Only about 20 minutes long, this podcast episode discusses ways for business owners to prepare for the downturn caused by the pandemic. The tips outlined include having a Financial Plan in place, knowing what your business is worth, and being prepared for unexpected changes.
Money is a big topic for kids and one that can be difficult to teach them about. That’s why Peter Lazaroff, a financial planner, and speaker, recommends giving them an allowance. allowances can help teach children about money in a number of ways. For example, they can learn how to budget and save money. They can also learn about the market cycle and when to be cautious about investing. In the past few months, the stock market has fallen by 30%. This means that many people are losing a lot of money. If your child is interested in investing or wants to be financially responsible, it’s important to talk to them about these risks. Allowances can help teach them about money in a safe way and help them develop good financial habits.
Money is a very important topic for children to learn about, and an allowance can be a great way to teach them about it. Peter Lazaroff, a financial planner and speaker discusses the market cycle and how it’s difficult to predict when a market will fall. He goes on to say that in the past few months, the market has fallen by 30%. This means that if you have money invested in the stock market, it’s important to start thinking about how to get your money out of the market before it crashes even further.
Are you concerned about your children’s financial future? Do you want to help them learn about money but don’t know where to start? Peter Lazaroff, a financial planner and speaker has some advice for you. In his latest podcast, Peter Lazaroff discusses how an allowance can be a great way to teach children about money. He also talks about the market cycle and how it’s difficult to predict when a market will fall. However, he says that in the past few months, the market has fallen by 30%. Now is a great time to start teaching your children about money! By giving your children an allowance, you are helping them learn about budgeting and saving. They will also learn about the market cycle and how to protect their investments. If you are worried about your child’s financial future, now is the time to start teaching them!
Money is a big topic for kids and parents alike. What can be done to help them understand and manage their money? Peter Lazaroff, a financial planner and speaker has some ideas. First, let’s talk about allowances.
Allowances are a great way to teach children about money. They can learn about how to budget and save. They can also learn about the market cycle and when to sell stocks or buy bonds. Second, it’s important to remember that money isn’t always easy to come by. The market cycle is a difficult thing to predict. Sometimes markets will go up, and sometimes they will go down. It can be hard to know when this is going to happen. But remember, it’s important to stay calm and stay invested in your own financial future. The market will eventually rebound, and you’ll be better off for it!
Peter Lazaroff_ Podcast Transcription
Tersh Blissett: [00:00:00] Sweet. Hello, everyone out there in podcast, world. Hope you’re having a great day. You were listening to or watching the service business mastery podcast. I’m your host Tersh Blissett. Today we have Peter Lazaroff. We’re gonna talk about my computers being glitchy here for a second. No, we’re gonna talk about financial investment.
And as you can, if you can read the title, if you’re watching the Facebook live talking about how Peter gave us his four-year-old Allowance. Good, bad, ugly. What he’s learned from that? I couldn’t imagine. So we have four little ones and the oldest he’s nonchalant about it. He cuz it’s just like whatever for him.
He doesn’t really care about anything as far as he’s just your typical 12 year old and he is just yeah, I got it. I don’t have it. It’s whatever. But Memphis, my second to youngest. Son. He’s the youngest son, but he is all about his stuff. He wants to track it all a hundred percent, but I’m super interested in hearing what you have to say, but if you don’t mind.
Tell us a little bit about your background, how you got into what you’re doing. And then also I really wanna talk about investing just in light of the pandemic and everything that’s going on. I know you have a little bit of insight to that. I know threw a lot on you right there, right at the beginning, but if you don’t mind just getting started there.
Peter Lazaroff: Yeah. So I’ll answer that last question about your background. So just to give people a sense of who I am and where I came from. So you, I’m the chief investment officer of an independent investment firm called plan Corp. [00:01:30] We manage a little over 4 billion for people across 44 states. And we’re a comprehensive wealth management firm.
So we do financial planning. We help with the state and taxes and investments. And so that’s largely my job. I write for the wall street journal in Forbes. I pre pandemic did some TV stuff, but I haven’t done that in a while. Cause it was always in studio and I’m afraid to show people my home apparently on national TV.
And then last year I published my first book. It’s called making money simple. And in that book, like many of my communications, I just try to take topics surrounding finances that are both relevant to the average person. And simplify them as much as possible. And I think my passion from all this came at a really strangely young age, I actually got a share of Nike stock for my 12th birthday for my grandmother.
