Financial Planning for Your Creative Business| Nick Garofalo

Hey creative, are you ready to discuss profits? The money, the ways to make it happen? The Profitable Creative Podcast is for you, the creative, how you define it. Videographers, photographers, entrepreneurs, marketing agencies, you get it. CEO of Core Group and author Christian Brim interviews industry experts, creative entrepreneurs, and professionals alike who strive to be creative and make money at the same time. Sound like you? Tune in now. It's time for profit.

Welcome to another episode of The Profitable Creative, the only place on the interwebs where you learn how to turn your passion into profit. I am your host, Christian Brim. Special shout out to our one listener in Brunswick, Ohio. Never been to Brunswick. I'm assuming that's where they made the bowling machines for bowling alleys, but I don't know.

Is that where the stew comes from?

I— it could be where they invented the stew. Yes, I don't know. It's great. Thank you for listening anyway. And for joining me. I've never had Brunswick stew. You've never had it?

No.

Traditionally, let me introduce you first. Hold on. My guest today is Nick Graffalo with Open Handed Wealth. Nick, welcome to the show.

Thank you.

Now you can talk about Brunswick stew.

Well, traditionally it's made with rabbit and that's kind of controversial. But if you're a, you know, a poor kind of subsistence family in the late 1800s, so you're just out hunting, you're hunting rabbits or foxes or squirrels and you put that into Brunswick stew. Nowadays it's typically made with some type of barbecue beef or like pork or something. There's this little barbecue joint up the road from me and they make phenomenal Brunswick stew and they get all their vegetables for it from the farm stand across the street. And I don't know if Brunswick, Ohio is to thank for that, but—

and the meat from the highway out front. That's right. Make it authentic. Uh, Nick had, uh, been on my other podcast, The Chris Project. If you haven't checked it out, you might want to. And we discussed his company, Open Handed Wealth. And that was a brilliant interview and you should go listen to it. And I invited him on the show. And in between here and there, I was like, I'm not real sure what we're going to talk about. But in the green room, we hashed this out and I think this is going to be a brilliant episode. Okay. So, Nick, you— let's just lay the foundation, what you do. And open-handed wealth?

I do fee-only financial planning, and my stated vision is— I, I mean, really, I want to help, uh, mainly Christian families, Christian businesses to leverage their wealth to fulfill the Great Commission. That's kind of the grand vision. But like, in practice, it's, it's cash flow management, it's investing, it's tax planning, it's estate planning, you know, it's, it's insurance gap analysis. It's all that stuff on a recurring basis for a fee for my, my client families.

Okay, um, that is distinct from what a lot of financial planners do, uh, and investment advisors do, um, except for, you know, you're— what the, the menu of services that you're describing is, is generally more for, uh, affluent clients. I mean, very affluent clients. I don't know if that's necessarily who your clients are, but like you have a premium, uh, array of services that most, uh, investment advisors don't do is my take, but you may not agree.

Well, I will say this. I think though all of those things can apply to very affluent clients. Uh, when I say estate planning, you know, if you're married with a dog, you need an estate plan. Right. If you're, I'll say if you're married with kids, you need an estate plan, whether or not you are 100%, uh, dog, maybe not, but yeah, dog, maybe not. But you know, if you're married with kids, you, you, you definitely need a plan of some kind in place. Um, you know, if you plan on retiring ever at some point or not being able to work anymore, you definitely need to save and invest. Everyone needs a budget, wealthy or otherwise. We all probably need life insurance and disability. So it's like, you know, whether you're affluent or whether you're mass affluent or whether you're just getting started, um, the menu of services can, can apply and meet you where you are in the process, right? Obviously the estate planning needs of someone with a $20 million net worth are going to differ.

Um, but yeah, I think, I think most business owners, uh, need the, the foundational elements. They need a a will, durable power of attorney, medical directive, trust, um, you know, those basic things. Yeah, I mean, I think every business owner needs those things. And, um, there are attorneys that do that for a reasonable fee. Like, for most people in simple situations, that's not a complex lift, um, and, and it needs to happen. But okay, so where, where we got talking in the green room here was this idea that business owners have most of their wealth trapped in their business, right? And it produces most, if not all, of their income. And the majority, in my experience, of business owners don't do— that's the, that's the end of their financial plan. Like there's no financial plan beyond the business. And that plan is not really well thought out or planned.

It's not really a plan.

No, it's not really a plan. It's just like, someday I'll sell it and somebody will give me some money and I'll go retire.

But the end— the—

yeah, the end. But that's not the way it works. And it doesn't— it's not just creative entrepreneurs. Every business owner runs into this conundrum of the business is worth more to them than it is on the open market, right? And, um, and that puts them in a situation of having to continue to own the business, to work the business, to provide financially for them way beyond the, the point that they would want to or, or care to Um, but I think we should start with the, the valuation question. You know, what is your business worth?

