Decoupling Finances

Welcome to Simply why, a podcast about money and purpose, where we pull back the curtain on running a financial advisory business focused on providing intentional advice to couples and families. I'm Dennis Morton. And I'm Katie Brown. Welcome back and thanks for tuning in, Katie. We've got a topic today that I wish we would have pressed record yesterday, which is how a lot of these things play out.

It's just we start riffing on something and realize this is really a thing that we've encountered a lot. The idea of business owners specifically delaying their financial planning, not taking care of their own personal finances, all while running great businesses. Yes, we do see this, and I think often it's the mindset of entrepreneurs. They want to build, they want to create, they want to pour everything into their business and what they are creating. And it's tough.

It's tough to start a business because you do need a lot of resources. You need a lot of time. So I think early on, you sort of build the habit of all of my time, all of my resources. I'm going to keep folding it back into the business, keep reinvesting into the business. And before you realize it, you may look up or maybe you don't look up, which is a challenge that we see where a lot of business owners haven't put even half that amount of effort into building their own financial plan outside of the business itself.

And at some point, you start to get this sneaking suspicion. We're going to use the word we a lot in this because we're entrepreneurs, we're business owners. As founders of a financial advisory firm, we're going to encounter this at some point ourselves. And we have gone through iterations and change and transitions, which is what we're talking about today. But at some point, business owners get the sneaking suspicion that, I know I need to do something, but the next word is but I know I need to do something, but I'm waiting for the sale to go through or the business is going well, I don't need to do it right now, or the business is not going well, I don't have time to do it right now.

Or maybe I'm just not ready to retire yet. Maybe it's going to come down the line. But there's. You start to get this litany of pretty consistent excuses as far as why it's not important to start doing your own planning outside of what's happening in the business. Yes, I definitely think that is one of the challenges.

Constantly waiting for that right time to do something. But I think we all Know, in our worlds, there's never a perfect time to start the process. Sometimes you just have to. You have to prioritize it and you have to put it at the top. I will also say I feel as if people assume they need to create their own financial plans and don't always recognize that there are some really great holistic planners out there that can help them along the way and that they don't always have to wait for that transaction, that transitional moment to where a light bulb goes off and they say, oh, maybe I need a financial advisor.

There's a lot of good work to be done along the way to build that personal wealth outside of building the wealth in the business. Put a pin in that. That so important because your financial plan is not a number. It's not. It's not what you sell the business for.

It's not the amount you have in savings account. It's not. It is not a number. It's. We're going to get to this.

It's more of an identity issue. It's a transition. So people fixate on the numbers. And business owners are really good about knowing their numbers and figuring out they kind of know what levers to pull in the balance sheet and the cash flow statements inside and out. But it's not a number.

When you start getting into the planning side and you also talk mentioned something about the timing, when is the right time? I kind of have a flippant answer for that. When somebody asks, if a business owner asks, when's the right time to start financial planning? I usually say it's two to three years before you think you need it, that that's the answer. But by the time you think you need it, it's later than it should have been.

So. Well, and that's. That's something to pull on there. Dennis, why do you think it's sooner and what are the risks of waiting too long? Here's what we've seen and I'm going to base this.

I have, I have specific clients in mind here. So the names will be changed to protect the innocent, usually sooner. Because waiting too long means you're planning during an emergency in the business that by the time you think it's urgent, it's because something urgent has happened in the business. And that could be something positive. It could be somebody walks in with a check that you can't refuse.

And we've had that happen. We've had clients come to us and say, not, I need to get a plan together because I'm thinking of selling my business. But I just sold my business last month and I need to get a plan together. And it's not an easy thing to unpack because suddenly there's all this transition and comfort levels and everything changes overnight. And they haven't spent any time going through the preparation that's needed for that change.

Also, if you don't start early enough, there can be the catastrophic risks, the things like health, death, disability. We've seen those happen, too. And we all think we're invincible to some extent. But at some point, time catches up with us. And waiting too long can put you in a place where you're doing things that you have to do, not things that you want to do or prepare to do.

