michael finer, cfp, cpa major league investments 530 loring avenue salem, ma 01970 tel: (978) 740...

Michael Finer, CFP, CPAMajor League Investments

530 Loring AvenueSalem, MA 01970

tel: (978) 740 1011 x12 - fax: (978) 744 8240

[email protected]

www. MajorLeagueInvest.com

Mark H. Friedman Real Time Strategy, LLC

16 Front Street, Suite 210Salem, MA 01970

tel: (978) 741 7100 - fax: (978) 741 [email protected]

www.RealTimeStrategy.com

Major League Investments, Inc.

We invest in our clients

FPA’s Virtual LearningStep 7

Helping Planners Help Their Business Owners Develop And Execute Strategy

May 24, 2004

2 FPA Seminar© 2004 Real Time Strategy, LLC Major League Investments, Inc.

Helping Planners Help Their Business Owners Develop and Execute Strategy

In this web seminar, Mark Friedman and Michael Finer will discuss the basics of an evolving business strategy and how business owners can define their business goals and outcomes to support their personal financial objectives.

– The Business Owners personal financial plan – built on a solid foundation or built on sand

– Translating the personal financial objectives into business goals

– Setting priority areas of focus that span time

– Defining the critical enablers

– Setting business metrics that are more than financial measures

– Defining a business case for success


Financial Planning – The Basics

Financial planning is the process of helping your clients meet life goals through the proper management of finances.

The financial planning process consists of six steps that help an individual take a "big picture" look at where they are financially. Using these six steps, you enable your client to work out where they are now, what they may need in the future and what they must do to reach your goals.

The process involves gathering relevant financial information, setting life goals, examining current financial status and coming up with a strategy or plan for how your clients can meet their goals given their current situation and future plans.

Source: Certified Financial Planner - Board of Standards, Inc


Your Clients Seek Professional Advise For Security And Assurance

They need expertise they don’t possess in certain areas of their finances.

They want to get a professional opinion about the financial plan they developed.

They don’t feel they have the time to spare to do their own financial planning.

They have an immediate need or unexpected life event such as a birth, inheritance or major illness.

They feel that a professional adviser could help them improve on how they are currently managing their finances.

They know that they need to improve their current financial situation but don’t know where to start.



The Six Steps of Financial Planning

1. Establishing and defining the client-planner relationship.

2. Gathering client data, including goals.

3. Analyzing and evaluating financial status.

4. Developing and presenting financial planning recommendations and/or alternatives.

5. Implementing the financial planning recommendations.

6. Monitoring the financial planning recommendations.



For The Client Whose Personal Plan Is Dependent On An Owned Business There Is A Missing Step

Step 7 – The Missing Step A Strategy And Alignment Process

Business owners personal financial planning must be explicitly tied to their business’ performance.

– How many of your business owner clients align their business plans with their personal wealth development objectives?

– Are their business strategies well articulated over the same time frame as their personal wealth development goals?

– Are their strategies and tactics clear for achieving these business goals or is their approach to do more, better, faster?

This is critical when dealing with small business owners– Various market definitions exist but a small business is generally

considered to be one with less than $10 million - $20 million in sales


The Small Business Owner Has Few Sources Of Strategic Advise

While domain specific expertise can be gained from any of these sources, isn’t the financial plan you are developing at risk if you do not work through the business fundamentals and assess the underlying current performance of the client’s business?

What changes in the business will be necessary for the business to deliver against the needs of the plan over time?

AccountingLegal

Peers / trade associations / Networking groups etc.

Friends


Step 7 Translates and or Aligns Personal Financial Goals to The Client’s Underlying Business’ Goals

The question you are trying to answer is if the underlying business can deliver against the stated needs of the financial plan.

You can look at this from two perspectivesAlignment

– What is the existing strategy and can it deliver against the needs of the personal financial plan

Translate1.What must the strategy of the business be to meet the requirements of the

personal financial plan

If you take the first perspective you must work with the business owner to clearly align the strategy of his or her business to his or her personal financial goals

If you take the second perspective you have the ability to not only advise your client on his or her personal wealth development but also to become their strategic advisor for their business

Step 7


The Step 7 Process Helps You Help Your Client Assess The Personal Financial Plan’s Requirements on the Underlying Business

1.How do the personal financial objectives translate into business goals?

2. What are the business’ priority areas of focus that span time?

3. What are the critical enablers that must be put in place to enable the business to deliver against the plan?

4. What are the critical business measures (more than financial measures) that help your client assess if the business is going to deliver as needed?

