With my own clients the first part of my statement of advice always addresses their business.
If the client runs their own business we discuss how it is going, and what can be done to make it better. Can we employ more health professionals? Can we open another site? Can we increase prices? Can we introduce new services? Can we increase patient numbers? Can we cut costs.
If the client is employed and does not run their own business we discuss whether this is the best option, and if it is we quickly move on. But if it is not, we ask whether the client should stop being an employee and start their own business? And how should this be done? Start from scratch? Or buy into an existing practice? Own the practice 100%? Or be a partner or associate? Be a solo-practitioner or work with others? Where should the practice be located? Which entity should own it? How should it be funded? and on and on. The list is long, and the conversation is profitable.
I spend time and energy on this question because, unquestionably, businesses are the best investments.
Properly constructed and operated a business will provide superior financial returns and cash flow, enabling the client’s other goals to be achieved.
Should your client own a home or own a business first? My response is always own a business. Because the increased cash flow will more than pay for the home. For younger clients who think they are locked out of the home owner market setting up and running a good business can be the fastest way to own their own home.
Businesses create better tax planning opportunities. It’s just the way it is. Most business owners can legitimately spread business income amongst lower tax rate family members, meaning less tax is paid overall. Companies cap tax rates at 30%, dropping to 25% by 2027, which means more cash is available for investment. Franking credit protocols facilitate an effective smoothing of income, and tax thereon, over time. This means surplus income from good years can be stored and released in bad years, lowering the overall average rate of tax and delivering tax refund cash just when your client needs it the most.
The Government’s small business tax concessions means virtually all capital gains on the sale of businesses are CGT free. Creating a good business and then selling it at a capital gain can be the fastest and safest way to become wealthy.
Business clients need more financial planning services than employee clients. They have a greater need for risk insurances and a greater capacity and inclination for superannuation and other wealth creating strategies. One business client can be worth five employee clients.
In a post LIF world from 1 January 2018 it is critical that advisers develop new skills and new income streams. Expanding your repertoire to include business advice is a natural step for most financial planners.
Dover helps advisers advise their clients on setting up and running businesses.
The Dover Way includes unique content under the heading: ” the financial planner as a business adviser” to help explain our approach here. And if you feel Aaron Crossthwaite from McMasters’ Accountants is available to help you every step of the way. Aaron can provide back-up accounting services to your client with you as the Client Relationship Manager and you receiving 30% of the accounting fees every year the service is provided, and with a special rule allowing you to own and sell your client’s accounting fees.
Businesses are not for every client, but they are for a lot of clients. Make a discussion of whether a business is feasible part of every client meeting, and watch your practice soar.