So I'd like to just draw a quick distinction here because everything you said is totally true, and I think it could get lost in the shuffle if we're not careful. Because what you're basically saying, Chris, is like, uh, my business, if I'm an entrepreneur, my, my video production company, my whatever, is not worth as much as I think it is.

And, or what it's worth to me or what it's worth to me. Yeah.

Yeah. And I just like to ask a question of like, if you are buying a company, would you rather buy a McDonald's or would you rather buy Jackson Pollock and Company's, you know, art, art making company, right? If he even has an art, right? But obviously, like, well, Jackson Pollock is the thing. He is the, the magic Midas touch for, for making paintings. If I buy Jackson Pollock's brand and go out and like splatter paint on some nice big piece of canvas, it's not gonna be worth anything, right? Because all the value is in his creative power and ability and presence and reputation and all of that.

Um, yes.

Versus a, a machine, an engine like a McDonald's franchise that's just spitting out cash and and very buyable, very sellable, very transferable because the good is the consumable being purchased, whether who— it doesn't matter who makes it, right? Correct.

And that segues nicely into what I was going to say, which is the business is only worth the value of the future cash flows. That's it. That's in a nutshell. Um, there are extreme college—

high school or college finance professor for that one.

Yes, there, there are some extreme cases where you might have some intellectual property, a specific client, a specific employee that might be worth something. Um, you know, I, I have seen businesses bought less for the cash flow and more for the capacity. That's, that's possible, but you don't want to rely on that. No. And the vast majority of business sales are not cash sales, they're financed. And that means that the valuation is capped by the terms of the bank loans. And with the SBA, you can get loans out to 7 years unless you've got real estate involved. And so, you know, the absolute most anybody can pay you is capped by how much the bank will lend them, which is 7 years of cash flow. So that's it. I mean, and then you have to factor in the things you were talking about, like, okay, the owner's not there. How does that affect the cash flow? Right. And so that's the most. And then everything else just comes off the top and you get down with some residual amount that your business is worth. If you're the whole business, if you're doing all the work, if you're doing all the selling, if, you know, all of these things, you have a job, you don't have a business.

And Christian, I think this applies 10 times more frequently to creatives and to, you know, any type of creative industry entrepreneurs. Than it does to most other businesses. Most of the businesses are seeking to create a cashflow engine, right? They're seeking to create some sort of economic, you know, flywheel that's going to just continue on in the future. Unless you have some type of recurring revenue or residual or like contract revenue to create something like, you know, for your clients, then yes, it's largely, you know, a discounted cashflow analysis just to kind of project out your cashflows, which are going to be limited to your current pipeline. In your current client base. Yes. And your current capacity.

And that's usually what happens is businesses get sold for pennies on the dollar of what the owner thinks they're worth because there is no future cash flow that's predictable. Right. You mentioned recurring revenue and I talk about this in Profit First for Creatives. That's not usually the creative's specialty is recurring. They do a lot of project work. They do a lot of custom work, um, all of those things devalue the business. I'm not saying your business is bad. I'm just giving you the harsh reality of what someone will pay for it. And it, to the extent that you have predictable, uh, cash flows for the future, you have value. Everything like lack of processes, um, your involvement in the work, um, the fact that it's project work versus recurring revenue. All of those things take off the top and reduce the value of your business.

Do we need to back up? Because we're operating under an assumption that people want to sell their business someday and that they think it's worth something. Do we need to back up and build a case for why that's a viable option?

Well, okay. I think the reason why I'm starting with that is because then you need to think about, okay, if the business is not going to have value to fund my retirement, then what are the alternatives, right? What else do I need to consider? And I would say that you should always build your business to be saleable, whether you want to sell it or not. If you think about your house, you don't sit there and the roof is leaking and you say, well, I'm not selling the house, so I'll fix that whenever I want to sell it. No, you fix it then because you know that it's going to cause more damage, right? And so the analogy is not great, but I think it's equivalent when you have a business, you want a profitable business, you want a saleable business. And that's what you should be working towards at all points, whether you're ready to sell it or not.

So well said.

I thought you had something to add.

Okay. That was great. All right.

So, here's what I see happen a lot of times. Business owners get to a point where they want to sell or they're thinking about selling and they start kicking around the question, well, what's it worth? And then they find out and then they say, well, shit, I can't live on that. Like, if I can only sell it for that and I got to pay taxes on it, well, that's not enough left over. And so that's where they end up in this conundrum of it's worth more to them as an ongoing job income stream than it is to sell it. So the, the question then comes, what are the alternatives? And I think Nick and I would both recommend that you take a portion of your income that you've generated from the business and invest it in things outside the business. Would you agree with that, Nick?

100%. I just was going to put some numbers to it just for context.

Please do.