And I generally point to that as being where this all started for me in terms of interest level, just because as a 12 year old I, I. In the video games and toys and stuff, you get this share stock and think what is this? But my Nike stock split almost immediately and I was getting dividends in the mail and I was totally hooked.
I thought it was so cool. And a lot of my studies in college were focused on this just because finances are not really rocket science. And there is a way to be successful. It’s like a puzzle that you. Solve and there is a way to do it correctly. There is some subjectivity here and there, but that’s a little bit of the background on who I am and where I am today.
And ter, thanks again [00:03:00] for having me. I’m excited to do this with you. Yeah,
Tersh Blissett: absolutely. We are live on Facebook too. So if anybody has any questions, feel free to reach out and ask questions, then we’ll ask ’em here. Love. But with that being said, tell us a little bit about your four year old who’s now seven, is that.
Yeah, that’s
Peter Lazaroff: right. Three years ago now, I guess maybe a little bit more than three years ago, I had written an article called why I gave my four year why I gave my four year old, an allowance, maybe why and how. Yeah. And what’s really interesting is like many older children. They tend to be more verbal than the younger ones.
Cuz parents have time to pay attention to them. You mentioned you have four kids. I have two boys. We love them all equally, but that first child gets the undivided attention and his verbal skills were really great. By the time he was four, he was asking a lot of questions about money, and I never really got a formal education on money as a child.
I did mention getting these stocks, but most of it was self learned until I got to college until I became a professional, but my parents weren’t super intentional. And so I went out and read a bunch of research on. In wrong ways to give an allowance. And the general thing I found is that there is no right age to start and you can’t start too early, but the big suggestion was start when they’re asking questions.
So if you just throw your four year olds some money and they never were talking about money before, it’s probably not gonna be that effective. But for younger kids, and this is true. Probably even for kids below the age of 10, the big advice was to have three different buckets. And so for the four year old, we took him to bed, bath and beyond, and let him pick out three [00:04:30] different jars and he decorated them and we wrote, save on one, spend on another share on a third.
And the going rate, according to a lot of research was 50 cents to a dollar. For each year of their age. Since he was the only child at the time, we opted for a dollar per year and we’d get a $1 raise on his birthday. And so we, the only requirement we made out the gate was that he put half of his money and saved.
So he put $2 and save $1 in spend and $1 in share. And when he got it raised, he’d be allowed to do whatever he wanted with it. What’s interesting is on his seventh birthday, his birthday fell on a Saturday and usually asks for his allowance on the weekend. Cuz that’s just when I have it. And. Thinking around it.
And he waited until Sunday until he was seven. So he didn’t ask until he was seven. He was like, I knew I would get an extra dollar if I waited until Sunday to ask, which I thought was hilarious. The thing that was really interesting about it all was if you had a small child and even if it’s been a long time, you probably remember.
Not just you ter, but the audience, if they ask for stuff, you’re in a store and they want this or that, and they want a toy. The first few weeks of having allowance, if we were in the checkout line somewhere and dad, can I have this? I’ll say you have some spend money. Do you have enough?
And the question starts going away and suddenly, now I’m not being hit up for stuff and he has to save. It’s nice because for a parent, one of the hardest things about teaching good money habits is consistency. . So you don’t wanna say, Hey, dad’s the money guy, ask him no, mom and dad should know equally.
Even if you don’t [00:06:00] actually, United front. Everybody has an equal share in the decisions United front and what is a need versus a want. And then for a four year old planning for the long term is really hard actually for even adults. It’s really hard. There are studies that the neural patterns in our brains when we think about saving for the future are identical to the neural patterns of giving money away to a complete stranger.
And that’s an adults. So imagine, it’s already difficult to get adults to save for the future for themselves. Imagine a four year old has this bucket called save. You have to find a way to make it real for them. So he decided he was gonna save for a Lego set. And so he printed a picture of the Lego set.
He wanted him put it in the bucket that way. He always remembered now that he’s seven, he’s buying things that I feel don’t make a lot of sense. They feel like bad purchases. However, I probably made a bunch of bad purchases when I was a kid. And. The great thing about an allowance is it allows children to learn money lessons when there’s not a lot of dollars at stake.
So money lessons are extremely expensive and, in general with life you learn lessons, then you take a test, but with money. You face a test and then you learn the lesson. And because these money lessons are so expensive, it’s really a great way to have open honest conversations about money with your child.
