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What Every Business Owner Needs to Know About Financial Planning with Blake Fellows

Synopsis

Many small and medium-sized business owners kick the can down the road when it comes to financial planning. That’s understandable since business owners are preoccupied with short-term responsibilities and dealing with fires that inevitably pop up daily.

Unfortunately, this leaves the business owner and his or her partners and family members exposed to tremendous risk.

What happens if conditions change and the business fails? How will the business respond if a partner falls ill? What is the business exposed to as the market fluctuates? How can the business be financially responsible while offering competitive compensation and benefits to employees?

In this interview, business finance expert Blake Fellows explains why it is essential for business owners to be proactive about setting goals, determining ranges for spending and saving, ensuring that foundational agreements are in place, and having specialized support in all aspects of financial planning.

Insights

If you wait too long, then your options become less and less.

A couple of years goes by, and maybe the fork in the road took you left, when you thought it might take you right. Next thing you know, you had a plan, but all of a sudden your plan is obsolete. That comes back to the proactiveness…updating your current plan and looking at it from a comprehensive nature that incorporates always starting with the end in mind.

Most of our clients, their biggest asset is their business, so one of the things we try to do is help them to diversify assets out of the business in a tax favored manner, and allocate them towards other goals. So something happens with the business that wasn’t quite planned, you got other stuff built up, and other nest eggs out there, rather than just all of it in one bucket.

Let your goals dictate what you’re doing, don’t let the markets dictate your goals.

If you’re not proactive about addressing these types of things, when folks really do address these, it’s typically too late. There’s degrees of losing if you don’t get ahead of it.

We are true advocates. We have built a team that are true advocates for small and midsized business owners, their employees and their families.

About Our Guest

For more than 15 years Blake has been a trusted advisor, planner and advocate for entrepreneurs, business owners and individuals seeking personal service and deep knowledge. A Loudoun County native and graduate of James Madison University, Blake is an active Rotarian and heavily involved in coaching sports for more than 15 years.

Transcript

Seth: Alright everybody, thanks as always for joining us here at Modern Da Vinci. We’re always looking for ways to help small business owners grow and thrive. Today we want to look at something that we know can be a real pain point for many small business owners, and that’s getting a grip on their financial planning and understanding how to maximize resources and reduce risk, both in the short term and the long term, and personally I know that’s something that can cause a lot of consternation and worry for small business owners, and has definitely caused some sleepless nights for many small business owners out there. So on that note, I’m very pleased to introduce our expert for today’s interview, Blake Fellows, of Fellows Financial Group. Blake has over 15 years of experience as a financial adviser and planner, especially with a focus on working with entrepreneurs and business owners. And through his company Blake and his associates offer customized and integrated planning that spans across everything from traditional financial planning to succession and estate planning, investment management, benefits and insurance planning, the whole continuum. And Blake’s also, I know, very active in the community out here in Northern Virginia. So Blake, great to have you on, thanks for taking the time to do this. How you doing today?

Blake: Doing great, thank you Seth, thanks for having me.

Seth: Yeah, my pleasure. Well I know this is an important topic for many small business owners and I kind of want to tap into the fact that we know that there’s a lot of business owners out there who know they probably need to pay more attention to their financial planning, and they really want to secure all the hard work that they’re doing and have clarity in the future. So with that in mind, when a small business owner first walks into you, what are some of the biggest questions and challenges that are usually on their mind?