Yeah. So let's say you're making $80,000 a year doing your, doing your, your creative business. Um, and let's say that's your, your take home. Um, in order to amass a, an income generating investment that will return $80,000 a year for you, basically in, into perpetuity for, or at least for the next 30 to 40 years of retirement, assuming, you know, if you retire at 60 and live to be 100, let's plan, you know, pretty, pretty conservatively there and, and hope that you're going to live that long. You need 40 years of $80,000. Well, that's about a $2 million portfolio. Lots of factors, lots of variables there. But that's kind of just like the, the, you know, rule of thumb, right? $2 million on your $80,000 a year income from your business. What do you think that would go for that business? Maybe $300,000? Yeah, maybe. Maybe $250,000 because it's going to be some type of cash flow calculation plus maybe some assets. Let's say you've got $100,000 of gear and equipment that you could sell for $75,000 or $50,000, you know, tack that on to the—

right.

So yeah, let's say maybe you sell it for $250,000 or $300,000. Where are you going to get the other $1.7 million you need to sustain the lifestyle of, of what you've had as long as you've owned your business? Yes. Well, the answer is we wanted to think about this 30 years ago, right? There's that old Japanese proverb, the best time to plant a tree was 50 years ago. The second best time is today. Yes. Right. So yes, those, those are some numbers for context.

And, and I see a lot of people freeze up when they start talking about numbers that large, and, and they, and they start thinking, well, I'll never get there, I've, I've waited too long. Um, but you know, I guess the, the alternative is just keep down the path and have nothing. Right? Like, I mean, to your point, if you wait another year, another 5 years, you're not going to be any better off. So, I think having investments outside of your business is sound strategy that most entrepreneurs don't follow. They just don't. They put all their chips in the business and hope. Hope they draw a royal flush. And most of the time they don't.

That's, yeah, I mean, again, very well said. So what do you do, Christian?

Well, so I think that there are a lot of alternatives and I know you are going to have specific recommendations based upon what you do. And I am. Yeah. And I'm going to share some of those. I'm also going to have some more esoteric ideas, but the reality is you need something, whether that's real estate, whether that's investing in stocks. It doesn't really matter. That's a personal decision and a personal risk tolerance decision that you need to have with a qualified financial advisor to help you work that out.. But not knowing what to invest in or what that investment would look like is not an excuse to not have the conversation. Hey listeners, are you ready to turn your passion into profit? Then grab a copy of Profit First for Creatives. Click the link in the show notes to purchase a copy. And if you're not ready to make that Full Commitment, you can download a free copy of the first chapter. Check it out right now.

Yeah, the— as is true with so many things in life, overlooking it does not make it go away. So invite somebody else in and it'll be— it'll, it'll get less scary, right? But let's not keep prolonging and postponing and hoping that, well, you know, maybe someday I'll— when I can afford to save, I'll start saving and invest and do what Christian and Nick are talking about. Like, no, no, let's talk now. Let's start now. Right. Um, can I get— can I jump to a couple of practical suggestions, please? Okay. First and foremost is you have to know actually how much you need to live on. I threw out $80,000 is just like a random number. Um, in reality, you may, you may be living on less, uh, if you're single, especially if your housing expenses are low. You could be living on much less than $80,000 a year. That's an important number to know. The only way to know that is by having a budget. You've got to have a zero-based, cash-based budget of, I made this much money and I'm putting it toward all these things— my rent or mortgage, my utilities, my fuel, my car insurance, my groceries, etc. When you, when you live by a budget, you're telling your money where to go instead of asking where it went. Right? I'm a huge Dave Ramsey fan in that sense. I think his, his personal cash management approach is, is second to none. I mean, the envelope system is so tried and true, and the digitized version of that in either EveryDollar or my personal favorite, which is You Need a Budget, uh, it's changed my life. It's changed many people's lives. So you need a budget first. Once you have a budget, you will probably find one of two things. Either you'll find you have absolutely no money left over, you need to drastically cut your expenses, which Fantastic. That's an excellent thing to discover now. Or you'll find you actually aren't spending as much as you thought. And you have some extra money, you have some extra cash flow, which is— of the two, obviously, that's the better alternative. But either way, you win, because you'll get knowledge, and knowledge can be power. And so if you find you have some extra cash flow, what do you do with that? Well, I highly recommend consulting again with, with an advisor and trying to Pick out the best business retirement plan for you. If you're a solopreneur, uh, check out a SEP IRA. If you are a small business owner, check out a starter 401. Um, SEP and starter. And then obviously if you own— if you've got larger team, maybe consider a 401. But a business retirement plan is a way to put more income away into tax advantaged accounts than just a traditional IRA. So say I should probably start with an IRA. It's probably a good place to start, especially if you're a solopreneur.

Uh, yeah, because, you know, a lot of people, you know, I, I would agree with you. I'll go back and say I, I'm, I am not a Dave Ramsey fan, uh, but I, I, I don't, uh, ostracize people that are. Um, but his, his, his, uh, envelope system is exactly the same as Profit First, which you know, we're of course big fans of. So, you know, you can apply Profit First to your personal finances as well as your business finances. Yep. Um, I would say an IRA, uh, is, is a good place to start for most unless you have, you know, more than $10,000, uh, excess that you need to shelter for taxes on, on an annual basis. And then you can start looking at those business retirement plans that give you higher limits. So yes, I would, I would agree with you.