If you feel like you’re not a money expert yourself, the most important things to be is honest with children. So not saying, wait, Hey, can we buy this? Say, no, we don’t have the money. Children will interpret that super literally and think, oh my gosh, are we outta money? No, that’s not a high priority for us.
We need to, we can’t [00:07:30] spend money on stuff like that because we want to have enough money for the house and for our food and grandma and grandpa, and our family are retired and we talk about retirement, grandma and grandpa don’t have to work anymore because they put a lot in their save bucket to retire.
And mom and dad, we do that too. We put a big amount of the amount of money we make into save. So that one day. We don’t have to work and we can buy your kids, ice cream and toys the way that they do . So the it’s, I probably should do a follow up article to that original one, with the good, the bad, the ugly, I will say.
All the research says you shouldn’t tie allowance to chores. And boy is that frustrating. And the theory goes that chores are just part of being in a household, making a contribution to a community. However, and so you don’t want your kid to say, you know what, I’m not gonna Mo a lot on, I’ll just skip my five or 10 bucks this week.
So that’s what you’re trying to avoid. However, at this early stage, It now we’re just battling him to do chores. So I would love to somehow tie the allowance to chores when he does extra projects or when I’m raking leaves, he wants to come out and help. Like sometimes I’ll offer him with big projects one time.
Yeah. Pay days for a young kid to pay days. Not that great. Not that large. I’d give him 25 cents and he thinks he’s rich. But I think that’s been the hard part in terms of following what the research says versus implementing ourselves. Another thing that’s been hard is that share bucket.
We have not done a good job. Doing what we had planned to do, which was take him to the charities that he wanted to donate to and get him an in person tour, get ’em on their mailing list. And it just turns out it’s really hard to get outta work and get your kid outta school and get them to a charity on a [00:09:00] weekday.
Those are little things where it’s a challenge and there’s nobody perfect, but I share these instances just so that people can think of their own ways to work around those issues. So you’re
Tersh Blissett: saying do not tie them in with chore.
Peter Lazaroff: That’s what the research suggests. And even if you go and ask your pediatrician, who’s definitely not a money expert.
They will know the research that chores should not be tied to anything other than being a contributor to a household. The research and in real life, it’s not like you’re gonna harm your child. I feel like we probably could have tied it to chores and we may still my wife is somewhat the drill Sergeant.
So she decides that Hey, you need to do these chores. Our oldest, the one with the allowance will be scared enough to do it. Whereas if I push him to do it, he knows I won’t put my foot down on that particular issue. So he’ll ignore me. His younger brother’s three. He is not asking about money yet.
But so I don’t know if he’ll get an allowance when he’s four or five we’ll see. Once he starts complaining that his brother has an allowance and he doesn’t, that’s probably when we’re gonna pull the trigger for him.
Tersh Blissett: Yeah. Yeah, totally. So we currently, we. Before they’re allowed to do anything in the afternoons.
They have to accomplish all their daily task, their daily chores of putting away dishes and taking trash out. And those types of feeding the pets and everything else. But I’ve often wondered about the paying the allowance versus the chores, and tie ’em together like that. Currently, if ours is very similar to, if you.
If we ask them to do a task that’s above and beyond their chores, that’s when they usually get paid or they’ll get paid something to do it. If it’s help mow the [00:10:30] lawn or something like that, they’ll get five bucks or 10 bucks or whatever the thing may be. And so then they have that money set aside, but we don’t have the three buckets.
And so that’s what I really like is having those three separated. And we have, we’ve talked about it. We’ve had the conversation, especially with my older two boys about that conversation and even Like with the expense of cutting the grass. And so like we’ll talk, we’ll break it down and not necessarily just do it just so they understand that the lawnmower wasn’t free, the gas wasn’t free.
So if you’re thinking about things in the future, they both have very entrepreneurial minds. And so I’m thinking. All right. So you didn’t actually make $10 each, you had the other, your overhead expenses. And so we’ve had those conversations, which is really cool. But we just haven’t split apart.
So it’s three different buckets and I do really like that. What you’re saying there about the the three different buckets and the giving one. Our kids play video games. They get they get, they’re supposed to get 30 minutes a day in the afternoons, in the evenings.
