February 22, 2012

Running Your Financial Planning Practice Like a Business

Lisa Kirchenbauer

Lisa Kirchenbauer, CFP®, RLP®, is president of Omega Wealth Management LLC, a fee-only, independent, holistic wealth management firm based in United States. She serves as a trainer and advisory board member with the Kinder Institute, is an affiliated adviser with the Sudden Money Institute and a participant in the Strategic Coach program. She has been featured and quoted in various financial industry publications, consumer publications and on TV and radio.

We are hearing from a variety of expert coaches and consultants that you need to “run your practice like a business.” It’s time to talk more specifically about what that really means and how you can make it happen.

How did you come into the business? If you’re like many planners, you may have fallen into financial planning through the financial services business, or perhaps you even majored in financial planning in college. What many of us aren’t prepared for in following our calling to financial planning is that it also means running a business, and perhaps you never learned the basics of running a business.

This article will explore the importance of running your practice as a business, providing practical ideas to consider for even the one-person business to run more effectively and prosperously.

In his well-known book, The E-Myth, Michael Gerber highlights the fatal assumption that most business owners make: “If you understand the technical work of a business, you understand a business that does technical work.” In other words, if you are a successful financial planner, you can run a successful financial planning business. Au contraire. It’s not enough to be good at the work you deliver; you have to know how to deliver it through a business, whether that business is just you or a team of 25 people. Just as you had to learn financial planning skills, for most of us, running a business requires some education and training.

Find the Business Model That Best Fits Your Needs

In our industry, there are many compensation and service models to choose from. The key is to choose one that best fits your goals and needs.

For simplicity’s sake, let’s consider three basic business models: lifestyle-based, equity-based and mission-based.

A lifestyle-based business (LBB) is simply a business that has been created to support the lifestyle of the business owner. It provides a good income, flexible hours, control over your own fate and some nice tax benefits. In particular, I believe that many women business owners fall into this model and never realize that there could be other suitable alternatives.

An underlying issue for the LBB owner is often a sense that the business has no value without them, and that’s often true. The challenge with the LBB is that when you stop working, the business no longer supports your lifestyle unless you have a succession plan. It also provides very little retirement security or savings unless you have aggressively pulled income out of the business and invested those assets in other traditional investments that can provide you a retirement income. And if you think that you’ll just work until you drop, let’s hope you have been buying disability and life insurance, and saving aggressively in the meantime.

An equity-based business (EBB) runs on the premise that you are building something of value that can eventually be sold to someone else. The business is often seen as the owner’s retirement plan.

Not surprisingly, running an EBB often requires different strategies to build a team that is not completely reliant on the founder (a potential buyer or investor wants to see non-founder-based growth potential and stability of revenue and staff). The challenge here can be for the business owner to learn how to extricate him or herself from the day-to-day running of the business, including client contact. This doesn’t mean that the owner can’t be involved in client relationships, just that the client relationship needs to be team managed.

Certainly there is more complexity in terms of staff management, business management and business finances that needs to be tackled, but with some strategic hiring and good outsourcing and delegation, the business owner has the ability to maintain independence while also reaping the benefits of building equity in his or her business.

A mission-based business (MBB) might appear to be a charitable effort. The business owner may have come to this business after successfully running another business, or perhaps the owner has independent financial means which allow him or her to not have to focus on generating income. For most of us, an MBB probably isn’t a reality. What is possible is to bring your mission into one of the other two business models to be the energy behind whichever model you choose.

I often see planners and business owners who have not fully integrated their passions and strengths into their businesses because they are uncomfortable with the mix of business and personal interests. In reality, clients want to work with real people, not someone who seems less than complete or inauthentic. That doesn’t mean that you’re not professional or that you don’t know when to draw the line between “too much information” and an appropriate business relationship. It does mean that as the business owner, when you bring yourself more fully into your business, it’s likely that the business will be easier and much more enjoyable to run.

Choose What You Have Created and Be Comfortable With the Result

In talking with my clients and business-owner colleagues, I find that there’s a sense that if you run a business, you can’t have a life. The reality is that you are the business owner, and you can make conscious choices about how to run your business and structure its impact on your life.

Where the struggle often happens is when, as the business owner, you abdicate your choices; you don’t make conscious decisions about what you need and want, and instead operate based on how you think a business “should” be run.