Well, again, I, I like Mike Michalowicz a lot and Profit First and everything they're about. I, I really, really do. I think that what Mike did was create for the business owner the, again, the same kind of cash-based budget, um, structure that's needed to have the kind of cash flow clarity to really make good decisions and know where you're going.

So then the conversation becomes with your financial planner, whether that's Nick or whether it's CORE, it doesn't matter. It could be anybody. Well, not just anybody. They need to be qualified. How does all of this project out to the future? Who? And then how does the business fund the retirement potentially? Right.

Let's talk about that real quick though. Talk about looking for a financial planner advisor. What are the top 3 or 4 things you would suggest for your listener? If you're, if you are listening and you're thinking, I don't even know where I'd find one. I'm not even sure. I never really needed one. What do you recommend, Christian?

Well, uh, I, I think historically the industry has been sales-driven, right? And to a large extent, it still is. And so there are a lot of advisors that are out there that are hustling to get your money, and then you never hear from them again, or the level of attention and service drops dramatically. I would recommend, and I hope I don't step on your toes, Nick, But I, I would find a fiduciary advisor, a, uh, that, that works on a fee-for-service basis, not someone that is paid commission based upon what they sell you, uh, or how much money you bring into them. Um, I think that, uh, and, and this may be offensive to some in the industry, I think you don't have to find the perfect advisor because 80% of the performance is going to be the same from everybody because we're all playing with the same deck, right? I think the advisor's primary role, beyond the clarity and planning, is to help you take the emotion out of the finances, right? I think that's the most value that they bring. Yeah, I'll give you an example. I had an employee of a retirement plan for one of our clients after Trump got elected the first time. He called me, uh, literally the week after, and he said, I want to sell everything and go into cash because Trump is awful and he's going to tank the stock market. And I said, okay, let me ask you a question. Has anything changed in your financial situation? Did you lose your job? Did your spouse lose their job? No. Okay, anything change, adopt a child, you know, any of these life change events, any of that happen, divorce, you know? No. Okay, my recommendation is do nothing. He's like, well, I, I, we got to sell. And I'm like, I tell you what, call me back in a week and, and, and if you still want to, we'll move you to cash. So he did. He called me back in a week, said, move it all to cash. And I said, okay. And of course, the stock market went up like 20 or 30%. And the point is not that Trump made the stock market grow up, or that I, you know, held the stock market— could have gone down and then he would have been pissed that he didn't move to cash, right? That's not the point. The point is the advisor's role is to help you stay focused on the things that are important and the plan that you've put into place, and not be reactionary to what's going on in the market.

100%.

So, so I don't know how you find that person, but that's what you're looking for.

Okay, well, I could pick up there.

Please.

Yeah, so I'm everything that you just described. I'm a fee-only financial fiduciary advisor. I have to put my clients in, you know, best interests first and foremost. I don't sell products, I don't make any commissions, and I don't just chase assets. I think you should find someone like me, honestly, because and you can, and there's a wide variety of price points, right? There will be advisors that will charge you $50 a month for this type of service. And there will be advisors that will charge you, you know, $2,500 a month for this type of service. And it's all based on your level of complexity and your level of need, right? So obviously, you know, if you're only making $100,000, I don't recommend paying your advisor $5,000 a year for for a flat fee service engagement. That's not a good fit. And the advisor will tell you that, should tell you that.

Should tell you that.

Yeah. Should, and typically will. I mean, most of, I've got dozens of colleagues in this space and we share stories about this all the time and try to make sure that like new clients that we bring on that we're giving them a reasonable price for the service that they can expect. So a lot of times you'll find somewhere around 1 to 2 or even 3% of like household income. So if you're making, you know, $100,000 a year, expect to pay somewhere between $1,500 $2,500 a year for, for, you know, a financial planner, consider a project-based engagement with a planner. That's how you would work with someone. And a lot of advisors in my role will gladly take on a one-time project. It's usually a higher fee, but instead of paying a yearly $1,500 fee or $2,500 fee, it might be $2,500 once. And then in 6, 7, 8 years when your financial situation changes again, you you know, some, some additional advice, get the plan reworked with the same advisor. So it's a way of dramatically reducing your, your annualized expense. Okay, so where do you find one? Well, there's a couple places. I personally recommend feeonlynetwork.com. They are a network of fee-only advisors. And you have to, you know, fit that qualification very narrowly in order to be presented on that website. So feeonlynetwork.com is a great platform. Alan Slider is the founder. He's a friend of mine, great guy. I am on that platform. I don't get anything for recommending it, just FYI. I'm also a part of XY Planning Network. So you can go to xyplanningnetwork.com, click the find an advisor search and find an advisor within the XY Planning Network community. And again, we are a community of, of fee-only fiduciary advisors, a lot of great people. A lot of us got into our industry, our side of this industry, because we want to help people. Yes. We want to see people thrive and do well. We want to help them navigate the relatively complicated financial waters that we all live in now in 2020-whatever. And, you know, our interest in helping people is what drives our business model decisions, our conversations with clients, the work that we do. You know, just like you got into your space because you want to create something beautiful. You want to put your passion and your skill to work to turn a product or a piece for someone that will be a one of a kind or a special thing or something that will, you know, help, you know, be a whatever, a joy to them. Sorry, I'm kind of, I'm rambling at this point, but yeah, I mean like the industry is not just full of people that are just trying to charge you No, no, no, commission products.