Blake: That’s a great question. Typically, with small and mid-sized business owners, these folks, they’re usually well versed in their craft, whatever that may be. Whether they are farmers, plumbers, law firms, accountants, technology firms, what have you, restaurants. And these folks are typically very busy. They wake up with their list of 7 to 10 items they want to get done that day and then also a fire comes up, or somebody calls, and they have to drop everything and move over there and help this person, help this client, and by the end of the day, you know, they maybe got to the top 2 or 2 things on the list, but by then it’s 7:30, and they’re hoping to spend some time with their family. And you know what? I’m going try it again tomorrow, we’re gonna get back to that list tomorrow. And it’s real similar with planning items - they know, typically, that it’s very important, but what’s more important is the fire that’s burning right now that they have to take care of, and we gotta keep this business going, because the business, that’s their baby. That’s like another child, and that is their source of income, it’s everything. It’s typically the biggest asset or assets if they have multiple businesses. So, really what we find our team doing is putting track shoes, chasing down very busy successful individuals, wrestling them to the ground two or three times a year, and helping them to concentrate on things they’d rather get a double root canal than talk about. And it sounds kinda funny, but it’s true. It’s not that they don’t know this stuff is important, but it’s, I figured it out after almost 16 years of doing this. We specialize in the areas that people are going to get to next week, next month, next year, and that turns into next week and next month and next year, and it’s not as if they don’t think it’s important, it’s just easy to put off and address what’s in front of you. So to answer your question, “what are the biggest questions and challenges when someone comes to meet with us?” We have to be proactive to track these folks down, to get a meeting, and then talk to them about the different things they should be focusing on sooner rather than later, because if you wait too long, then your options become less and less. So there’s typically, rarely does somebody come in with a specific question or challenge. They usually say, “Ok, I’ll give you 30 minutes, what do you got?” By the time we go through introducing what we do and asking them some questions, they’re like, “yeah, you’re right. I need to address that.” So that’s typically the process. Anyone that deals with small business will probably be able to relate to that in some fashion.

Seth: Absolutely. So here they are - it’s like they know in the back of their mind, I need to be paying more attention to this stuff, I stand to lose potentially money, probably even as far putting their business at risk potentially if they’re not being careful enough with how they manage their resources. Potentially putting their retirement at risk. The value of the company. There’s a lot on the line and yet we kinda engage in this weird thing where we put it off. Like you said, just because the day-to-day becomes so busy, you don’t pay attention to this stuff. And then all of a sudden one day you wake up and you realize, “uh oh, I need to do something about this.”

Blake: Yeah, exactly.

Seth: So what’s the number one mistake then? Other than procrastinating I guess we’d say. What’s the number one mistake that you see business owners make when it comes to, hey I need to get into this financial planning - what’s something that they might mess up and then later regret?

Blake: Good question. And you know, mistakes aren’t always bad. A lot of times you learn from your mistakes and that’s good if you can do that and take it as an experience. So we won’t say that they’re all bad. But you know, 70% of all businesses exit without a plan. So, I hate to come back to the putting it off piece, but what ends up happening is, as far as being able to step away and look at the business from a comprehensive standpoint. “What is it that I really want to get out of this?” And a lot of times, folks will start with that. When they start their business this is, you know, and people get into business for a lot of different reasons. Sometimes you fell into it, sometimes you inherited it, sometimes you’re forced into it, and then sometimes you’re doing something that you love and that’s hopefully what you run into more often. But in the beginning you have a vision, what I really want to do, what I really want to accomplish. A couple of years goes by, and maybe the fork in the road took you left, when you thought it might take you right. Next thing you know, you had a plan, but all of a sudden your plan is obsolete. So really, that comes back to the proactiveness. The proactiveness of updating your current plan and looking at it from a comprehensive nature that incorporates, you know, always starting with the end in mind. What do I want out of this? That’s your business succession. Who are my key people that are gonna help me get there, and how can I help them, you know, achieve their life goals. That’s your employees. How do you take care of them, and make sure that they’re tied to the business and everybody’s best foot’s forward? And when you start with the end in mind, you can start to then visualize how to diversify risk away from your business, and there’s lots of ways to do that. And like I mentioned earlier, most of our clients, their biggest asset is their business, so one of the things we try to do is help them to diversify assets out of the business in a tax favored manner, allocate it towards other goals. So something happens with the business that wasn’t quite planned, you got other stuff built up, and other nest eggs out there, rather than just all of it in one bucket. So, back to your question as far as what’s the one mistake. It’s to not keep your eye on the comprehensive long term and help diversify away from your business over a period of time.

