeding." Do you need to be able to do everything that Kautt and Gibson are qualified to do? Maybe not. There's plenty of help out there. But look at it this way: When a client wants to start a business, you'd better do something. As their advisor following the six-step financial planning process, you're helping them manage risk. And, for most clients, there will be few things riskier to their financial health than the urge to start a new business about which they may know very little. David J. Drucker, MBA, CFP, an independent financial advisor since 1981, now writes, speaks, and consults with other advisors as president of Drucker Knowledge Systems. Check out his new, indispensable practice management portal, Practice Lifecycle, and Virtual Office News--the only monthly practice management/technology newsletter for financial advisors. The views expressed in this article are the author's. They do not necessarily reflect the views of Morningstar. Feedback about this article may be sent to advisorquest@morningstar.com. |
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