Even as a business owner, the people around you need to know what's happening. Whether that's your spouse, your kids, your significant other, the other people in the business, your partners, your key employees, your team, your customers. Having them know that you've at least thought about this well enough in advance is comforting to them. You don't have to have all the answers. Just let them know that you're thinking about it.

There's a level of, like you said, confidence that comes with that. If you think about it from, from an employee standpoint, I think it's important. I'm going to use us for just a minute. I think it's important for our employees to know you and I have put the work into our own personal financial lives and also into the succession of our business. At least the break glass emergency.

If something were to happen, then abc and we have plans to be here for a long time, and there's, you know, a lot of exciting opportunities that we see ahead of us. But we also recognize, like you said, something could change outside of our control. And so it really does give peace of mind to our employees, our staff, that a, we're not bringing in outside risks because we haven't done our own personal planning either externally or internally in the business. And both of those are so important. Today, we kind of want to focus on the personal planning outside of the business as well.

But that builds confidence and hopefully longevity with your staff. If they know there's going to be a place for me here for a long time and this is where I can grow and develop. When that uncertainty starts to creep in, then you might see them starting to open their eyes for other opportunities. I think as a business owner, in order to make really good, solid business decisions, you really do have to know your own personal situation and make sure that you have de risked that side of your world as well. So that you're not bringing personal uncertainty and allowing that to bleed over into how you think about the business decisions.

Because you feel as if you're cornered, because you need something personally that hasn't been adequately planned for in advance. Right. We're going to talk a little bit about what to do here, like how that process happens, like the mindset shift that occurs. But just one reason, another reason why this is a timely topic. As investors, we've seen the chart before of the US Stock market over time and all the volatility, but the trend going up into the Right, and you can overlay it with all the news that happened at that time, like all the reasons not to invest that existed over the last 10, 20 hundred years.

And when you look at war, pestilence, economic crises, everything, there's always been a reason not to do it. Just looking at the seven years that we've been in business, we've had what, four bear markets, we've had a global pandemic, we've had tariffs, we've had inflation, we've had the laundry list of things that have happened. There has always been a reason not to plan because I've got to handle something else. We want to talk about how to start to think as your future self, as a business owner. Not being so stuck in the day to day rhythms of things that you're going to get lost in.

Never feels like there's a great time to start the personal planning. How should someone change the mindset? How should they start thinking about it to make it seem like a natural thinking? You had a great concept for this when we were talking about it the other day. Yeah, you know, the way I think about it is almost decoupling the business from the personal in the beginning, Especially as an entrepreneur, you take so much of your personal and you throw it into the business and all of a sudden it becomes this, this blur.

And we often hear this from, from business owners too, when we talk about whether or not to take a distribution from the business. And they kind of think through the process, they're like, what does it matter? At the end of the day, it's all kind of one thing, but it does matter. The idea once again of, of separating the two of those things and saying, all right, here's my business plan, the business profile, the things I need to do, the resources I need. But on the other side, separating that, decoupling that into this is what I need personally, here's the income that I need.

Here are the things That I need to be able to track to my goals, whether it's retirement, education for your kids, planning for real estate, transaction, move something. Whatever the case may be, you're always going to have personal goals outside of the business. And we need to make sure that that planning happens simultaneously and that you are essentially building your own personal balance sheet as. As you are building the business. And for most people, this is your first time at it.

You know, a few people will go through multiple transitions, create and sell multiple businesses, but for many of us, you get one shot at it, and it's hard. There's an education curve. You have to learn new subjects, there's new habits to form different conversations that you're having with your family, different conversations you're having with your team. It all can seem really foreign. The reason I like the decoupling term is because it sounds very intentional and gradual.