I love how you say supposed
Peter Lazaroff: to
Tersh Blissett: supposed to. And so sometimes it runs over to an hour and sometimes it’s an hour and a half. And sometimes, I get busy with work and completely forget where the kids are and mom comes home and says, have they been doing this all afternoon? I said, Oh, yeah, I forgot the kids are here, but nah, but they they will come to me and ask for dad, can I have a fortnight skin?
And I’m like, how much is a fortnight? I don’t even know what a fortnight skin is. And he’s it’s 20 bucks. It’s only 20 bucks. I’m like, [00:12:00] You’re gonna spend $20 on a video game so that you can get a Batman costume. And I was like, no and my youngest son, Memphis, he’s the one who came to me last about it.
He’s it’s only 20 bucks. Dad. It’s only 20 bucks. I was like, okay, get 20 bucks outta your thing. And he was like, nah, I don’t really want it. It’s that’s what I thought. Yeah. My $3 you’ll spend it. And if it’s your 20 bucks and then it’s not, but then Aline is the, she’s our youngest child and she’s the exact opposite.
She’s a giver. And so she’ll say here, Memphis, you can have my $20 and I’m like, no Aline don’t do that. Because then she starts ding out all her money to all the siblings and then she has nothing. And like even birthday money, she’ll do that kind of stuff. And she’ll try to, and I’ll catch ’em and stop it.
But. I like the three buckets for that reason too. If you’re gonna be a giver and you’re gonna give to a nonprofit or whatnot, she would definitely be throwing that money at nonprofits. Whereas I definitely have to have her like put a lock on the rest of the bucket so that she can’t can’t divvy those out for
Peter Lazaroff: sure.
I love that you have your kids thinking like owners where they, the task like mowing the lawn. And I think of the three buckets that I mentioned to me, the saver’s buckets, the most important, because most. Bad financial decisions that adults make can be totally fixed with a really good savings rate.
And when you’re a business owner in particular, you can have a lot of business success and ha be a terrible saver or not really optimize the value of your business in such a way that it sets you up. To walk away from it at some [00:13:30] point, or do you know? I do think that the picture of what retirement looks like is different for our business owners these days, because when you’re a business owner you’re driven, you’re entrepreneurial.
The idea of taking a 30 year vacation is not really that great. It’s probably not even that mentally healthy if you are an entrepreneur either. So it’s really, how do you reach that point of financial independence such. If you wanna sell the business on your terms, it can. Or if you want to hand it down to the next generation at a lower valuation, or if you wanna, take a different sort of deal or work arrangement.
You can do that. And so I think that saver’s piece is so important to instill early. I actually love that you have that owner’s mentality a lot of of the employees that I work with. I always think, gosh, if they just thought like owners, they would see this so much more clearly. And the ones that are going places are the ones who think like owners.
So that’s really cool that do that. You do that. Yeah. It
Tersh Blissett: is really cool to have the conversation, especially with the two older boys. They’re 10 and 12, they. 1112. They change ages every year only but they they are really very, especially now after like this, the beginning of this summer is when we really had the conversation because our yard.
So we live on 250 acres. And, but our yard is about when we have about three acres ish around there, and we normally have a rod and mower, but I was like, I think it’ll be hilarious if I get y’all push mowers, it’s gonna be funny. And so I get ’em push mowers and then we’re talking and they’re like, oh man.
Let’s like, go to my aunt’s their aunt’s house, my [00:15:00] sister’s house. Let’s cut her grass. Let’s cut grandma’s grass. And they start doing all this stuff. And within a couple weeks they’re like 40, 50, like 60 bucks here and there. And I’m like, All right. It’s time to put gas back in the mower where we’re gonna do that.
And so they’re like, yeah, we’ve already split it apart. So they already split it in the thirds and they’re like, we already have this much money for overhead expenses and other stuff. And I’m like, all right, cool. That’s great. Let’s go get some more gas and put it in the lawn mower. It’s really been cool.
And that only lasted a couple weeks and then it got too hot and they were about to have heat strokes. And so I was like, that’s fine. So we started cutting grass again with the riding lawnmower, but yeah, it’s, it was really cool. And even now, Listening to the boys. And they’re talking about even, they’ll ask me questions about our business and say how much is your truck payment?
