We'll need to learn more about your situation before giving a proper recommendation but here are some things you should keep in mind while managing your cash flow.
Our primary focus is on managing your investments, and the only way that we generate our fees is on the value of the assets that you hire us to manage. Determine what your ultimate savings and investment goals are, including retirement, college funding, charitable giving, etc. Once we know what these goals are, we can identify how much of your savings you need to be allocating towards each of these goals. Knowing these goals will also allow us to identify your ideal investment allocation mix. In all likelihood, you will be looking for more of a “Growth” objective, looking to grow the value of your assets over time (as opposed to yielding you current income today). Although it is your ultimate goal for retirement assets to YIELD you an income that is sufficient for your lifestyle. We must save and strive to achieve an investable net worth that will achieve this income goal.
Build an investment plan that will shift over time based on your time horizon. First, we must determine what amount of cash you need to cover emergency needs, short-term cash funding needs and SWAN (Sleep Well at Night) cash. In an accumulation phase, we will likely have a larger allocation to growth assets. These assets are invested with a long time horizon in mind with the ultimate goal of capital appreciation. These assets will be invested in a fashion noted in “Investing for Growth.” The goal is for these assets to grow over time in a tax-efficient and strategic manner so that as inflation occurs, clients can move some appreciated assets to the Income Bucket as they near retirement and the distribution phase of investing. As we get within 10 years of retirement, it is a good idea to identify how much you need allocated to an income strategy to YIELD the income you need in retirement so you are not basing the success of your retirement plan on the outcome of equity returns and the stock market’s success. The portfolio will be gradually shifted to an allocation that accomplishes your income goal by the time you actually do retire. The income portion of the portfolio is built with assets that are highlighted HERE (Investing for INCOME).
2. Cash Flow Management
This is one of the most pressing questions that business owners face. They are generating a lot of net-free cash flow and need to determine what to do with monthly, quarterly or annual lump sums of cash that need to be saved long-term and put into their overall asset allocation plan. Whether the owner has a net worth of $500,000 or $10,000,000, the new earnings/cash needs to be allocated in the right places, whether that be equities, fixed income, real estate, private equity, etc. We help our clients determine their ideal mix of assets based on time horizon, risk tolerance and goals, and then help to get the cash in the right places to fill this allocation. It can seem overwhelming to a business owner to determine where to sock away this new cash every time it hits his/her bank account. We help manage this investment process and plan.
3. Tax Planning
CIA will work with your tax professionals (and ours) to ensure that all investment strategies are being used in the most tax-efficient manner. Municipal bonds vs. taxable bonds, individual MLPs vs. ETFs with 1099s, dividend stocks or interest-bearing bonds – these are just some of the considerations that should be discussed to maximize a plan’s effectiveness. Other tax strategies need to be understood as part of a total wealth management plan including:
- Stock options and planning
- Retirement plan maximization
- State tax exemptions
- Withdrawal strategies (IRAs or taxable accounts)
- Tax deduction strategies
- Roth conversion decisions
- Gifting/lifetime giving planning
4. Estate Planning
CIA works with our own network of estate planning attorneys or our client’s own trusted team to make sure that account structure and plans are married properly with the estate plan. Decisions such as what types of accounts to hold assets in (trusts, JT tenancy, individual, etc.), as well as proper beneficiary designations are crucial to carrying an estate plan out from a will through passing assets on to heirs. If a plan has not been put in place, we will work with our clients and help them communicate their larger goals and wishes to a professional when the drafting a document process begins.
As a business owner, you have additional considerations to make, including how to hold your business assets and how to protect them properly. If you are the sole owner of a business, are you properly protected from lawsuits or creditors? Should this entity be owned by an LLC instead of you personally? These are issues that we face and discuss with our clients regularly.
5. Insurance Analysis and Planning
It should be noted that CIA does not sell insurance nor is compensated for recommending you purchase some. We analyze and help our clients make decisions regarding insurance objectively with regards to their entire financial picture, without concern or thought of compensation.
- New Policies – With a successful business, you need to be sure that you and your partners are properly insured in the event that something happens to either party. Nobody wants to be partners with an uninterested spouse, and a widowed spouse would need assets to continue living in the event that something happens to the business owner. Another reason for a new policy could be for estate planning purposes. Do you need to pay a large tax bill at the time of death? This could be taken care of with proper insurance planning.
- Existing Policies – It may be time to review the amount of insurance you have vs. the lifestyle that your family is now enjoying due to your business success.
- Long-Term Care Planning – Long-term care may need to be considered and understood in the context of your overall plan and situation before you can make a decision as to whether it is right for you and your family.
6. Retirement Plan Management
Setting up your company’s retirement plan to accomplish all of your goals is also important. Having the right plan to accomplish your long-term goals can be a great way to generate tax-deferred savings that can work in your benefit as much as possible, as well as serving as a benefit to your employees. We can help in identifying the best plan for you and your company and also help to make sure that we are saving in the proper ways within the account.