They're not, although it seems like there's— there's— I mean, you would think that 2008 had washed most of those people out, but it's kind of fascinating how they've— they're like cockroaches. They just kind of, uh, they scattered when the light came on, but they didn't die, uh, and, and they've, they've, they've hung around. Um, What are your thoughts on like, uh, credentials like CFP or, or those types of things? What are your thoughts on those?

Hmm, okay, so the credential does not make the advisor. However, generally speaking, advisors that are dedicated to delivering really great service will pursue credentials. If your advisor has nothing but a couple of licenses, they probably fall more into that commission side, that sales-oriented side of the industry. Um, the designations are kind of— honestly, they're kind of like, you know, mini degrees, essentially, is probably a good way to look at those. You know, the, the CFP, the CFA, the CPA, um, the CIMA, the— I mean, there's, there's 50 million of them, but like they all require significant education, rigorous testing, high failure rates, lots of sleepless nights to learn more, to be able to give greater value to your clients. So I am a big fan of education. My— I'm halfway through a master's degree in personal financial planning now. I'm earning the CFP credential right now through the rest of my my hours of experience, and I plan on finishing my degree and probably pursuing additional designations after this because I have a respect for, you know, always be learning. Leaders are readers, right? Be a lifelong learner. That's my personal commitment to it. And I think there are so many great advisors out there with 3, 4, 5, 6 designations after their title to demonstrate how much work they have gone to, to be able to deliver you really— to deliver to you really good service. But that, like I said, the credential doesn't make the advisor. There are a lot of great advisors that— it's not to say that those that don't have credentials are not good advisors or don't care about their, their craft or are not devoted to helping you. It's just—

I know, I agree with you. It's, it is a, I think it is a commitment to the craft, a commitment to the, the profession. It, it, it exhibits— it designates a, uh, certain level of competence. Not to say that you have to take the test to have that competence, but, you know, if you didn't, why wouldn't you take the test if you, if you did have the competence?

Well, think about the doctor. You walk into a doctor's office and there's, there's two orthopedic surgeons that can operate on your knee for you. One of them has a wall full of placards and praises and accommodations and fellowships. And the other one is just, I'm a doctor, right? Here's my degree, baby doctor. Which one would you rather?

School of Medicine in Haiti, you know.

Yeah, yeah.

Sorry for the listeners in Haiti, that was not meant as an insult. But no, you're, you know, you're exactly right. And, and then I'm going to throw this little nuance in it. Have you noticed, since you brought up the medicine example, and I think this exists in all professions. Who do people— so like, you don't know whether a professional is good at their job, right? I don't know whether a doctor is good, whether the advice they're giving me is competent. And same thing, someone coming to you or me and asking financial advice, they don't know whether what we're telling them is right or wrong. They're trusting us. But here's the problem is that we gravitate to the people that we connect with. And so it's like my wife, I told my wife, I was like, she was talking about her oncologist and her oncologist was just, I don't want to say she was a raging bitch because she wasn't raging, but she was really bitchy. And she was very direct. She was this, this hard-nosed Lebanese woman that had been like one of two women in her medical class. And like, so you get the impression like this, this woman had to bust her hump to get to where she was. And she was extremely direct and did not sugarcoat anything. And, you know, you would say she didn't have a good bedside manner.

Okay.

But the reality was, I'm like, I want her as a doctor because I know that she's competent. She's got people coming to her not because she's a nice person, right? But when you're dealing with professionals, we gravitate to the ones that make us feel good. Like, "Well, that guy's nice. He told me all the great things that they can do and how great my life is and how great it will be." And like, I'd rather take the person with the worst bedside manner because I just have this feeling that they're generally more competent.

What do you think?

It's hard for people like us that are competent and nice, but you know, you get the idea. What say you?

Well, you know, I don't know. That's a— I don't know if you have to pick.

No, no, but I'd be very suspect of the really nice ones. I don't know, that's just kind of my— maybe I'm just a cynic. I don't know.

Well, I can tell you, you know, a handful of, uh, of kids later, I've— we've had experience with lots of nurses to know bedside manner and lots of obstetricians to know, uh, to know bedside manner as well. And gratefully, we've not had to pick, uh, between, between quality and care. But yeah, I mean, there's, there's a certain— there is something to be said for someone who's willing to say something that, that you may not want to hear.