And so cuz we’ll be getting in the truck to go somewhere. And like how much is your truck payment? And when I was growing up, it wasn’t that wasn’t a question you asked. It was like a no, it was like a, that’s known to your business. You’re a kid, I’m an adult. And so I’ll like, I’ll tell ’em however much the truck payment is and they’ll say, okay, so how much money do you have to make profit to make that truck.
Each months and I’m like, dang kids even though you don’t understand, like you don’t know the numbers in math and all this other stuff, you still understand that it has to happen in order for the truck payment to be made. And I think that’s, I think it’s really awesome. I wish that somebody had given me that conversation when I was a kid and I would’ve been a lot better as a business owner early on, for sure.
so with that being said, Let’s switch up gears a little bit. And you were talking about investing in general. So as a business [00:16:30] owner, like investing a lot of times, , I’m guilty of this. Myself is investing in the business is our quote unquote investment. And that’s not always a sound investment. Especially if you have, if you don’t know how to run a business what would you say is a good investment?
Practice right now, especially with all of this uncertainty going on right now.
Peter Lazaroff: You hit the nail right on the head with business owners. The primary investment is their business. And when there’s extra cash though, and you’re in grow phase, you just invest it right back in and you don’t have time to think about some of these other things.
I think, the minimal table stakes thing that you need to be doing is that business owners have an employer. Retirement plan and put your maximum contribution to that, cuz that’ll at least prevent you from catastrophe, in terms of not saving enough or not saving optimally. I do think, and I’ll answer your question more specifically, but I do think that business owners sometimes miss opportunities to have the right retirement plan in place.
So most of ’em will put like 401k in place, whether that’s a full plan or a solo plan or a simple IRA where maybe they are eligible for something like. Cash balance plan where the maximum contribution for tax deferred dollars is much, much bigger. So that’s one area for improvement, but in general, in a pandemic, if your business is hit, you’re mostly working in survival mode.
And so I think, most business owners that we’re working with, the one thing we try to do before we [00:18:00] have them putting. Very large sums into investment portfolios is making sure that they have that safety net in place first. So some sort of emergency fund or safety net or cash reserve, whatever you want to call it.
That can float you for 12 months. And when I say float you, it covers your home life expenses, and then you also need some amount of cash to cover your business expense. How much for business expenses will vary depending on the type of business you have. For example, I think in this pandemic, you’ve seen a lot of restaurants, shutter, but if you were a restaurant owner and you had 12 months of cash to keep your restaurant going, that would’ve been insane.
That’s not how the economics of restaurants work. So obviously how much you keep for the business. Is different, but for your personal self, 12 months, I think is what you ought to be shooting for. It gives you a lot of flexibility when it comes time to buy insurance, when it comes time to make investments.
And when you have to make tough business choices, knowing that your financial house is in rock solid shapes really important beyond that when you. See markets falling. And again, your business and you know how the economy impacts your business. The temptation is to feel like you have some sort of special insight.
And I think the most, one of the most common mistakes that all people make, this is not just business owners, is that they think they have some sort of an edge over the market. And the market is millions of people’s collective knowledge. When you get a large enough group of independently thinking people guessing about the value of something, what tends to happen is there’s two pieces in every guest there’s [00:19:30] information and there’s air.
And in a big enough group, the air tends to. Cancel itself out and you’re left with information and in the stock market, there’s billions of dollars, like just half a billion $500 billion roughly traded a day with really smart, motivated people. And I assure you, they know more than you do. They know more than I do.
And I sit here at the Bloomberg terminal. You have firms with PhDs and CFAs and data comes so quickly that there is nothing, that the big money doesn’t. And trying to remember, what is your edge as an individual? Your edge as an individual is that you don’t have to report earnings to anybody.
You don’t have to share your performance on a quarterly basis. You have time to sit there and let your investments go up and down. Historically the markets fall in by 10%, once every 12 months it falls 20% once every three years and it falls more than 30%. Once a decade. So falls are pretty normal.
We’re in the midst of something where, the market fell, it recovered quickly, all that happened a lot more quickly and normal, but the reason for which a market will fall is always gonna be different. And it’s always gonna seem scary. And there’s always gonna be a this is different this time, but market declines are really the cost that you, the investor bear in order for higher returns.
And if you think about your own business, your business, you don’t go out and value your business. Every hour or every day, same with your home. If someone stands outside your house and starts shouting the value of it every morning, or once every hour, like you’re not gonna sell your [00:21:00] house, just cuz they’re shouting something that’s at a different value.
