GREAT IDEAS FOR ENTREPRENEURS FROM THE THOUGHT LEADERS AT CASEY NEILON
WHY YOUR CPA SHOULD BE INVOLVED IN FINANCIAL PLANNING
FIVE REASONS TO PUT YOUR CPA AT THE CENTER OF THIS PROCESS
Over the last few years of working with entrepreneurs, something has become quite clear to me. Our clients need more than just great tax advice, tax strategies and clean tax returns. Those things are all very important, but they’re not enough, not for the clients we serve.
If we help our clients save thousands of dollars on taxes but that money does not improve their overall financial standing, their net worth, what have we really accomplished? The people we are so fortunate to serve are passionate and hard-working. They have big dreams, both for their business and their loved ones. It takes money to make those dreams come true. It takes a great financial plan.
You may not have considered your CPA as a resource to help you develop and implement your financial plan. But I think you should. In fact, after thinking about this a while, I have identified five reasons that I believe your CPA should be at the very center of the financial planning process. Here are my perspectives.
Financial Planning, Not Just A Financial Plan
Before I put forward my five reasons, I want to make a clear distinction. I believe that entrepreneurs need financial planning, not just a financial plan. What’s the difference?
A good financial plan is an all-encompassing strategy that, at a moment in time, examines your goals, your financial resources, the way your wealth is structured today and every area that can impact your net worth (taxes, retirement, college funding, estate plan, insurance, investments – to name a few). A financial plan defines a strategy that, if fully executed, will most likely achieve your goals at some point in the future.
But there are several problems with financial plans:
- They can be static and don’t get updated as situations and goals change.
- They can be complex and difficult to understand.
- They will only produce the desired outcomes if they are fully implemented and all of the little details are executed on time.
- They require time, effort and focus from entrepreneurs who have little of this to give.
- They require entrepreneurs to take a long-term perspective and to persevere even when things might not go as planned in the short-term.
This is why I say you need financial planning, not just a financial plan. Even the world’s best financial plan could sit on a shelf and do you little good. Financial planning, by comparison, is a multi-year process based on a relationship with a trusted advisor who knows you deeply and can help you get things done or do them for you.
Financial planning is a financial plan put in motion and fully implemented, executing against the vision and having the heart and will to stay the course over time so dreams most likely do come true. This is what entrepreneurs desperately need. This is why they need CPAs to help them.
Financial planning is a financial plan put in motion and fully executed with the guidance and assistance of a trusted advisor.
How I Came To This Conclusion
Our entrepreneur clients have complex financial lives, both in business and in personal finances. Most of them do not have the time or expertise to build an all-encompassing financial plan that considers taxes, retirement, college-funding, insurance, estate planning and investments. But that’s what it takes to make an entrepreneur’s dreams come true. Take out any block and the whole structure could crumble.
This means entrepreneurs are relying on other professionals, often financial advisors, to help them craft a financial plan that is optimized to achieve their goals. But time after time we have heard clients say that the advice they get from financial advisors or other professionals may be confusing or difficult to execute.
This is why many entrepreneurs are now looking to us to help them define a financial plan that they can believe in, that they understand and that we can help them execute over time. You might find it surprising to hear a CPA say that they should be involved in financial planning. You might not see your CPA in this light.
However, after working with dozens of entrepreneurs who at one point became overwhelmed and nearly lost faith in the financial planning process but then became reenergized and focused after we stepped in to help them, I’ve seen the impact. I know this works.
Five Reasons CPAs Should Be At The Center Of Financial Planning
Here are five reasons I believe CPAs should be deeply involved, even at the very center of, the financial planning process for entrepreneurs:
- CPAs can see your comprehensive picture.
- CPAs can bring an independent view and analysis to your situation.
- CPAs can help you see things you might not see.
- CPAs can help you stay the course for the long haul.
- CPAs can take an analytical approach that is not based on emotion.
CPAs Can See Your Comprehensive Picture
Almost no other professional advisor knows more about you, your family, your dreams and your financial situation than a CPA. This is baked right into the relationship. At least every spring, we review our clients’ financial decisions and situation so we can help them mitigate taxes. Many clients involve us in these decisions throughout the year.
This process also allows us, actually requires us, to come to understand why our clients made certain decisions. These conversations, where a client explains why they did what they did, often take on the tone of a confessional. There is an intimacy and trust in our client relationships that they may not have with anyone else in their life. They tell us things they probably don’t tell others. This gives us a window into their deepest fears, dreams and hopes.
But we also see the black and white structure of things. Tax returns, like 1040s, almost read like a book. They not only tell of your income, expenses, holdings and investments, they also tell a story. When I analyze 5-to-10 year’s worth of 1040s, I can see patterns emerge. I can see what someone was trying to achieve. I can see what they value.
It is highly unlikely that any other professional advisor, whether a financial advisor, estate attorney or insurance specialist, will have this comprehensive view of your situation. But it takes this intimate understanding, I believe, to build great financial plans and then implement them.
CPAs Can Bring An Independent View And Analysis To Your Situation
Independence is the hallmark of a CPA. Our professional standards require competency, independence and objectivity in our dealings with clients. We are required to be “always acting in the best interest of the client.” This is a founding principle of the AICPA Statement on Standards in Personal Financial Planning Services and the CPA Code of Professional Conduct.
