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May 24, 2004

FPA’s Virtual Learning Step 7 Helping Planners Help Their Business Owners Develop And Execute Strategy. May 24, 2004. Helping Planners Help Their Business Owners Develop and Execute Strategy.

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May 24, 2004

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  1. FPA’s Virtual LearningStep 7Helping Planners Help Their Business Owners Develop And Execute Strategy May 24, 2004

  2. Helping Planners Help Their Business Owners Develop and Execute Strategy • In this web seminar, Mark Friedman and Michael Finer will discuss the basics of an evolving business strategy and how business owners can define their business goals and outcomes to support their personal financial objectives. • The Business Owners personal financial plan – built on a solid foundation or built on sand • Translating the personal financial objectives into business goals • Setting priority areas of focus that span time • Defining the critical enablers • Setting business metrics that are more than financial measures • Defining a business case for success

  3. Financial Planning – The Basics • Financial planning is the process of helping your clients meet life goals through the proper management of finances. • The financial planning process consists of six steps that help an individual take a "big picture" look at where they are financially. Using these six steps, you enable your client to work out where they are now, what they may need in the future and what they must do to reach your goals. • The process involves gathering relevant financial information, setting life goals, examining current financial status and coming up with a strategy or plan for how your clients can meet their goals given their current situation and future plans. Source: Certified Financial Planner - Board of Standards, Inc

  4. Your Clients Seek Professional Advise For Security And Assurance • They need expertise they don’t possess in certain areas of their finances. • They want to get a professional opinion about the financial plan they developed. • They don’t feel they have the time to spare to do their own financial planning. • They have an immediate need or unexpected life event such as a birth, inheritance or major illness. • They feel that a professional adviser could help them improve on how they are currently managing their finances. • They know that they need to improve their current financial situation but don’t know where to start. Source: Certified Financial Planner - Board of Standards, Inc

  5. The Six Steps of Financial Planning • Establishing and defining the client-planner relationship. • Gathering client data, including goals. • Analyzing and evaluating financial status. • Developing and presenting financial planning recommendations and/or alternatives. • Implementing the financial planning recommendations. • Monitoring the financial planning recommendations. Source: Certified Financial Planner - Board of Standards, Inc

  6. For The Client Whose Personal Plan Is Dependent On An Owned Business There Is A Missing Step Step 7 – The Missing Step A Strategy And Alignment Process • Business owners personal financial planning must be explicitly tied to their business’ performance. • How many of your business owner clients align their business plans with their personal wealth development objectives? • Are their business strategies well articulated over the same time frame as their personal wealth development goals? • Are their strategies and tactics clear for achieving these business goals or is their approach to do more, better, faster? • This is critical when dealing with small business owners • Various market definitions exist but a small business is generally considered to be one with less than $10 million - $20 million in sales

  7. The Small Business Owner Has Few Sources Of Strategic Advise Friends Peers / trade associations / Networking groups etc. • While domain specific expertise can be gained from any of these sources, isn’t the financial plan you are developing at risk if you do not work through the business fundamentals and assess the underlying current performance of the client’s business? • What changes in the business will be necessary for the business to deliver against the needs of the plan over time? Legal Accounting

  8. Step 7 Step 7 Translates and or Aligns Personal Financial Goals to The Client’s Underlying Business’ Goals • The question you are trying to answer is if the underlying business can deliver against the stated needs of the financial plan. • You can look at this from two perspectives Alignment • What is the existing strategy and can it deliver against the needs of the personal financial plan Translate • What must the strategy of the business be to meet the requirements of the personal financial plan • If you take the first perspective you must work with the business owner to clearly align the strategy of his or her business to his or her personal financial goals • If you take the second perspective you have the ability to not only advise your client on his or her personal wealth development but also to become their strategic advisor for their business

  9. Is the business case for success of the business reasonable? Does the strategic business plan meet the needs of the personal financial plan? • What are the critical business measures (more than financial measures) that help your client assess if the business is going to deliver as needed? • What are the linked actions to drive the measures • What are the critical enablers that must be put in place to enable the business to deliver against the plan? • What are the business’ priority areas of focus that span time? • How do the personal financial objectives translate into business goals? The Step 7 Process Helps You Help Your Client Assess The Personal Financial Plan’s Requirements on the Underlying Business