And so I think the most important thing you can do if you’re a business owner and you have an investment portfolio, 95% of the battle is making sure that you save as much as you can and try to ignore.
Tersh Blissett: It’s there and you just, but it’s not there. Like it’s, it’s there, but you don’t think about it every day.
It’s one of those things where if you like a friend of mine, Mike MCIT, he wrote profit first. And he was like, don’t look at your checking account every day. Don’t look at it every day. Just, it’s there you move the money, but if you look at it every day, that’s whenever you. Oh, I got some extra cash here.
Let me dive into this whenever I
Peter Lazaroff: shouldn’t be. Yeah. And I think that. Now here, I’m a I am an owner at a financial advisory firm and this is gonna come off super biased, lot of things you hire professional. Just like any job, if you hire a professional, they’re gonna do a better job for you.
I am a certified financial planner, chard financial analyst. I have all these accreditations and even I hired my own financial advisor a year ago because it’s just a time thing. I’m a business owner and now I have too many things to worry about. And for me, it’s not about investment behavior.
I’m not as concerned about that, for me, it’s more of making sure that I’m putting money in the right accounts, in the right amounts at the right time, making sure that I’m doing and taking advantage of every tax opportunity. There is, I’m a big believer in that everyone should pay the IRS, their full bill, but you don’t have to leave a tip.
All these business [00:22:30] owners, you’re tipping, the IRS left and right. And you don’t even know it. And I do think that in a pandemic. Again, 95% of the battle is just making sure you continue to save and stay the course of your investments. The other thing, if you don’t have it in place is getting a financial plan, having a roadmap.
And if that includes some sort of exit plan with your business, that’s a really big cog in your financial independence eventually. Yeah. If you have lots of partners, maybe you can’t project that out, or maybe you already have an exit plan, but most business owners. Who have started talking about exit planning, don’t actually have one in place.
And so when you’re caught by a surprise offer to sell your business, you don’t know what to do, or when you have a key employee who wants to leave, but you wanna keep them, you don’t know what to do. That can be a really useful. Source of time in any sort of downturn, whether it’s pandemic or otherwise, but when it comes to your portfolio, just recognize losses are totally normal and they’re not even the enemy.
They’re actually just the cost of higher returns that you earn in stocks than what you would earn in cash over time.
Tersh Blissett: So tell me this. When was the last time those that 30 or 35%.
Peter Lazaroff: So March, we were down 30% March, April. So that was one of the fastest 30% drops. I think it was the fastest 30% drop on record, and we are recovered and we’re back at a new, all time high, which is wild.
We had a full business cycle almost in a two or three month span prior to that, it was the financial crisis. So 2007 October, 2007 to February, 2009, you saw the market lose about 60% of its [00:24:00] value. Wow. Between 2009 and this last 30% drop, we had a series of 10% drops. We had a couple, nearly 20% drops by nearly, 19.9.
So do you wanna count those let’s count? ’em I mean, you ultimately the count, I give you these averages on how frequent losses happen. Not because there’s like some scheduled distributed to everybody. When you know it’s gonna come, it’s more important, just realizing. Losses are gonna continue to occur with a similar magnitude and frequency as they have in the past.
We just never know when and why. And guessing is a loser’s game. If it weren’t, there would be a Nobel prize out there to somebody who has figured out a system to guess, there’s lots of people who say they’ve figured out a system to guess when the next correction’s coming. But again, they’re not Nobel prize winners and it’s because everyone, there’s more research showing that people are terrible at predictions, not just in investments, in.
Science in weather, in sports, in politics. There is really extensive research that we’re just bad predictors of the future because the future is wildly uncertain. And when there’s a wildly uncertain future, the only rational way to make decisions is using probability. And you look at things that are gonna give you the highest chance for success and at the simplest level, when it comes to investing.
And this is really just the. It’d be great. We could save for all of our goals, just put it in cash and not have to worry about it, but we have to compete with inflation. Plus if we don’t get compounding returns from investments, we, our savings rate would have to be enormous to [00:25:30] save enough to ever retire, reach any goal.
And so you’re really just trying to beat inflation without taking undo risk and. You look at all the investing rates, you’ll see them say similar ways that the key to investment success is just minimizing mistakes. And every time you make an active choice to do something, There’s a chance you’re wrong.