What are the linked actions to drive the measures

5. Is the business case for success of the business reasonable? Does the strategic business plan meet the needs of the personal financial plan?


Stage 1: Helping Your Clients Clarify Their Assumptions About Their Business

It begins with the business strategy

– Does your client have a formal (in what-ever detail) business strategy developed?

– Does the strategy need to be developed as part of this process

The strategy The strategy According to WebsterAccording to Webster

strat·e·gystrat·e·gy““a plan of action encompassing the a plan of action encompassing the

methods to be adopted from beginning methods to be adopted from beginning to end of a task or endeavor, focusing on to end of a task or endeavor, focusing on

the methods”the methods”

Step 7




4. What are the critical business metrics (more than financial measures) that help your client assess if the business is going to deliver as needed?








Stage 1 – Articulating the Strategy

What are your client’s underlying strategic assumptions about his or her business?

Is growth the key issue or is maintaining the business the focus?

What are the inherent risks that have to be dealt with to grow or maintain the business?

Are there major “events” in the future of the business that have to be addressed

– Buying out a partner– Mentoring and or relinquishing operating control to the “next

generation”– A gradual reduction in professional life versus a focus on personal life

Will value be created or destroyed over time – is the present value of the company higher now or in the future?

Step 7












Stage 2: These Assumptions Are Used To Define The Priorities Of The Business

What elements of the business need immediate improvement or will need improvement in the future?

What level of investment is required to implement these improvements?

Will these improvements make a difference to the customer base or are they purely internally facing?

Does the business have the skill set(s) to make the improvements, or is outside expertise required?

How convinced is your client that these changes will produce the desired impact?

What are the platforms for growth– Products or services or both– What needs to be fixed, improved, built to create a stable foundation

for the growth What processes need to be defined, changed What key skills need to be improved or developed What system investments are necessary to support the changes











Step 7


4. Enhance/expand the product offer to support larger more complex relationships

2. Drive greater account retention and higher penetration

1. Optimize the base processes of the business

3. Drive multi product new customer relationships

Stage 2: These Priorities Can Be Looked At Over Time To Determine If They Are Mutually Reinforcing Or Competing.

Time

Imp

act

Step 7






















Stage 3 - Defining The Critical Enablers - Investments and changes can be mapped to these priorities to create a road map for the future





Step 7

What will the impact on the customer base be?• # customers, geographic spread, service requirements

What is the financial impact of the changes?

What changes and or investments must be made in the business?• Processes, system investments

What skills are required to manage the changing needs of the business?• Can they be developed or will they be hired?

• When will new or additional talent need to be onboard?











5. Is the business case for success of the business reasonable? Does the strategic business plan meet the needs of the personal financial plan?Stage 4 - What Are The Financial And Non-financial

Metrics The Business Owner Can Use To Assess Business Performance

What are the financial metrics that define successful outcomes

What are the indicators that tell if the customer base is performing as expected

What are the indicators at the process level that tell if the business is moving in the right direction and at the right speed

What are the measures that tell the business owners that they have proper levels of expertise to meet the evolving needs of the business























Step 7


Stage 5: The Business Owners Personal Financial Plan – Built On A Solid Foundation Or Built On Sand

With the business’ strategy clearly defined, you can evaluate if the business can support the personal financial plan?

If not, is it reasonable to change the focus of the business

or

Should the financial plan be changed

Step 7












Personal Financial Planning Case40 year old physician who started his own practice

A medical doctor left the military and started his own medical practice in New England.

Spouse who assists at the office part-time and who cares for their 4 year old and 7 year old children

The doctor has approximately $75,000 of student loans Home equity corresponds to their entire net worth and is

approximately $50,000 The medical practice was started three years ago.

Physician purchased $350,000 of equipment and financed 100%.

In year one the practice broke even. – Physician’s salary - $70,000 – Wife’s salary - $20,000

In year two, the practice broke even– Physician’s salary - $90,000 – Spouse’s salary - $20,000.

Currently in year three.


Other Facts

Personal Cash Outflow is approximately $90,000 per year net of tax before savings, investments, and any financial planning.

Net of income tax the family will be breaking even with respect to their gross income and living expenses in 2004.

They have no assets set aside for retirement, for an emergency fund, or for college educations.


Client’s Plan—The Intuitive Plan

They believe that the business will grow at a 15% pace per year and as a result, the business will generate enough cash flow and profits to meet their financial needs.

Their financial needs are intuitive in that the clients feel that if things “ go well” then they can meet their objectives which they have loosely defined.

All of their objectives will be solved vis-à-vis the business.