100%.

And, and a, a willingness to, um, and if that's what you're hiring them for, then they need to be able to do that, right? I'm not hiring my oncologist to be my friend. No, I'm not hiring my oncologist to, uh, to tell me nice things, sugarcoat it for me, right? Exactly. You know, but my, my financial advisor or planner, um, I, I don't want to be condescended.

No, no, but you want truth. Like, if, if you, if you, if you're using your example and you say, well, uh, in order to retire and have this much money, you need $2 million and you don't have anything, uh, you need the truth. Like, it's not— well, yeah.

So I'll give you a recent story. So I'm working with, um, there's a client, I, I've had for a while and, and they're going through kind of a bit of a restructuring in their small business right now, um, because they're having to face up to some, some painful realities in their overhead and their expenses and their cash flow and their, their staffing, uh, that have kind of been a long time brewing. And all this is happening, you know, and they're kind of in that boat that you're describing of Um, you know, not having taken the, all the steps necessary, right, to prepare for what if it doesn't sell. And I think it's really important, uh, for me to give them the truth, to be as, as honest and blunt as I can, and, and to be compassionate and to be inspirational with them. Because the bottom line is truth can hurt, sure, but like, let's, let's, let's face the truth and now let's try to find a way Let's try to find a way forward together. Right. And I think that there's a way to have an optimistic perspective without, without being too dogmatic. And the— yeah, I think there's a way to balance those two.

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All right, I'm going to pivot for our last segment, and, and here, here's— this is, this is like next level shit. Um, so if you want to tune out now, you, you're welcome to, because this is, this is going to hurt your brain. As a business owner, I see this progression where, you know, people start off and they've created themselves a job. And if they're persistent, they will build a business which is independent of them.

That's the dream.

Right. Rarely, very rarely does the owner look at the business as an investment. Okay. And to me, that's like the ultimate boss level is when you get to your business and you start treating it like an investment. And let me tell you that distinction. The distinction then is that investment becomes part of your quote portfolio. End quote, right? And so you've got this asset, this investment, and maybe you've got some money in your 401, and maybe you own some real estate, but you're looking at it as a whole, and you're saying, is this investment giving me the right return on that investment based upon the money that I've put into it not your effort, not talking about time or effort, money that's in it, and the risk you're taking. Okay. Now, I'm accredited in business valuation. I don't do business valuations anymore. I thought I wanted to do that, but that's awful. But I still have the knowledge locked in here. When you look at business valuation, one of the key drivers of the valuation is the risk associated with that business. And all risk is— there's risk in everything. Like, even if you own Treasury bills, there's risk in everything, right? Businesses, small businesses, generally have an adjusted risk rate of between 30% and 50%, depending upon what industry, how big it is, etc.

Geez, is that high?

Yeah, it's stupid high, which means— which means that you should be getting a fantastic return for it. Correct. And we're not talking about your profit percentage. Okay, we're not talking about— that's a separate conversation. It is, I've got X dollars invested in the business, and that's something that a financial professional can help you figure out what that actually is. But let's say it's $100,000. Okay, you've put $100,000 in net of what you've taken out. You've got $100,000 in this business. This is not what you could sell it for. This is, this is the money I put into the business to make it run. Okay, and if, if you've got a 30% return based upon the risk that it is a small business That means that $100,000 should be giving you $30,000 in cash flow, okay, up to $50,000. Start looking at your business in that light, and then you'll be like, wait a second, this business is not giving me the return that I should be getting on it, right? And maybe you should sell it and go invest your money somewhere else. That's a hard conversation most business owners don't want to have, uh, because their, their person, their ego is wrapped up in the business. But I would, I would tell you, I don't have any data to support this, but the majority of businesses are not getting an appropriate return on the investment that they've got and the risk they're taking.

Comments? That, you know, you're right to tee this up and call this like next level. I think that's a really great, uh, that is a graduated level of viewing your business. It takes a brutal level of honesty, going back to the honest perspective or the, you know, the bedside manner conversation, because Mm, I think you'll see a lot of irregularity, a lot of noise in the cash flows, because if your business is small, like sub-$10 million in revenue, there's going to be a lot of volatility that's going to throw that return up and down. But I would look at your tax returns for the last 3, 4, 5 years with a financial professional and try to surmise, like, what am I getting for all this, right? Like, is my actually really attaining a decent return level? Um, we are really—

well, and, and let me say that that's independent of the, the, the, the wage that you should earn, uh, whether you take that out of salary or dividends. I'm not talking about that, but like, you're compensated for your time first, right? So in my example, that $30,000 is after you got paid a market-level wage for what you do for the business.

Yes, it's not including your compensation. Correct. We're talking about earnings after owner compensation.