Seth: You know that’s funny, as I was listening to you, I kinda had like a flashback, going back when I was first starting this business. And it was happening kinda organically, you know. Not something that was super well planned, it was a good thing but it was sort of materializing almost accidentally if you will, the stars aligned. And at one point getting involved in a professional organization and had an adviser ask me a question, “what are you going do with this company?” “Is this gonna be a lifestyle business, is this something you want to grow and sell?” And I mean it’s kinda embarrassing to admit it, but I didn’t know. I’m like, I don’t know. And you know, even having some, like you said, vision, for what the future could look like is essential because that should be guiding the decisions that you make as you go forward. Fortunately, now over time and some maturity and some experience, I know I need to be mindful of these things. But it’s a real-life trap for business owners to get into this, even if it looks like everything’s firing on all cylinders and to have lost sight of, what is it we’re doing here? And how does that affect the other decisions that I need to be making.

Blake: Oh yeah. It’s normal, it happens easily. So you just have to stay on top of it.

Seth: Yeah, it sneaks up on you. That’s why people need to come to people like you, businesses like you. Like you said, sometimes you just need to be wrestled down to the ground and have someone work you through this process.

Blake: Yeah, that’s right.

Seth: There’s value in just having someone, you know, hold your feet to the fire sometimes. So here we are, the market today, obviously there’s a lot of crazy stuff going on out there. Politics are a big factor, global events are a big factor. What are some of the things and threats in the market that you would say to a small business owner, hey, you know, you need to be paying attention to this stuff?

Blake: That’s a good question. Well, it depends on the perspective you take. But really, holistically, first thing you gotta, back to diversifying away from your business, depends on what industry that business is in. We work with a lot of different types of businesses, some are affected by the markets more than others. Some do well when the markets do bad. Depends on the industry that they’re in. But really, it starts by taking a step back and truly identifying what your goals are. In relation to a few different areas. There’s the business, obviously. But then you want to look a little bit deeper. Where am I in relation to, how much money do I need and my family needs in today’s dollars, net after tax, indexed for inflation? How much do I need today ideally? I’d like to have, make up a number. And we ask folks to stretch on that number. And then, once you find that number, say ok, I’ve got that. But, what would be acceptable? That’s typically a lower number. And what you have there is a range. So you have, ok, well this is what I need. This is my spend. This is my range of spending. Ideally, but acceptable, anything below that is not really acceptable. We need to make sure that our plan, regardless of what the markets do, is insulated, that goal is insulated from the ups and downs in the market. How do you do that?

And then you go to the next piece. Saving. Well ok, these are my goals, and now I understand what I want to be able to spend comfortably. So ideally, you know, for me personally, ideally I’d like to save less. I’d like to save as little as I can to be able to achieve my goals. But, in reality, I understand I’m going to have to probably save more. So, then you have on the ideal side, a lower number. I’d like to be able to save this amount and achieve my goals. That’s ideal. But what’s acceptable, yeah I can stretch it. I could do a much higher number if I had to reach my goals. That’s acceptable. And again we’re back to that range. We’re creating a range. And we actually have a patent on this range called the comfort zone.

The next relation is risk. Ideally, I’d like my money in the mattress, to be as conservative as possible. But what’s acceptable, sure, given my age, I can be moderate to aggressive, I can live with that. I got plenty of time. So again, back to the range, back to the comfort zone. And then we take it even further, as far as legacy, you know. Ideally, and these pieces are going to become more important as the years go by. If I’m not here tomorrow, what do I want to have? Ideally, I’d like this to be passed on to my family. Or onto my church, or onto my whatever. My charity that I feel passionate about. But what’s acceptable is this. So when you get all that, sorry for the long-windedness, when you get that understood and a true plan around those core functions, then you can say, ok, now you have a plan that’s driven by your goals. Not one that’s reactionary to the markets. So, it almost doesn’t matter. Once you have that plan, and we establish a comfort zone, then that is your guide to tell you how to invest in the markets and how you should be going about navigating that. So I guess the quick sum up is, let your goals dictate what you’re doing, don’t let the markets dictate your goals.