So like you try to make a bunch of really good decisions up front. That’s really what financial planning is all about. So I mentioned a good exercise is to go through review your financial plan prior, that’s a better reaction to market losses than looking to your portfolio because a financial plan takes into account that these losses are gonna happen.
Never gonna know when and why, but it creates a plan and you make a series of really good decisions up. So that as you go on through time, there’s already a set of rules in place so that you’re not making mistakes along the way. And it’s. It’s as simple as that, it just, it takes time. Just if you had to go to court and argue a case, like you’d hire a lawyer and they’d figure out a way to map out your case for you, right?
Yeah. Anybody can do financial planning. It’s just, when you have a pro do it, it is gonna come out better. Just like someone who mows my lawn looks better than when your kids do it or when I do it. Exactly.
Tersh Blissett: So with that being said, whenever you’re doing your financial planning Age plays a factor in that doesn’t it.
I remember whenever I was first setting up ours, it was like, okay, if you’re between 20 and 25, you want to go with this, a little bit more aggressive and then we’ll slow it down a little [00:27:00] bit later. And once you get to 35 40, you’ll want to start changing up here. Is that’s
Peter Lazaroff: pretty accurate.
Yeah. I think as a rule of thumb, The younger you are, the more aggressive you can be in terms of having more stocks and less bonds in cash and the older you get the near your retirement, you get, I should say, the more conservative you make your retire, your your portfolio, but actually the older you get, if you’re like 85 and you have too much money to spend in your lifetime anyways, you might start getting aggressive again and start to match the time horizon of the people who are gonna inherit the money, but, for business owners.
And again, it depends on the business that you own. The biggest variable for your success is often gonna be what’s your business worth right when you’re done. So we should
Tersh Blissett: get appraisal on the business, like an actual cash valuation of it.
Peter Lazaroff: So what we do is we actually have a separate business line called exit strategy advisors.
And sometimes if someone’s not really it’s, a flat fee it’s, meant to be candidly, a loss leader for us, you do a real cheap playing things and hopefully you become a wealth management client of ours, but let’s say you don’t wanna go through that process. You the business owner might say, yeah, my business is worth a million dollars or $5 million or whatever.
And we just plug that into our financial plan. But the, sometimes you’ll reach a certain point where that one cash flow is the difference between success and not. And then we’ll push to say, let’s do some exit planning. And so you will have some appraisals done. You’ll look at similar. And it also depends on how you plan to exit.
So again, selling to a private equity firm is probably gonna get you the highest value. [00:28:30] Selling to your kids is gonna get you the lowest value. And it’s a way to gift your kids, selling to key employees slowly over time can get you a lower value, so it’s, what is your desire as an owner to pass the business?
How do you wanna be involved once it’s passed? Do you wanna just be acquired by a competitor and you don’t mind that your name goes away or you want your name to be on the door forever. Those are all things that impact value. Once you have the structure. An ideal exit, and maybe you plan out two or three different maps for what an ideal exit looks like.
Then you do appraisals because again, the value for which you realize this will cha and how the taxes would work with these different exits. Those are all gonna be a little bit different. And then you plug those into your financial plan. And now you have a little bit more clarity in what the future may.
Tersh Blissett: Yeah. We’ve had a couple business brokers on the podcast, and it’s crazy how, when you do exit a business, how much, how the things are, that’s valued in the business, how much of a tax burden it becomes on you or the buyer and how it can swing really far one way or other if, whether you’re showing a lot of assets and that type of thing.
So it’s, it is wild because. You can’t just say, okay here’s my EBITDA. This is what my businesses were, blah, blah, blah, blah. Because you could have trash, vans and all this other stuff and you have to take that stuff into consideration that you never did. It’s hard to just say, make a general.
Assumption of how much your business worth. And then you can say is worth a million dollars all day long. Now is [00:30:00] somebody actually gonna buy it for a million dollars? That’s a whole different story.
Peter Lazaroff: Yeah, absolutely. And the thing is that most people think, okay I’ll put an exit plan in place when I’m like five or 10 years out from retirement, but we have some people who engage us from the day they start their business.
And that’s maybe because they’ve already exited and when you have a plan. At an early stage, it really allows you to adapt and make it tax efficient for your side, make it efficient from an estate planning, make it efficient from a retirement planning from succession planning. So I would say a huge misconception in that part is that you need to wait till you’re nearly ready to do exit planning.