  10. Step 7 Stage 1: Helping Your Clients Clarify Their Assumptions About Their Business • It begins with the business strategy • Does your client have a formal (in what-ever detail) business strategy developed? • Does the strategy need to be developed as part of this process The strategy According to Webster strat·e·gy “a plan of action encompassing the methods to be adopted from beginning to end of a task or endeavor, focusing on the methods”

  11. Step 7 Stage 1 – Articulating the Strategy What are your client’s underlying strategic assumptions about his or her business? • Is growth the key issue or is maintaining the business the focus? • What are the inherent risks that have to be dealt with to grow or maintain the business? • Are there major “events” in the future of the business that have to be addressed • Buying out a partner • Mentoring and or relinquishing operating control to the “next generation” • A gradual reduction in professional life versus a focus on personal life • Will value be created or destroyed over time – is the present value of the company higher now or in the future?

  12. Step 7 Stage 2: These Assumptions Are Used To Define The Priorities Of The Business • What elements of the business need immediate improvement or will need improvement in the future? • What level of investment is required to implement these improvements? • Will these improvements make a difference to the customer base or are they purely internally facing? • Does the business have the skill set(s) to make the improvements, or is outside expertise required? • How convinced is your client that these changes will produce the desired impact? • What are the platforms for growth • Products or services or both • What needs to be fixed, improved, built to create a stable foundation for the growth • What processes need to be defined, changed • What key skills need to be improved or developed • What system investments are necessary to support the changes

  13. Step 7 Stage 2: These Priorities Can Be Looked At Over Time To Determine If They Are Mutually Reinforcing Or Competing. 4. Enhance/expand the product offer to support larger more complex relationships 3. Drive multi product new customer relationships 2. Drive greater account retention and higher penetration Impact 1. Optimize the base processes of the business Time

  14. Step 7 Stage 3 - Defining The Critical Enablers - Investments and changes can be mapped to these priorities to create a road map for the future What is the financial impact of the changes? • What will the impact on the customer base be? • # customers, geographic spread, service requirements • What changes and or investments must be made in the business? • Processes, system investments • What skills are required to manage the changing needs of the business? • Can they be developed or will they be hired? • When will new or additional talent need to be onboard?

  15. Step 7 Stage 4 - What Are The Financial And Non-financial Metrics The Business Owner Can Use To Assess Business Performance • What are the financial metrics that define successful outcomes • What are the indicators that tell if the customer base is performing as expected • What are the indicators at the process level that tell if the business is moving in the right direction and at the right speed • What are the measures that tell the business owners that they have proper levels of expertise to meet the evolving needs of the business

  16. Step 7 Stage 5: The Business Owners Personal Financial Plan – Built On A Solid Foundation Or Built On Sand • With the business’ strategy clearly defined, you can evaluate if the business can support the personal financial plan? If not, is it reasonable to change the focus of the business or Should the financial plan be changed

  17. Personal Financial Planning Case40 year old physician who started his own practice • A medical doctor left the military and started his own medical practice in New England. • Spouse who assists at the office part-time and who cares for their 4 year old and 7 year old children • The doctor has approximately $75,000 of student loans • Home equity corresponds to their entire net worth and is approximately $50,000 • The medical practice was started three years ago. Physician purchased $350,000 of equipment and financed 100%. • In year one the practice broke even. • Physician’s salary - $70,000 • Wife’s salary - $20,000 • In year two, the practice broke even • Physician’s salary - $90,000 • Spouse’s salary - $20,000. • Currently in year three.

  18. Other Facts • Personal Cash Outflow is approximately $90,000 per year net of tax before savings, investments, and any financial planning. • Net of income tax the family will be breaking even with respect to their gross income and living expenses in 2004. • They have no assets set aside for retirement, for an emergency fund, or for college educations.