Seth: Yeah. Well I mean, what I’m hearing you say is, you know, here’s a small business owner sitting there. Again, maybe they’re feeling some worry, some concern, or again, maybe they’re just completely checked out on, being mindful of these things. You’ve outlined a structure that would take someone who may feel very uncertain, like you know, “oh I’m subject to all these things that are going on out there. I don’t know what the future looks like. I’m not sure what would happen if something happened to me,” and you’re saying hey, you know, follow this process. Run through this structure with us, and you will be able to get some control over that, put some structure around it, and in turn, certainly build your confidence, and hey, you know, those things don’t always work out. We know that even the best businesses will hit some serious speed bumps, but you have something that gives you some parameters to work with, and gives you some confidence, hey I can make it, I can survive, and here’s the bottom limit and top limit of what I’m able to work with.

Blake: Yeah, it’s a great starting point. You can navigate from there.

Seth: So Blake I mean obviously you’ve been doing this for a long time. Do you have a favorite success story? I mean obviously, even if it’s just generic, but anyone where you’ve seen a business come in, and they were hurt, and you know, after getting a little bit more disciplined and partnering with you, was able to really turn things around?

Blake: That’s a great question. That almost puts me on the spot. So our business is in the town that I grew up in, so a lot of the cases are people I’ve known for a long time. So they mean a lot to me. And I have seen a lot. And they’re not all success stories. You can’t help everybody, and you can’t fix everything. And sometimes it’s too late, and sometimes it’s all about timing. Sometimes folks just won’t take action. So it’s not all success stories, but off the top of my head if I could, I could talk about a case we have right now. If that’s ok as an example.

Seth: Sure.

Blake: There’s a company we’re working with right now, and they came to us and said, look we have four partners, and we really need to re-do our operating agreement. And we want it to encompass, if something happens to a partner, their shares go to their estate, or their spouse. We want to make that their spouses’ or estates’ financial future doesn’t depend, the financial success or failure doesn’t depend on the success or failure of this business. So if the remaining three partners run it into the ground, you know, the deceased partner’s estate doesn’t have to worry about it. And if the remaining three partners take this thing and double or triple the value, well, then they don’t have somebody that’s not contributing taking a quarter of what’s been grown. So how do we address that, and how do we address this other issue that we have? We’d like to be very competitive in our space as far as attracting the top talent. How do we recruit, retain, reward, the top people on our field and put a fence around them? Golden handcuffs, so they are incentivized to stay here. But at same time we don’t want to give away a bunch of stock in our company. We’d like to have other types of plans. So the reason I bring this up as a success story is, we did some digging, and I have a great back office. They are our technical folks, and they came up with some great ideas that not only helped with the business from a protection standpoint, in the case of death, disability, termination or retirement, one of the partners… If one of those triggers goes off, the operating agreement in a smooth fashion, there’s a separation, and all parties walk away, and there’s no room for lawsuits or potential issues. And on the other hand, we actually, we did some digging and not many people know this, but less than 9% of the population in America has a pension anymore. And if you remember, and people are more transient than ever, jumping from company to company to company. If you go back, several years, back when there was pensions, people stayed and worked there for 30, 40 years. They stayed at the same company their whole life because they wanted their pension, that’s what kept them there quite often. So what we actually were able to do is develop a program for this firm, for this company, that allowed them to have their business protected, their families protected, and as they are competing for new hires and talent, they can say, well, you can go to that other one, or you can come here and we’ve put together a defined benefit, a pension plan, in a very efficient manner that actually protects the firm and really benefits the talent. So I’d say off the top of my head, I got a lot of cases but that one right now, that one’s pretty cool, because they are really seeing the value in it. They’re already starting to tell others about it. Not their competitors of course.

