Business Planning Podcast (Clip 7 of 8) – Early Risk Management Discussions Matter
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Business Planning Podcast – With Strategic Capital
Adam D’Acierno discusses the concept of early exploration of risk management from a business planning perspective – How important is it to look, early on, at potential for risk management planning when working with a business planning client?
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Episode 2 Podcast/audio/video Clip
Business Risk Management Planning – Adam D’Acierno showcases the timeline for discussion of risk management tooling with clientele
With Adam D’Acierno – Business Planning at Strategic Capital
Adam D’Acierno explores why it’s important to look at the impact that risk management can have from a business planning perspective. he talks about the short term implications of this risk management exploration, and the long-term potential benefits.
Moderator: Yeah. I appreciate you going into some of that conceptual stuff in-depth, because I think a lot of business owners, they think: “You know, I have to do it from one perspective, because I need to solve this problem now…” When in reality, you really ought to look at dollars from an income perspective as dollars; not necessarily: “I need a deduction for my business today because I made ‘x’ amount of dollars,” or: “I need to worry about my own personal planning because I haven’t done that yet…”. And instead, you’re looking at it holistically and saying: “There are dollars coming in I need to do the most efficient thing with those dollars and I may not even need all the income that I’m using today, so there might be some strategic advantage to doing something this year versus next year, or right now, versus the future, or using this tool versus using the traditional tool, or whatever.” I think sometimes people look at that and they say oh no I’ve got to solve x problem when there are lots of things that can be utilized to solve problems both here and now, and in the future, and, like for instance, the example you gave, and this is why it’s so important that we talk conceptually rather than look at it from the esoteric perspective of well if you make $100,000 and you need to do X Y and Z.
Moderator (continued): Every single case is different and as you look at those things; those inputs, and that’s why you alluded to software: We plug things into software in this industry because it gives us a range of tools based on the inputs, right? And as those inputs change it helps us to identify other areas where we might utilize planning, etc.
Moderator (continued): Like, for instance, you talked about, you know, going into a solopreneur might have X amount of income and therefore they’re eligible to hit the the top threshold for income into a solo 401K. Well, that’s a very strategic thing to look at, right? You have to make a certain amount of dollars to be able to put in $56,000, or whatever it is, as far as the IRS code. Whereas, you might be able to utilize something as an individual plan, right? “I’m going to take some of this money and put it into a Roth IRA instead, because I have an adjusted gross income of X, and I meet these requirements that might make a lot more sense than trying to max out something on a DC plan from the business perspective.
Moderator (continued): And yet, we have a lot of things being pitched to the typical clientele that you work with as: Oh, this is going to give you this solution, this year because as a tax deduction or whatever, that’s the main reason why DC plans, as you alluded to earlier, are in place, right? We put the onus on the employee so that we can get the tax deduction as the employer, right? And it doesn’t necessarily take care of all the needs that the individual employee has, which is why we see a lot of employers or smaller companies going back to looking at, you know, streams of income in retirement, like DB plans and some of the other things that are available to people who make a certain threshold of income or a certain amount of revenue in their businesses.
Moderator (continued): Can you talk a little bit about some of the tooling you’re normally doing when it comes to just broader businesses; you know, not necessarily small businesses versus large businesses, but when you go into a meeting with someone, are you talking about insurance products pretty early on? Are you talking about things like, legal agreements – like Buy/Sell Agreements? Because it’s not necessarily just about strategic planning from the financial aspect now, it’s also about risk management, and hedging some of that risk going forward, not only from the tax side, but also from a pure risk perspective. How early on, are you talking with some of the clients that you guys are working with, about mechanisms or tooling to avert risk in the future?
Adam D’Acierno (Business Planning – Strategic Capital): Yeah. That’s a great question, and risk management and mitigation is something that we focus on heavily, because if you look at it from a reactive standpoint: if something goes wrong, and you have to fix it, a lot of the time you have to fix it with either capital from a dollar perspective or capital from a time perspective, that you are going to have to be spending to correct that issue, which ultimately at the end of the day – your time can be an opportunity cost. Now, you are not able to go generate other revenues, because you’re having to deal with this issue, and what that does is that throws a wrench into the planning that we do for you personally, and for your business. So, if we know that certain situations statistically are going to arise at some point in your business career, then we want to identify those immediately, and provide solutions so that you can mitigate those risks, so that they don’t turn into issues in the future and create inefficiencies inside of the planning that we’re doing now.
Adam D’Acierno (continued): Whether the business owners decide to actually act on implementing those risk mitigation strategies: that’s up to them. And we hope that we do a good enough job in explaining and showing them the benefit of having certain risk mitigation tools in place. But at the end of the day, if they don’t want to utilize some of those strategies, really our job in total, is to be as comprehensive from a planning perspective as possible. So, we’re going to sit down, and ask questions that encompass all aspects of business, so that we can get an idea about your entire business and point out shortfalls, or ways that you could possibly make that business more efficient. We like to take a CFO/CEO approach… We are the CFO. We deal in this just like a CFO would deal in their dealings on a day-to-day basis. The CEO does not have enough time to be an expert in those fields, so what we do as the CFO, is we bring those recommendations to the table, and at the end of the day, it’s the CEO who has the decision on if they want to implement those or not.