CPAs are trusted advisors that can provide objective recommendations based not only on our financial expertise, but also on our intimate knowledge of our clients’ hopes and dreams. Our analysis is not clouded by the desire to meet those hopes and dreams. That might sound a bit harsh. But our analysis has to be based in the reality of each client’s circumstance and the financial environment.
In other words, and to put it bluntly, we cannot simply tell you what you want to hear. We have to tell you what we actually see and think based on the realities of your situation and what the financial environment might reasonably allow for. Among all professional advisors who serve entrepreneurs, CPAs tend to be the most objective and analytical in our approach.
CPAs Can Help You See Things You Might Not See
In the building trades, there is an old saying: measure twice, cut once. By taking a second look at something you are about to cut to make sure the measurements are right, you reduce the likelihood of waste and regret. I wish more entrepreneurs took this advice.
Far too often, we are brought in to situations to help “fix” what has already gone wrong. Sometimes we can help, but sometimes the damage is done and there is not a lot we can do about it. This is one major reason we are now more involved in financial planning for our clients. There are certain decisions that clients make that could have irreversible consequences.
As CPAs, we look at the world a certain way. Our formal training and experience allow us to see things that our clients often don’t see. Nowhere is this more true than when it comes to investment decisions. This is where we see entrepreneurs getting into difficult situations that can be hard to get out of.
Often financial advisors have a hot new product to sell or a strategy to implement. They may gloss over the risks or the tax implications of a strategy or may not know how a product or strategy fits into the other areas of your financial picture. You may be sold on the upside potential and not realize the downside risks.
CPAs are often more conservative in nature and tend to look for the problems in a strategy so we can help you mitigate against the downside. A good CPA who knows your financial situation and your goals can also help you see how certain financial moves may not be in keeping with your long-term goals.
CPAs Can Help You Stay The Course For The Long Haul
CPAs can help you overcome FOMO – fear of missing out. FOMO is a common driver of irrational investment decisions, particularly buy-high and sell-low, that lead to poor financial outcomes. Let me give you an example.
An entrepreneur goes to a cocktail party and chats with friends. One friend tells of a stock purchase that is “absolutely blowing up right now – massive returns.” The entrepreneur begins to think about their investment choices and can’t seem to remember the last time one of their purchases produced amazing gains. They can’t stop thinking about it and it really bugs them. They begin to question the wisdom of their financial plan. Sound familiar?
One thing I’ve noticed over the years is that people tend to talk about their wins, but don’t talk about their losses or things that have gone wrong in their investment decisions. In other words, a friend may tell you about their big gains in one stock, but they may not tell you about the ten other stock purchases they’ve made where they lost money.
This is where a CPA can really help you. When it comes to financial planning, there is only one thing that matters – whether or not you achieve your long-term financial goals. FOMO can actually take you way off-course and reduce the likelihood that you’ll achieve your long-term goals. FOMO is a short-term lens.
If you have a relationship with a CPA who understands you, your family, your dreams, your goals and your financial strategy, they can help you review all of this to see if it makes sense, or not, to make changes to your financial strategy. But if you don’t have someone like this is your corner, believe me when I tell you – there is a long list of people ready to sell you the next hot thing.
CPAs Can Take An Analytical Approach That Is Not Based On Emotion
There is an entire canon of literature about the dangers of being an emotional investor. When market swings produce volatility, the articles and books on this topic suddenly become very popular. I liken these market swings to an old-fashioned wooden roller coaster.
The coaster goes up the first big hill slowly, but then comes the click at the top of the hill and a slight pause. Then the car lurches forward and everyone screams in a panic as they shoot down the other side. That’s often what it feels like when the markets take a big dip. It creates panic and uncertainty.
Investors are inclined, in these moments, to make mistakes from which they might never recover. If they sell when the markets drop, based on fear, they lock in their losses. But the opposite situation poses just as many risks. Some people buy just because the markets are going up. I don’t believe it’s wise to buy or sell based on what the markets are doing right now. That is not an effective long-term financial strategy. Yet so many people do this.
This is one important reason you need a CPA at the center of your financial planning process. CPAs tend to be more dispassionate and balanced in our approach. CPAs are more analytical and less prone to the highs and lows of market swings. We also tend to take a long-term perspective, focusing on steady growth. We try to minimize downside and optimize upside.
If you are not comfortable with the advice you are getting, if you don’t understand the complexities of your financial plan or if you are just not confident that your financial situation is moving in the right direction, maybe it’s time for a second opinion. Right now, we are reviewing the financial goals and strategies of several clients. If you’d like us to do the same for you or a loved one, let’s have a conversation.
Nicola Neilon – CPA, SHAREHOLDER
I am a CPA and shareholder at Casey Neilon. In this role, I work with many small businesses and their owners. I love that this gives me the opportunity to go beyond just being a tax preparer or auditor. The long-term relationship that develops encompasses the roles of business advisor and trusted confidant. I have been serving clients in this capacity since 1997. My experiences have taught me that I am not Wonder Woman, nor do I have a crystal ball, but many people have no background in accounting and finance, and they need someone that they can trust to help them navigate a path to reach their goals.