Correct. And that's why I say, you know, a lot of businesses— and this is the brutal truth— a lot of business owners would be better off financially, financially, if they did something else. I mean, that's a sad truth, but it's true. I've seen it. I've seen it in my own business.

Yeah. And I'll tell you where I see this go wrong too, a lot, is that, oh, but Christian, we're just in a growth phase. You know, it will come out of it, right? It's just been a hard year. It's just been, I don't know, the economy, the president, the whatever. Oh, you know, we'll come through, we'll be okay. Up to and including, like, you know, draining your personal savings to float the company.

Yeah. Yes. No, I mean, I, I was there. I, I, uh, for over a decade blamed a lack of profitability on growth. Now, we were never not profitable, but we didn't make the money we should have made that our peers made. And I used the excuse of, I'm putting it back in the company. We're growing.

I got Mike's book on the shelf. Isn't it in Profit First where he talks about like the whole concept of reinvesting profits?

Oh, yes. 100%. And it's absolute bullshit that entrepreneurs tell themselves.

I love that. He's like, you didn't reinvest your profits. You spent money. Let's call it what it is. You didn't, you didn't have a profit. You had, you spent all your money. Exactly. Yeah. And that again, I mean, if you're building a, you know, if you're, if you're starting YouTube, right. And you're one of those unicorns that you just are, your business is going to be worth $20 million someday and you just have to ride out the growth wave. I get it. I know some guys that have done that. They're in their 20s. Okay. They're not, you know, supporting a family and they're in tech. Yeah. And they're typically in tech. Yeah. Or they're in something where they truly are seeing high growth numbers, right? We're talking, you know, 30, 40% client growth. We're talking mid-double-digit or triple-digit financial revenue growth or numbers growth.

Yeah. I think the benchmark that VC looks at is it's You add the growth rate and the profit, and it's got to be 50% or higher consistently. Yeah. Interesting. And yeah. And so like you can sacrifice profit if you're growing at those rates, but the total has to be 50%. So like, you know, you're fooling yourself if you're growing at 10% and making 10% profit. Like that is not— reinvesting in your company.

Or if you think that by hitting 10% growth and reinvesting all your profits to where you have nothing left over, that you're— well, you're reinvesting to, to be grow, you know, to be growthy. Like, that's, that's not the case. No. So again, what do you do? Well, um, you need to either get incredibly judicious about your spending control and your overhead. You need to, you need to cut out everything that's not absolutely mission critical. You need to find anywhere possible to save money. You need to do everything you can to boost your pipeline and get more clients coming in the door. Um, and you potentially need to consider going into a different business, which that's—

yeah, you left off my favorite. You left off my favorite because I think expenses, absolutely, that is something that you need to manage and manage well. Um, but you can only cut so much in expenses. And eventually, if you're going to increase your profit, you have to look at the top line and your profit margin. And, you know, it's pricing. Yeah. Well, and it's not just, okay, I'm going to raise my prices because your service offering may not support it.

Like, you know, that's what I say, because I think a lot of times we You know, we kind of charge what the market will pay.

Yes, yes. And but I think that's kind of the lazy person's approach to pricing. And as an entrepreneur in a small business, you have the ability that large corporations do not have, which is to find a novel solution to a problem and extract the maximum value out of it. And so that's, that's why, you know, I talk about this in the book and I talk about it on this podcast. You have to start with knowing what problem you solve and then understanding the value of your solution and charging the most that you can up to their alternative to the same solution. That's, that's how you, that's how you maximize your pricing. It's value pricing. It's understanding the value you deliver. And, and that requires work. It's not just, well, everybody else is charging $5,000 for a website, so that's what I'm going to charge. That, that, that doesn't work.

Hmm. Yeah. I mean, again, that's kind of. That's a great point because if you're 7 to 10 years into your business, or even if you're 3 to 5 years in and you're struggling to be profitable, once you've kind of gotten over that startup phase, which shouldn't last more than 5 years, shouldn't really last more than 3 years. You should be, you know, self-sustaining after 3 or 4 years, but you're still struggling in profitability. Go to your clients and ask, well, maybe not go to your clients. I don't know. How would you approach like?

No, I think that's exactly where you start. You go to them and you say, what are— I've said this so many times. Stop thinking in terms of what you do currently and what your skills are. Go to your clients, ask them, what are you struggling with? And shut up. What are your problems? And don't worry about if you know the answer of how to fix it. Just listen. Mm-hmm. Because what's going to happen is you're going to find things that you can help with. And, and if you ask enough people, you have enough clients, you'll start to see some commonalities between them. And they're like, oh, all of these people are having this problem.

Mm-hmm.

All right. So now can I do a solution? And if I don't have the skills to do it, is there somebody I can partner with? Is there a way for me to drive the ship and build the client and create the value and have other people do it? That's the beauty of entrepreneurship is it's not about what money you can make off of what you do. It's your ability to make money off what others do.