Consider the business owner who thinks that he has to put in long hours to be successful. Well, what is successful? Often, the business owner hasn’t stopped to really explore that question. Here are some questions to consider:

  • What are the consequences of the choices I am making or am not making?
  • Is that what I really want in my business and personal life?
  • Is this the example I want to set for my team and my clients?
  • What do I really need-financially and otherwise-to feel like a success, be happy and fulfilled now, rather than in the distant future?

A Well-Run Business Should Free Up Time for the Business Owner

“I don’t have time to run a business. I just want to be with my clients and do what I am good at.”

I used to struggle with this one. Running a business doesn’t have to be all-consuming, keeping you from being with your clients and doing what you do best.

Focus on your strengths and what you are uniquely capable of bringing to your client relationships, business and team, then delegate or shift the rest. It will take work to build the team and support systems, but speaking from experience, it is exciting when you get to the other end!

Many of us have just come through a very difficult time in our businesses. March 2009 was my most difficult time as a business owner and financial planner. I had to work harder, put in longer hours and generally just worry a lot more than usual. The successful business owner will also see this as an opportunity to stress test their business and look for holes. How was communication with the team? Did the investment models hold up? Does our financial model work in difficult times and support my personal goals and business goals? Did we communicate effectively and enough with our clients?

As you move ahead, do an inventory of your previous experience to determine what worked and what didn’t, then make the commitment to begin the year with a plan to tackle these issues. If you want to be or already are an equity-based business, then this is critical work. The firm that can show a true disaster recovery plan and strategies to make it through the inevitable slumps is one that will be even more valuable when sold.

It is possible to run a financial planning business that is profitable, has integrity, is a possible retirement asset and can integrate who we really are. The first step is to decide to take a more conscious and thoughtful look at where we are now.


Authored by,

Lisa Kirchenbauer

 Omega Wealth Management LLC
Washington D.C.

11 Thoughts to “Running Your Financial Planning Practice Like a Business”

  1. I would like to think ours is an EBB on a small scale, without the need to sell out.

  2. Yogin Sabnis says:

    Very insightful article.
    I had talked on the very same topic in our FPA convention held in Mumbai in Oct. 2011. The presentation was assuming the EBB model. My role model for this was Mark Little from San Diego whom I had also heard in the last FPA conference held there. I think it is the way to go for most Financial Planners who are looking to establish themselves in the Advisory space.
    The only hitch in India is that selling your business is not that common. Most of the time we look to our children to carry forward the practice or the business just peters out.

    • Yogin, I actually disagree as I don’t think that there is a right or wrong model. You just ahve to make a conscious choice AND then take steps to maximize its value to you. I wonder how you deal with an EBB passed to a family member? Does the succeeding family member pay the founder? Also, if a business peters out then it was really a LBB.

  3. uttamsen says:

    Really an eye opner, I used to be LBB, but now I have to think seriously. If I can do successfully my at least one child may follow me.

  4. Lisa,

    Greetings from ARB financial consultants !!!

    This article is going to help me Lot as I am looking to move from what you said LBB to EBB and after few years of success i would like to start MBB. It is my dream,
    i would request you to put some more light on How to build up EBB, what are the precautionary measures to be taken.

    Ashish Ramesh Bhave

    • Ashish, Glad this helps. Sadique will post an article that I wrote to follow up specifically on your next steps. I will say that I didn’t put much in on MBBs. That said, I think you can apply much of my recommended action steps to a Mission-based EBB or LBB. The key is runing your MBB like a business not a hobby.

  5. Mukul says:

    Hi Lisa,

    That’s a great insight. Although we already have this in our mind, but we just have it in our mind and we do not apply these basic principles of business. Your article has put this issue in the forefront. It certainly helps me, and am sure will also to all my fellow advisors, to review their business practices and turnaround the practice into a new growth trajectory. I am truly thankful to you for this insight.

  6. Badrish Nagaraj says:

    Hey Lisa,

    It was really wonderful deliberation of your thoughts and experienced as far as business model are concerned. If may i add one of the most difficult thing for novice financial planner is to get the personal goals aligned towards his business goals. This is perhaps one of the difficult thing needs to be considered while being owner and employee, between managers and his team members. Often times this has been ignored. If one triggers the button of aligning the individual goals with business goals with practical visibility any goals can be attained.


    Keep smiling

  7. vinay7 says:

    very good article. Please share more of your thoughts and experiences on successful business models and good practice management techniques.

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