Stage 1 - Create A Baseline Around A Specific Set Of Strategic Assumptions For The Business

Trends and Growth Rate– What have similar practices done in the area– Equipment needs– Competition in the market area

– Trends in insurance reimbursement (rate, terms etc)

Client base– How does plan translate to a number of clients– What is capacity– What are the assumptions for average client

billings– What do the market demographics say about

potential demand

Operating Investment– Physical space– Partners or Employees– Equipment– Supporting technology investment – eg billing

and insurance co-payment– Medical / Professional / Administrative Staff and

trigger points to add

Translate these Assumptions to a Financial Model

10 Year revenue projections Projected expenses Projected income and wealth

generation from value of practice





5. Is the business case for success of the business reasonable?






Step 7


Stage 2 - Define the Drivers of Growth How will the business evolve over the 10 years?

For example– General growth in practice as reputation is established

Years 1-2

– Increase professional affiliations with other medical specialists and Hospitals

Years 2-5

– Expand the Market Served Year 5 - Add a Employee /Junior partner Year 7 - Open a second location











Step 7


Stage 3 - Define The Critical Assumptions and Enablers For Each Stage Of Growth

General growth in practice as reputation is established– What will the Physician have to do to drive the 15% growth– How will the baseline assumptions be affected in Years 1-2

Increase professional affiliations with other medical specialists and Hospitals

– Which affiliations– Which hospitals– How will access be gained– What will this impact the baseline assumptions in Years 2-5

Expand the Market Served– What type of partner is attractive – established with own practice or junior?– What volume of patients will be necessary to support the cost of a junior

partner– Will Partnership be earned or will it be given? What are the requirements to

have ownership in the practice?– What are the characteristics of an attractive second location?– Will the each office be doctor specific or will they both serve patients from both

offices











Step 7


Stage 4 – What Are The Indicators / Milestones and supporting Actions That Tell You That Things Are On Schedule Or Behind Schedule So You Can Adjust The Personal Plan











Step 7

17%15%$77,000

17%15%$77,000

• Improve reimbursement performance

• Xxx

• xxxx

Strategic ObjectiveStrategic Objective

• Quality Revenue Growth

• Maximize Cash Flow from

practice

• Retain key staff members

• Meet Customer Appointment Demands

• Improve Patient Satisfaction

Strategic MeasureStrategic Measure

Revenue Growth Rate Patient Growth Rate Cash flow

Time to submission % disputed

Xxxx

xxxxx

Years employed with practice

Xxx

xxx

Appointment Availability Quality index from Annual

patient survey

Fin

an

cia

lC

us

tom

er

Pro

ce

ss

Ski

lls

an

d

Cap

ab

iliti

es

TargetTarget

18% 18% $92,000

18% 18% $92,000

17.5%98.2

xxx

xxxxx

17.5%98.2

xxx

xxxxx

>2 key roles

xx

xxx

>2 key roles

xx

xxx

097.5

097.5

ActualActual

7 days 2.0%

.xxx

xx

7 days 2.0%

.xxx

xx

45%

Xxx

xxx

45%

Xxx

xxx

598.2598.2

ActionsActions

• Extend Equip. Financing

• Extend Equip. Financing

• Implement MedPay reimbursement system

• Implement MedPay reimbursement system

•Provide CE reimbursement scaled for retention after program completion

•Provide CE reimbursement scaled for retention after program completion

• Implement Evening Hours

• Implement Evening Hours


Stage 5 - Test The Reality Of The Personal Financial Plan Against The Capacity Of The Business

Actual Actual Actual Actual Actual Actual Actual Actual Actual Budget2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Key Performance Indicators

Customer base narrowband

Opening base 596 1,985 3,539 5,561 6,923 8,804 9,848 10,729 13,908 19,204Connections 1,451 1,588 2,124 1,467 1,933 1,233 1,175 4,714 5,996 6,271Disconnections (62) (34) (102) (105) (52) (189) (294) (1,535) (2,095) (1,573)Closing Base 1,985 3,539 5,561 6,923 8,804 9,848 10,729 13,908 17,809 23,902Average Base

Traffic in 000s

Call Callino 20,629 16,263 11,584 10,385 10,235 15,050 15,804 17,585 21,352 -Surf Callino 18,026 15,935 16,011 18,305 15,983 15,215 19,072 46,591 73,569 46,309Preselection 1,482 2,134 3,762 6,086 7,340 8,643 9,202 11,168 16,948 89,637