Your financial planning will be much better as a result of it, but so will the way that you run your business. And so when you come to that moment, you’ll be a more attractive. Business to buy, cuz you’ll have checked all the boxes in those early stage due diligence that buyers go through. But then you’ll also be prepared to pivot when things are looking different.
The buyer has different ideas for you, or again, you never can predict early stages when there’s gonna be a key employee that you feel like needs to be a part of the business forever. And usually you can’t identify that until they’ve told you I wanna be an owner or I’m leaving. And that, that conversation happens real fast.
It happens a little bit out of nowhere and they usually don’t give you that much time. And so having a plan in place can prevent that. And even if that wasn’t your ideal exit, at least you have a way to incorporate that at some point. Now, do you see people who
Tersh Blissett: are planning from day one to exit the business or they have all intentions of selling the business?
[00:31:30] They have a harder time keeping or hiring key employees because the employees know that they’re leaving. And then also do they take less risk because they want to be risk averse to, to sell the business.
Peter Lazaroff: So the clients of ours that I’ve seen take it, exit planning in an earliest stage at the business.
I, including as early as day one. Yeah. They don’t tell. First of all, everyone’s gonna retire. So everyone, so there’s that, but usually they don’t share the exit plan with employees unless the key employees are involved or unless there’s a way to incentivize them. And. Unless there’s some reason where they would do their job better as a result of knowing.
But most employees, would say to anybody, who’s approaching 65, huh? Guess the boss is gonna be retiring soon. That is sometimes where it’s helpful to have it and share Hey, here’s the plan and we’re gonna be around forever and you’ll be safe in your job. Is that way?
That’s how you retain employees. If you’re 40 You probably aren’t telling your employees, you have an exit plan, cuz they’re probably not worried about you leaving you’re 40. And so it depends on the situation, but certainly kinda goes back to the, everyone has to stop working eventually.
Right? it’s better to have a plan in place for it. I will say. You definitely see. A very, there’s some outliers where people do work into their late seventies or eighties because the business is such that it’s so good that they can’t walk away or they play some really small role. What I would caution those who are doing that is to recognize that when you are staying as an owner and not playing a big role, other than collecting a [00:33:00] check and having an office and maybe bossing people around.
Younger employees do seem to get a little bit annoyed by that. And by younger, I don’t mean twenties. Fifties, twenties, fifties, forties, thirties. So I think it’s really important. Again, as you think of the exit plan at that stage, at least you can show people what you’re thinking and how you’re gonna make a positive contribution.
Cuz I. I think most entrepreneurs, the big challenge they have is that they get their identity tied up in their work. Oh yeah. And it is hard to let go. I anticipate having a problem with that myself 30 years from now but knowing and watching this happen to other people, my hope is that I have prepared myself a little bit better and will have a plan in place to make sure that my identity is not a hundred percent tied to my work.
Yeah.
Tersh Blissett: Yeah. Cool. Peter, thank you so much for all of this information and good chatting about kids and allowances. And we have to take, we took that to our Julie, my wife was even chatting on Facebook about it. It’s it really is something that we even as not business owners, you can listen to this and definitely take away from that.
So I really appreciate that. So where can we pick up your book? If we want a copy of,
Peter Lazaroff: of your. Yeah. So my book making money simple the easiest place is obviously Amazon. But it is still in bookstores. Not in every location, just cuz it’s been out for a little while now, but Amazon, you look for making money simple.
If you want other resources, I’ve also designed like a eight question quiz that the outcomes. We’ll then send you resources tailored to the [00:34:30] way that you answered the questions. You can just go to start my plan.com to go through that. And that not only sends you resources for me, it sends you some other resources from the firm as a whole on topic areas where maybe I’m not.
It’s not my swim lane or my area of expertise, so to speak. And then if you want more content from me, everything I do eventually ends up on Peter LAER off.com. And if you can’t spell LAER off, you can Google it and it will probably fix it for you close enough that you find your way there.
Tersh Blissett: Cool, Peter, I appreciate it. Thank you so much again for coming on
Peter Lazaroff: the show. Yeah. Thanks Tersh. I appreciate this is fun.
Tersh Blissett: Absolutely. And for anybody that’s listening and watching. Thank you again for listening to the service business mastery podcast, the podcast focused on service business owners.
Managers and technicians who are considering becoming business owners themselves until we talk again next week, have a wonderful day.
