Tuesday, November 28, 2023
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Achieving & Planning For Financial Freedom Should Include This Key Attribute – Flexibility

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Author: Jeff Cismoski, Founding Partner, Xartis Group

Elon Musk recently put in a bid to buy Twitter for $43 billion. This has made numerous headlines for myriad reasons not the least of which is the sheer magnitude for one person (seemingly) to make such a huge purchase. Yes, $43 billion is only a piece of Elon’s reported $215 billion net worth – but what doesn’t make the story is the fact that Elon, despite his massive paper-wealth, cannot simply spend the $43 billion nor can he just go to a bank and get the money. His net worth, like many business owners, is tied up in his businesses and thus unable to simply do as he pleases on his own.

Even if you are not a business owner, how you plan your financial future is important.
Like many business owners, Elon’s wealth is tied up in his business – so he can not just do as he pleases. Nonetheless, he is still Elon – so he can find investors and raise capital. However, what this situation illustrates is that one of the key elements in business and one that is rarely discussed is flexibility.

The entrepreneurial mindset is that we’re going to continue to pour ourselves, our time, energy and assets – into our business for the one day when it’ll be worth something and we can sell/transition to someone as we move on to the next phase of life. As author Bo Burlingham found out in talking with hundreds of business owners for his book, Finish Big, the key element to feeling the sense of ‘winning’ in business is being able to transition out when you want and how you want. That’s it. Just the sense of flexibility and freedom to do what they want with their business when they want.

The feeling of flexibility and freedom is also true if you don’t own a business. The underlying goal of many when planning their financial future is to have the freedom to live their lives on their terms.

How do business owners go about planning for flexibility and financial freedom?

Growing a business and positioning to “Finish Big” needs to include spending on marketing and employee development to generate more revenue. You also need to be operationally efficient to be more profitable. Then, utilizing the cash you generate in your business to invest in yourself outside of your business. This investment outside of your business can take many forms. You diversify your assets and make sure it isn’t all tied in one place.

If you don’t own a business, having your savings growing in several ways is important.

Planning for diversifying assets outside of your business that is usually all-consuming for business owners. How does one go about it?

How do you eat such an elephant? One bite at a time – and many times initial steps such as retirement savings plans come to mind- have layered benefits – employee retention, tax reduction, key employee benefits and personal wealth all through one action. Other strategies enhance business owner flexibility as well – distribution strategies taking advantage of tax efficiencies.

When it is time to leave a business – then the problem is solved, right? The owner can then cash out on his most valuable asset?

Yes and no. I was working with an individual who was nearing retirement and was looking forward to a significant payday when departing his business (other shareholders to buy him out) and he had a number in mind that both sides felt was fair. The reality of the proposed transaction was that no one had the money directly for the buyout and the business was in “growth mode” and thus the financials weren’t strong enough to finance the buyout.

The individual is in an extremely precarious position forcing him to keep working because he does not have the flexibility to alter deal terms that would still finance his retirement while being either affordable individually or able to be financed. The business now has a challenge – continue to fund growth or pause those efforts and begin reworking the profits and losses of the business to fund the buyout.

What could have been done differently in that scenario for the business owner to have more flexibility in how we got out of the business?

If the individual I was working with had just 30% of his net worth outside of the business, it would have afforded him to begin his retirement on much more flexible terms and enabled his desires to be realized as well as the business to be able to fund the buyout more economically.

So this brings me back to the Elon Musk story. Even if you are Elon, you need flexibility?

Elon can cash out 10% of his holdings and walk away with $2 billion. He can probably have a nice existence with $2 billion. For the rest of us, planning our financial future with flexibility in mind (at all times) can give us the greatest amount of freedom of choice in how we approach the future.

Disclaimer: The information provided here is not investment, tax or financial advice. You should always consult with a licensed professional for advice concerning your specific situation.

Jeff Cismoski is a Founding Partner of Xartis Group. Xartis Group provides transparency and financial advisory services. Financial advisory is much more than investment strategies, risk profiles, and market returns. Xartis provides the path forward. Each client is important and unique in their journey, with unique goals, concerns, and limitations. To learn more visit xartisgroup.com or contact Jeff at jcismoski@xartisgroup.com.

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