I was a big model train nerd when I was a kid. So just the idea of just decoupling two train cars or coupling them in the first place, putting together slowly and gradually. Decouple slowly and gradually. Because the alternative, and this is where we've seen the negative impact of not going through a decoupling process, is a fracture, a break, something dramatic. And when that sudden break happens, when it's quick, unexpected, sometimes catastrophic, it can create a lot of chaos for everyone involved.

And it usually leads to outcomes that are not what they expected, or at least ones that take a lot of work to get through, unnecessary work. And it can be tragic because I think sometimes we like to think that we have it all under control. And when we talk about, you know, transitions away from business, if you wait too long, you can have it under control until you don't. And it's the when you don't that can jump up and not just bite you, but the business and the family and all the other stakeholders, even that phrase fracture. And once again, thinking back to some specific experiences that we've had in working with clients, business owners, where an opportunity landed on their plate and it was an offer to buy their business and something they couldn't refuse.

And it was a very exciting moment, but the work wasn't put in on the other side. And in that idea of like a fracture or a break breaking away from the business, but not necessarily having the clarity on this on the other side, I'd almost liken it to having to sort of heal through that process and figure out the new rhythm, the new change after that fracture has happened. And once again, we've seen this where it can be a very challenging first couple of years of retirement if all of a sudden your identity changes starkly, because you may have been used to being that business owner for the vast majority of the day, every day, and now you're not. And the way you think about wealth, the way you see wealth, the way it shows up for you and needs to support you, is vastly different. Moving into a liquid form, investments, cash, etcetera, Versus being in the business.

And you don't always see those numbers going up and down and you have a steady distribution flow. And there is a kind of a healing process that we've seen people struggle with after that fracture has happened. Yeah. Coming back to what we said before, you can get the numbers all right, or have the business do really well and get the numbers right and still have gaps and still have a feeling that you didn't get the retirement part right. So this is where it comes back to.

You don't have to have all the conversations right up front, but starting sooner really matters. And let's talk a little bit about this identity and this migration of identity. We talk about how a lot of times in financial planning, we'll give people a visual. We'll say, here's a snapshot of your balance sheet. We'll show them a pie chart.

And so much is represented by business ownership, your investments, your cash, your real estate, all the things that make up your balance sheet. And each one has a sliver. And in the planning process, we want to talk about, what do we want it to look like 10 years from now, 20 years from now, and what are the things we can do to make it as much like that as we want it to be? Growing your investments. Right.

Sizing your real estate portfolio, whatever it might be, what are the changes that have to happen? What about this idea of an identity balance sheet, the pieces of the pie that make up who you are right now, and saying, all right, let's think about the person you want to be. Get a really good sense of identity, grounded in the person you are right now, the values you have. But let's look 10 years down the line. How's that going to change?

What does it mean when some of those slivers have sometimes grown shrunk or gone away? Yeah. I mean, I'm even thinking once again, if I take myself right now and I think about the pieces of my. My identity pie, you know, there's a. There's a large piece that's a business owner.

There's a large piece that is very much in the throes of all the family activities. Having two very active kids that do not fully drive yet, but they. By fully, does that mean that they're on the road and just don't. We don't know that yet. Or like I'm just, I'm asking for a friend or two who's on the road right now.

Fair to ask for that clarification. My son actually has his driver's permit. Permit right now. But I still need to be in the vehicle. And that's the point.

There's a lot of time spent in a car transferring. As long as we're on the same page as what fully means. But. But there's a lot of time put into the family unit. But then in addition to that, I do have my own slivers as well.

You know, things that I like to do personally, where I like to spend my time, opportunities that my husband and I try to take to, to break away and do something. The time that we spend in the community and thinking about that identity pie, it's heavily weighted in certain areas now. But I don't want to ignore those other slivers. I always want to make sure those are there because looking ahead 10, 20, however many years, 30 years plus, some of those slivers are going to get larger and it's going to migrate the same way that your balance sheet would migrate. And I think one of the greatest things that we can help clients do is to figure out how that balance sheet could and should align with that identity going forward.