Gross Revenue 1,476,921€ 1,614,787€ 1,986,101€ 2,253,905€ 2,464,580€ 2,905,212€ 3,022,002€ 3,655,204€ 3,746,031€ 6,594,312€

by call 1,411,684€ 1,509,176€ 1,800,001€ 1,441,014€ 1,597,167€ 1,867,154€ 1,853,381€ 1,994,129€ 2,230,717€ 1,041,817€ registered (preselection) 65,237€ 105,611€ 186,100€ 812,891€ 826,380€ 973,546€ 1,050,928€ 1,544,088€ 1,406,622€ 4,129,731€ PMP Direct Access -€ -€ -€ -€ -€ -€ -€ -€ -€ 1,203,727€ xDSL Direct Access -€ -€ -€ -€ -€ -€ -€ -€ -€ -€ Applications and Services -€ -€ -€ -€ -€ -€ -€ -€ -€ 219,037€ Calling Cards -€ -€ -€ -€ 41,033€ 64,512€ 117,693€ 116,987€ 108,692€ -€

Margin I 331,290€ 15,528€ 347,686€ 1,374,319€ 263,021€ 771,563€ 198,426€ 568,568€ (691,365)€ 2,998,382€ in % of Gross Revenue 22.4% 1.0% 17.5% 61.0% 10.7% 26.6% 6.6% 15.6% -18.5% 45.5%

Margin II (894,918)€ (434,152)€ (343,927)€ 724,936€ (60,037)€ 63,231€ (887,845)€ (230,373)€ (2,070,244)€ 740,115€ in % of Gross Revenue -60.6% -26.9% -17.3% 32.2% -2.4% 2.2% -29.4% -6.3% -55.3% 11.2%

Headcount 115 136 158 183 195 223 264 305 341 274

Operating Expenses (3,241,180)€ (1,380,465)€ (3,931,711)€ (4,466,072)€ (4,080,169)€ (5,686,655)€ (5,713,918)€ (3,966,607)€ (8,562,730)€ (3,883,035)€ in % of Gross Revenue -219.5% -85.5% -198.0% -198.1% -165.6% -195.7% -189.1% -108.5% -228.6% -58.9%

Operating Result EBIT (4,065,862)€ (2,176,739)€ (4,685,297)€ (4,198,656)€ (4,625,684)€ (6,093,854)€ (7,159,707)€ (4,714,286)€ (11,250,000)€ (4,897,524)€











Step 7

Financial Model of the Business Personal Financial Growth Plan

Baseline 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Income from practice 90,000$ 103,500 119,025 136,879 157,411 181,022 208,175 239,402 275,312 316,609 Expenses 90,000$ 95,000$ 104,500$ 114,950$ 126,445$ 139,090$ 152,998$ 168,298$ 185,128$ 203,641$ Net New Investment Contributions 0 -$ 8,500$ 14,525$ 21,929$ 30,966$ 41,933$ 55,177$ 71,103$ 90,184$ 112,968$ Growth in Portfolio 8,500$ 1,275$ 3,645$ 7,481$ 13,248$ 21,525$ 33,030$ 48,651$ 69,476$ Net Portfolio Value 8,500$ 24,300$ 49,874$ 88,320$ 143,501$ 220,203$ 324,337$ 463,172$ 645,615$ Net Practice Value 300,000$ 345,000$ 396,750$ 456,263$ 524,702$ 603,407$ 693,918$ 798,006$ 917,707$ 1,055,363$ 1,213,667$

Year Goal 345,000$ 405,250$

480,563$ 574,576$

691,728$ 837,419$

1,018,209$ 1,242,044$

1,518,535$ 1,859,283$


What Does This Mean For Your Financial Planning Practice

Positions you as an advisor at the business level not just the personal level

Tests the assumptions between the business and the personal plans

– Reliability of your personal plan– Provides you with a new access point and rationale for semi-annual

contact

Can be a discreet service you provide as a new service you can take to market

Helps your client – Create a business plan to support their personal financial goals– Translate their Business Plan in Operational Terms


For More Information about the Step 7 Process please contact

Mark FriedmanPresident

Real Time Strategy, LLC16 Front Street

Salem, MA 01970

1-978-741-7100MFriedman@

RealTimeStrategy.com

Michael Finer, CPA, CFPChief Financial Planner

Major League Investments, Inc.530 Loring AvenueSalem, MA 01970

1-978-740-1011 x12Michael.Finer@MajorLeagueInvest.

com

michael finer, cfp, cpa major league investments 530 loring avenue salem, ma 01970 tel: (978) 740...

Documents

llc financial planning

financial measures

financial planning process

steps of financial planning

basics financial planning

business goals

personal financial objectives

current financial situation