  19. Client’s Plan—The Intuitive Plan • They believe that the business will grow at a 15% pace per year and as a result, the business will generate enough cash flow and profits to meet their financial needs. • Their financial needs are intuitive in that the clients feel that if things “ go well” then they can meet their objectives which they have loosely defined. • All of their objectives will be solved vis-à-vis the business.

  20. Trends and Growth Rate What have similar practices done in the area Equipment needs Competition in the market area Trends in insurance reimbursement (rate, terms etc) Client base How does plan translate to a number of clients What is capacity What are the assumptions for average client billings What do the market demographics say about potential demand Operating Investment Physical space Partners or Employees Equipment Supporting technology investment – eg billing and insurance co-payment Medical / Professional / Administrative Staff and trigger points to add Translate these Assumptions to a Financial Model 10 Year revenue projections Projected expenses Projected income and wealth generation from value of practice Step 7 Stage 1 - Create A Baseline Around A Specific Set Of Strategic Assumptions For The Business

  21. Step 7 Stage 2 - Define the Drivers of Growth How will the business evolve over the 10 years? • For example • General growth in practice as reputation is established • Years 1-2 • Increase professional affiliations with other medical specialists and Hospitals • Years 2-5 • Expand the Market Served • Year 5 - Add a Employee /Junior partner • Year 7 - Open a second location

  22. Step 7 Stage 3 - Define The Critical Assumptions and Enablers For Each Stage Of Growth • General growth in practice as reputation is established • What will the Physician have to do to drive the 15% growth • How will the baseline assumptions be affected in Years 1-2 • Increase professional affiliations with other medical specialists and Hospitals • Which affiliations • Which hospitals • How will access be gained • What will this impact the baseline assumptions in Years 2-5 • Expand the Market Served • What type of partner is attractive – established with own practice or junior? • What volume of patients will be necessary to support the cost of a junior partner • Will Partnership be earned or will it be given? What are the requirements to have ownership in the practice? • What are the characteristics of an attractive second location? • Will the each office be doctor specific or will they both serve patients from both offices

  23. Target Strategic Measure • 18% • 18% • $92,000 • Revenue Growth Rate • Patient Growth Rate • Cash flow • 0 • 97.5 • Appointment Availability • Quality index from Annual patient survey • 17.5% • 98.2 • xxx • xxxxx • Time to submission • % disputed • Xxxx • xxxxx • >2 key roles • xx • xxx • Years employed with practice • Xxx • xxx Step 7 Stage 4 – What Are The Indicators / Milestones and supporting Actions That Tell You That Things Are On Schedule Or Behind Schedule So You Can Adjust The Personal Plan Actions Strategic Objective Actual 17% 15% $77,000 • Extend Equip. Financing • Quality Revenue Growth • Maximize Cash Flow from practice Financial • Implement Evening Hours 5 98.2 • Meet Customer Appointment Demands • Improve Patient Satisfaction Customer • Implement MedPay reimbursement system 7 days 2.0% .xxx xx • Improve reimbursement performance • Xxx • xxxx Process • Retain key staff members • Provide CE reimbursement scaled for retention after program completion 45% Xxx xxx Skills and Capabilities

  24. Step 7 Stage 5 - Test The Reality Of The Personal Financial Plan Against The Capacity Of The Business Financial Model of the Business Personal Financial Growth Plan

  25. What Does This Mean For Your Financial Planning Practice • Positions you as an advisor at the business level not just the personal level • Tests the assumptions between the business and the personal plans • Reliability of your personal plan • Provides you with a new access point and rationale for semi-annual contact • Can be a discreet service you provide as a new service you can take to market • Helps your client • Create a business plan to support their personal financial goals • Translate their Business Plan in Operational Terms

  26. Mark Friedman President Real Time Strategy, LLC 16 Front Street Salem, MA 01970 1-978-741-7100 MFriedman@ RealTimeStrategy.com Michael Finer, CPA, CFP Chief Financial Planner Major League Investments, Inc. 530 Loring Avenue Salem, MA 01970 1-978-740-1011 x12 Michael.Finer@MajorLeagueInvest.com For More Information about the Step 7 Process please contact

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