In the havoc of the economic downturn, many business owners, like many
private investors, have seen their retirement savings decline by 40 to 50
percent in value. Jim Caswell is a founding partner and vice president with
Peachtree Planning Corporation. He is a
certified financial planner and has been
providing sound financial advice to his
clients since 1984.
“If you go back to 1926 the average
annual return of the Dow Jones was 10.5
percent,” he says. “If you suffered a loss of
40 to 50 percent last year, it will take
almost 10 years of 10 percent annual
returns just to recoup your 2008 losses.
What this means is that, if your retirement
goal was two to five years, even 10 years,
you’re probably going to work longer than
you thought or you are going to have to
start saving at a higher rate than you
were.” Caswell says your financial planning should reflect this new reality.
“Everyone needs to be taking stock of
their financial health and have a clear
understanding of how these market
declines will affect their ability to achieve
future goals.”
Smart Business spoke to Caswell about
how to make sure your plan has what it
takes to keep your business protected.
What are the key concepts to personal planning for business owners?
Business owners understand business
cycles and anyone who has a successful
business has operated in both good and
bad times. They understand an old slogan:
‘Tough times don’t last, tough people do.’
Their business is their most important
personal asset. Their business and personal financial planning are almost synonymous. The important thing is to help
the client differentiate between business
and personal goals and to understand
how the risks assumed in business affect
the ability to achieve personal goals.
There are many advantages to owning
your own business especially when it
comes to saving on taxes. With a proper
structure, you can utilize those advantages to enhance both your business and
personal planning.
What can business owners do to make sure
their business is protected?
During a recession, if a business begins
to suffer problems from reduced cash
flows, business owners will sometimes
neglect their personal planning. I try to
help these clients understand how important it is to pay attention to cash flow in
this type of business environment.
Properly understanding and forecasting
both your business and personal cash
flows may be the most important way to
ensure your business survives. This can
require some tough decisions and people
don’t like doing that kind of planning. It is
absolutely critical that you plan with realistic numbers for what you expect to happen for the balance of 2009 in both your
business and personal life.
How can business owners ensure their plan
is financially strong?
It doesn’t happen by coincidence, it happens by design. First, seek out a professional. Get another pair of eyes to look at
what you’re doing. Maybe two or three
pairs. Find someone who can work with
you and probably your CPA to make sure
you are getting good timely information.
Then perform what I call a financial physical. You go to your doctor for an annual
physical to get a professional to tell you if
something is wrong. The same thing is
true with your finances. Your financial
physical should look at everything that
affects your financial life. Insurance protections: home, auto, health, life, disability, long-term care. Legacy planning: wills,
trust, future giving. And retirement, tax
and investment planning. All these things
need to be analyzed and coordinated into
an effective plan. If something is wrong
with your financial plan, when would you
want to know about it? Now, or 10 years
from now?
How has the economy affected personal
planning?
Back in the ’90s, everybody thought
they could get 18 to 24 percent on their
401(k) every year. They thought that was
the norm. They didn’t need to worry
about cash, interest rates were relatively
low; a great deal of wealth was created.
Those days may be over for everybody.
People are now very concerned about
their world and they are naturally gravitating toward more and better financial
planning.
It’s critical to make sure your mentality
and mindset is correct for this economy;
you need to remain positive. These are
tough times but with good planning and
quality leadership we will come through.
You have to demand timely and quality
information and you have to be realistic
and flexible with your planning. Investors
can continue to learn more from us in the
months to come about how to thrive in
uncertain economic times.
JAMES M. CASWELL III, CFP , is vice president of Peachtree Planning Corporation. Reach him at (404) 260-1600 or
[email protected].