Seth: Yeah. Well, what I love about that story Blake is, it talks to the fact that it’s not, hey you know, “I’m going to build my business and then once I get control of that and I feel good about it then I’ll worry about this you know, planning and financial planning stuff.” What it really illustrates is, the work that you do really touches the heart of the business, right down to the very relationships among the partners, and, I mean, we both know, I’ve seen it certainly, and not so much from the structural side or the legal side, but from the relationship side, that when you don’t have that foundation in place, everybody kind of takes it for granted, like, ah, “we’re partners, we’re friends, we’re brothers, whatever it is. If things go wrong, we’ll work it out.” Well, if you don’t have those agreements in place, terrible things can happen. We’ve all heard nightmare stories and seen very unfortunate things happen, in those circumstances. So you’re talking about helping a company really at its most foundational leve - have the infrastructure in place that allows it to survive what we know is going to happen, which is going to be some kind of either disagreement or some unfortunate health issue, whatever it might be, it is going to happen, and if you’re not prepared for it, it can really be disastrous for everybody involved.

Blake: Yeah, you’re exactly right Seth. Again, it’s back to wrestling folks to the ground. If you’re not proactive about addressing these types of things, when folks really do address these, it’s typically too late. It’s when they fire occurs, you have to put the brakes on and stop everything. Ok, how much is it going to cost us to make this problem go away, or is our business even gonna survive this? Or are employees gonna stay or they’re gonna go to competitors cause they know there’s turmoil? Are we going to lose our lines of credit with the banks cause they know that we have issues going on? So there’s degrees of losing if you don’t get ahead of it. So that’s really where a lot of our passion comes from. Getting to as many people as we can to try and help them before any of these pitfalls or fires come up.

Seth: Yeah, absolutely. Let me turn this just a little bit. This is all great stuff. As I’m listen to you it’s obvious, not only are you passionate about this, but you’re also extremely knowledgeable. But just to ask you a personal kind of question, what drove you to want to do this? Not only to be involved in financial planning and build your expertise, but also the fact that you started your own practice. What was the driver for you personally behind that?

Blake: Yeah. Another good question. So, let’s see. Actually getting into this business. This is all I’ve ever done, really. I got into this industry right out of college, and when I got into it, I really had no clue what I was doing. Like most kids when they get their first job out of college. But what I did, I ended up meeting with my mom. Of course low hanging fruit, you’ll meet anybody that will talk to you at the beginning. And my mom owns a small business, and she was a single parent, and again I don’t know how she did it as far as running a business and raising kids by herself, she did a great job. As you know Seth, I have a stay at home wife and two kids at home, I don’t know how we do it sometimes. So to do it by yourself, that would be a trick. That’s nothing short of amazing. So anyways, I got to talking with her, asking her some of these questions that we’ve been talking about to this point, and she, you know, she had nothing. She had nothing done really. I mean she had a nice business, great family, and great relationship in the community, she had a lot, but as far as planning, she didn’t have a retirement plan. I don’t think she had a will at that time, if she did it was really old. But I don’t think she had a will. If she had life insurance, it was minimal. She had no disability, and these are all things, if something were to happen to her, we’d have been in trouble, when we were kids. The business would’ve been shut down, and those employees would’ve just left and did something else, and who knows, I mean we probably would have had to go to live with our grandparents. So I realized, that’s when it started to hit me, and then I’d go and meet with another person that owned a business and it was the similar story. And then another one, and then another one. And you know, there’s lots of different variations. Some folks have some stuff done, some have nothing. I learned to never presume. Some folks think they got it all taken care of, they’re usually the ones that don’t. Oh they got all the money in the world, well, they must have all this taken care of. Well, I’ve been surprised more than many times. So, to actually get into this field, to answer your question, I just stumbled into it out of, I liked the idea of owning my own business, having control of my own hours, as any kid would. But then as I started to really meet with more and more people, starting with my mom, I realized, hey what we do is important. And we didn’t understand how important till I actually had my first client pass away. That’s when it hits you. What we do really matters, and it’s important. So don’t feel bad about following up and hounding people, because, you know, you might end up saving their family. So that’s kind of how we got into it I guess, to answer your question.

Seth: That’s a great story Blake. I think it shows, even if you kind of got into it, it was very quickly that it became very personal for you. That’s your family, your mother, respect you have for the work she put in, and to say, let me help you protect this. It would be such a shame to lose, especially for things that can be prevented when the planning is invested. So, that’s a great backstory. So just one last question for you. What makes Fellows Financial Group unique? There’s a lot of financial planning organizations out there. People may look around the market and say, oh you know, I can get this stuff from other places, but you know, what would you say, “no, you know, we’re unique here, come work with us?”