Because their goals and where they're spending their time and the things that they value, where they want to spend their money are likely going to migrate the same way that things on their personal balance sheet will be migrating. And we want to make sure that they stay in lockstep. It really is kind of an alignment of your identity, your money, your energy, all of those things. And specifically for entrepreneurs and business owners, energy, money and identity are like one thing for a really long time like that that can become all consuming. And it's that decoupling of identity, decoupling of financial resources and saying, like, what if I were to step back and kind of be a third party observer to myself and how am I spending my time?

What are the things? And I've gone, I've gone through this audit recently. I think I've shared with you, I've scaled back some of my community commitments. I was really engaged on some leadership roles and within our broader community on a volunteer basis. But I need to allocate my energy Differently in this season of life, we still have young kids and when I think of my 10 year self, I'm still going to have a kid in high school.

So she'll be driving me around at that point though. That'll be, that'll be good. She'll have a license by then, hopefully. But thinking about where the energy is available, where it feels it's best spent, how your financial resources can go to support it, and whether the business will be there in support of it or not, and if not, what do you need to do to get there? And that's always the thing about the planning process.

It's identifying those steps to say this doesn't need to be solved for today, but what does progress look like? And I do think one of the most important things is don't ever let some of those full slivers disappear and we have to work at building them. So once again, thinking about what makes for a strong transition in retirement, it's, it's also not losing sight of the things that you do for your own personal fulfillment and recognizing that that piece has to grow slowly over time because it will likely become a much larger piece of the pie later. And same thing with a personal balance sheet. There are certain things that maybe they're small right now, but we want to intentionally build them over time.

So they are going to support those identities, they are going to help you manage through some of those, those decisions which can be overwhelming at times when you, when you get to retirement and you have to all of a sudden now make some larger decisions around spending and distributions and that, that's tough if you haven't put the planning work into it in advance. I think it's a fair question to say, like why are two financial planners talking about this? Like why, why are we talking about kind of identity issues and kind of self awareness and all of those things. Not getting this right shows up in one of two places. It shows up in your health and shows up in your money.

And those two things, we've seen it over and over again and there's a flippant phrase that we've, I don't know to whom to attribute it. But in investing, if you don't know who you are, Wall street is an expensive place to find out. And I think a lot of that comes down to you've worked very hard as an entrepreneur, as a business owner, you've built up something that has value. Hopefully you're going to be able to monetize that and have it provide financial security for your family. Not putting in the work on planning and building up that decoupled self away from the business, financially secure, doing the planning process, both financially and otherwise well enough in advance can be a tax on the success of all that you've done.

And we recognize that we give you grace that a lot of times with business owners, you can't take the time to do it right now. But if we had the Wayback Machine two years ago, would have been a great time to start to get that clarity so that at least, you know, in the back of your mind I can stay focused on the business and what it needs from me now, but I have a plan in the back of my mind that is also happening simultaneously and that's where we want to get. So we're coming at this from having been through a little bit of turmoil and knowing it's not the last time. So for anybody that is listening and would like to start on this journey to make sure that you are properly decoupling your own personal finances from the business, you know, we welcome the opportunity to speak. These are the things that we love to talk about and we are so happy that you've tuned in today and once again look forward to hearing from Morton Brown Family Wealth thanks for tuning in to this episode of Simply why, a podcast about money and purpose.

We hope you enjoyed getting to know us, how we approach leading a financial advisory practice, and the work we do every day to help families and couples make important financial decisions. Morton Brown Family wealth is an SEC Registered Investment Advisor. This podcast is designed for educational and informational purposes and not intended as investment advice. More information can be found at www.mortenbrownfw.com we're going to have that buffer office, a space in between our two offices with some acoustic tile. And you know how the space shuttle has those, like, foam things that keep it from burning up on re entry?

I think the acoustic tile is going to be the same. If I start to see that glowing, I'll know It's like below 60 degrees outside. Like spring is yet to be sprung if you're cranking the heat still.