Yeah. Christian, I think that's a really interesting point about going and just asking what the problems are there. Are you familiar with the HBR article by the Jobs to Be Done theory? No. It's, it's essentially putting, uh, like academics like to do, putting a structure and kind of an academic, you know, framework around what you just described, which is instead of positioning your company as a provider of services, position yourself as a solver of a particular problem or two.

Because at the end of the day, that's the only reason we get paid.

That's, that's why we get hired, right? So like, I don't, and I've tried to do this in my own firm. It's really tricky. It's so hard because nobody does this. We always think about what we do in terms of what we do, not in terms of the problems that it solves. So, um, and it's different for different people, right? So like my first pass at this with a marketing expert was not, I do financial planning for business owners, but it was, I help, you know, business owners dealing with the stress of fragmented financial, uh, life find clarity and direction and finally peace in like a streamlined, cohesive financial end-to-end, you know, hand-guided experience, right? You go from, I don't know my numbers, I don't know what I'm doing, I don't know my financial situation, to not only do I know, but I actually have direction and, and I'm, I'm working toward my personal goals and objectives.

I had a client I was talking to that was an independent videographer, and he had a crew and equipment, and he worked primarily with independent producers doing documentaries. And I asked the question, I'm like, well, why do they hire you as opposed to any of the other videographers in the area. And we talked through that, and I'm, I'm listening, and I'm like— and I knew what kind of people independent producers were. They're, they're generally hyper-disorganized. They're one-man shows. They're, you know, they're, they're overwhelmed. Like, you know what I think you do? I think you, you bring order. Like, they know that when they hire you, you're going to show up at the right location on time with the right crew and the right equipment, and it's something they don't have to mess with. Like, you're not going to show up at the wrong location because they changed it 3 hours before the shoot, like, you know, because that's what they do. Um, and, and he's like, yeah, that, that, that sounds right. And I'm like, now go test it. Like, go, go ask, go ask, because that's not necessarily self-evident to the, the customer. Like, they, they may not understand it that way. They may say it a different way. But, you know, it takes work. It takes a lot of work, especially when you're dealing with services that are intangible, right? Like what you do. I mean, it's hard. People do not buy financial planning. They don't. No one goes out there and says, I'm going to buy financial planning. No, right? They're buying something else. Um, and it takes work to figure that out.

Well, to piggyback on what you're saying though, I would— I want to point your listeners to a really, really good podcast that I, I, um, I listened to over the summer with Chad Brown. It's called Video Income Secrets. He was, he was the guest. Uh, the host's name is, is Sam I was looking up his name. Sam Nyandui, I think. He's African. I'm not sure if I said that right, but Samuel Nyandui, Video Income Secrets. It was the— it's like the second or third most recent podcast, um, uh, on, on his, on his show. I think it's called The Real Secret to Scaling Your Video Business. But he talks about exactly this thing of like what made him a successful video production company with decentralized operations and steady recurring cash flows and all these things that like everybody wants but nobody knows how to make in the, um, in the creative space because it's hard to do, was positioning his company as a solver of, uh, I think, I think what they do is, um, employee onboarding and training videos. But it was like, cut your employee onboarding time by, you know, 70%, and You know, keep current with such and such and like 2 or 3 little value propositions of like, here's the problem I'm solving. It's like, oh, by the way, I'm actually a video production guy, but you wouldn't have known that. Cause it's like, what it sounds like you're a, you know, an HR consultant or like some sort of, you know, it's like, well, that's what he does, right? He makes really good training videos or whatever it is, but like he's pitching directly to the people speaking their language of this is the problem you have, your, your employee turnover and training new people is a pain in the neck. I get it. I can fix that with my video production platform.

Yes.

And that's probably for 20 minutes, just drives that point home in like 30 different applications for video or for creative businesses. And I just, it's a really good little 15-minute section of that podcast.

That is the key is you have to define the problem in the terms that your clients would describe it. Like you can't use your words. Right.

Yeah.

Nick, I feel like we could continue. I feel like we had this problem on the Chris Project too. I feel like we could talk forever, but our time is up. Um, how do people find out more about Open Handed Wealth if they want to know more?

Yeah. Um, well, it's a pleasure as always, Christian, getting to sit and talk with you about these things. Um, you can find me at openhandedwealth.com, uh, nick@openhandedwealth.com. You can email me directly or find me on LinkedIn if you can spell my last name, which is, uh, a little bit of a challenge, but you can certainly find me there. Links to everything go through my website though, and that's where I can be found.

Perfect. We'll have those links in the show notes. Listeners, if you like what you've heard, please rate the podcast, share the podcast, subscribe to the podcast. If you don't like what you've heard—

go ahead, try some Brunswick stew.

Try some Brunswick stew. Let me know what you think. Shoot us a message. Tell us your recipe for Brunswick stew. And, and you've completely got me off track. If you don't like what you've heard, shoot us a message with your New Brunswick recipe. Yeah, and we'll get rid of Nick. Until then, ta-ta for now.