Blake: Yeah, sure. Great question. So, I’ve had the benefit of working now in two different partnerships, and from all that, and all those experiences, good and bad, right and left, all over the place. We blossomed out Fellows Financial Group. And what we wanted to do, was put together a team that felt like a family. We wanted to feel like a family atmosphere. And I think we’re accomplishing that. We’re still fairly new as far as this company goes. We’re only a few years old, but we plan on being here a long time. What we have developed is a patented planning process. We actually went and got a patent on our planning process that can help folks; from that we can take it in many different directions. Whether it’s business succession planning, incentivizing key employees, or attracting new employees. We break it down into different insurance products, retirement plans, health benefits. But what we did is, gosh, when I got into this business, I could walk in and one day I’m actually wearing all those hats. You could do that. You could be, one day you’re a health insurance guy, and I’m your estate planner, I’m your investment guy. You can’t do that anymore. The other benefit of the timeframe is, when I got into the business, it was right during the dot com bubble. So I got a taste of that right out of the gate. And then followed by 9/11, then followed by 2008, and then on and on and on. So the past 15 years, what happens when those big things happen, are laws change, and regulations instituted. So it has become so difficult. You have to be a specialist in these different areas now. So we have built Fellows Financial Group, we built it out with teams. We have a group that does nothing but group help, life, long term disability, short term disability, that’s all they do, all day long. They’re the specialists on our team. We have a gentleman that, he and his team do all the Medicare. Any Medicare questions, any social security questions, they go to that part of the team. It’s great. Cause you can’t do all this anymore. For retirement plans there’s another regulation that’s going to be finalized in April 2017. You have to have specialists that are doing that now. You just can’t have your health insurance guy doing your 401k anymore. You gotta have teams that are built out. We have a group that is very well acclimated into the estate planning, business succession planning realm. And gosh, the gentleman that heads that up, he’s been doing it for 35 years, and our team is CPA’s, tax attorneys. We don’t do documents, we work with your attorney for those. We don’t do tax returns, we work with your accountant. We try to all play well in the sandbox and come up with the best path forward based on what the goals are for the business owner and the company. So I’d say, it’s another long-winded answer, right? But when you put all that together, we are true advocates. We have built a team that are true advocates for small and midsized business owners, their employees and their families. And we feel that once we sit down and are able to just introduce what we do for 30 minutes, to really understand what it is you’re trying to accomplish, it starts to come out why we’re different. Above and beyond, actually having a patent on one of our process.

Seth: It comes through Blake, listening to you talk, I mean the passion, the expertise, and then like you said, I mean working with you guys, obviously they’re getting the full suite of expertise, not just the watered down version. And then that word advocate is pretty powerful. It’s like a true partnership it sounds like is kind of the mold that you guys are trying to forge there.

Blake: Yeah, absolutely. These are lifelong relationships we are working to build, it’s not just one-time and done. So yeah, that’s what we’re working hard for. We got a long ways to go, we’re building a pretty good family here at the company.

Seth: Alright, well people want to come learn more, your website, you guys just redid your website, and have it out there, right? We’ll make sure we post that along with the interview, so anybody can just go right on the navigation that goes with this interview and come find you, we’ll post a link to your LinkedIn profile so people can track you down if they want to talk with you, have questions, and want to learn more about what you guys do. So I want to thank you for taking the time to do this. I know I learned some stuff today and I’m sure anybody listening will as well. And Blake, we look forward to working with you again soon.

Blake: Yeah, thank you Seth. This is great.

Seth: Alright. And for the folks listening, you can always stick with Modern Da Vinci for more tips on not only the financial planning side of business, but leadership development, business growth and whatever else it is that we can help you guys be successful. Thanks and take care.

Blake Fellows Trusted Financial Advisor, Planner, and Advocate Visit on Linked In >

Blake Fellows
Trusted Financial Advisor, Planner, and Advocate

Visit on Linked In >