Are you a business owner or partner? If so, you don’t want to miss this episode of Absolute Trust Talk! We’re exploring all things financial planning for business owners so you can transform your business success into personal wealth. Joining us is Miguel Delgado, Senior Wealth Advisor at Legacy Wealth Management, who specializes in tax minimization, asset protection, and fulfilling personal passions. Together, we’ll discuss ways you can maximize your savings, secure your assets, and plan for a successful, stress-free retirement. You can even apply some of these tips to your plan today, so let’s get started!
Time-stamped Show Notes:
0:00 Introduction
0:15 Meet our special guest today, Miguel Delgado, Senior Wealth Advisor at Legacy Wealth Management.
1:48 To get things started, Miguel shares why he likes working with business owners.
3:56 When it comes to helping business owners with wealth management, there are some “low-hanging fruits” that can make a big difference, like looking at tax planning, taking advantage of HSAs, and considering upgrading their CPA.
7:32 How your business is registered can also play a role in your wealth management. Learn more in this segment.
8:57 If you have a partner or partners in your business, have you reviewed your legal agreements lately?
10:04 We see it all the time – the business is profitable, but the owner doesn’t keep much of the profit for themselves. Miguel shares key insights on why this happens and how to avoid it.
14:27 When financial planning with business owners, the key is understanding goals and objectives. Here’s what should be considered.
17:17 Thank you, Miguel, and we can’t wait to have you again on our next episode!
Transcript:
Hello, and welcome to Absolute Trust Talk. I am Kirsten Howe, and this is our podcast—our video podcast and audio podcast—here at Absolute Trust Council. We’re very glad that you’re here today to watch and listen to us.
I have a very special guest today. My guest is Miguel Delgado, a Senior Wealth Advisor at Legacy Wealth Management. Miguel specializes in offering a comprehensive approach to tax minimization, asset protection, and fulfilling personal passions. His unique ability to integrate financial goals with life goals promotes inspiration, confidence, and purpose. Miguel has a political science degree from Cal State University East Bay. I think I remember him telling me that, at one point, his intent was to become a lawyer, but Miguel recovered his senses and discovered his passion for finance, and decided to become a certified financial planner instead. Smart man.
Welcome, Miguel. I’m so very happy and honored to have you here.
Thank you for having me.
You are most welcome. We’re going to do something a little bit different here. Miguel is going to be here. We’re going to do several episodes with him. We’re going to do three episodes, each focusing on something in particular that Miguel is very skilled and knowledgeable at.
Let’s get started. I know that many of your clients are business owners. Why do you like working with business owners?
The short answer to that, I think, is there’s more complexity that comes with it. It’s fun because you’re not just helping people with their finances at that point; you’re also helping them figure out how to use the business to create personal net worth. But I also feel like business owners can better appreciate the importance of planning and being proactive with their finances because they’ve seen how quickly profits can dissipate when planning isn’t done and expenses are flowing through all different kinds of places. If we’re not proactive enough, all those profits tend to be spent on the business or things. Then, lastly, it’s the story that fascinates me.
Many business owners that I work with tend to have a similar story where they started off with an idea, whether it was to provide a product or a service, or maybe they started this business for themselves and creating cash flow. But it started off as an idea, and then all of a sudden, they’re hiring employees, now they have HR, now they have payroll, they’re talking to attorneys, and it blew up to be this bigger thing that they didn’t even expect, or maybe they didn’t expect to see how difficult it could be to manage that kind of a business. That is fascinating to me. Just learning about that story, who they are as individuals, and what they intend to do with the business, for the business’s sake and also for themselves.
The added complexity does make things more fun. We have to be interested in what we do, too. I believe it has to be interesting for us to do a good job at what we do. I agree with you complexity is fun.
When you start working with a new client who happens to be a business owner, what are you most often seeing that you can help them immediately? Like, “This is the low-hanging fruit. Let’s talk about this stuff”?
When I first meet with a prospective client, we’ll want to make sure it’s a good fit. Can I solve their problems?
Usually, I’m looking at taxes first. Is there anything that I can do to help them with tax planning? Some of the tax strategies I initially looked at are their employer-sponsored retirement plan. If they’re in California, they’re pretty much required to have something, whether it’s a 401(k) plan, CalSavers, or what have you. But there are other reasons to get it than fulfilling a mandate. There are some tax benefits to that. Are they maxing out the 401(k) plan or the defined benefit plan, whatever it is? There are also tax credits that are now available through the Secure Act 2.0 that many business owners aren’t even aware of. So there’s an incentive for people to be looking at these types of programs for their employees and for themselves. If they have a spouse working in the business, or if they don’t, maybe ask their CPA or attorney the question, “Why isn’t the spouse added to the business?” Or, “Can we add the spouse onto the payroll?” And if the spouse is on payroll, are we maxing out their retirement?
HSAs are different – health savings accounts. I think this year, the max is $8,300. It’s a full tax deduction. I like to use those as well. In certain years, oil drilling funds can be opportunistic for people who have extraordinarily high-income years. For charitably inclined individuals, donor-advised funds, and the list goes on. But those are some of the initial things I look at.
Other things that are not so direct – or could be low-hanging fruit, if you will – is asking questions about their taxes, usually we’re getting their CPA involved—a lot of times, I’m finding that we have to upgrade their CPA. Oh yeah, the CPA isn’t quite what the business now needs. Maybe they started with somebody who was a friend or a neighbor, and now they’ve just outgrown that individual. Multiple partners are looking at a succession plan and making sure that’s in place. Estate planning is something that I consider low-hanging food in terms of providing value because, as you know, you probably run into people who tell you, “I should have done this years ago,” and are just getting this done.
Then, there is another one – the last one is ensuring they have adequate insurance. We don’t handle a lot of insurance, but things like long-term care, for example, if they’re a C corporation, they can deduct 100% of the premiums, and these premiums can be expensive. Some of them even allow you to pay them upfront. Strategically, if a business owner is thinking about retiring in the next year or two, they could adopt a plan like this and get a pretty significant tax deduction for having a benefit they’re going to use for themselves anyway.
I would also think that when you’re meeting with a business owner, a real basic thing would be, “What is the form of this business?” I encounter new clients doing business as sole proprietorships, and depending on the business, that can scare me. Shouldn’t you be a corporation or at least an LLC or something like that? But maybe they’re a corporation, and they’re the wrong kind of corporation. That’s something that you would know more about.
I do talk about that. It’s usually something I defer to a CPA or an attorney to make the final rule on that. Because the three of us- the wealth advisor, the CPA, and the attorney- are looking at it from a different perspective, right? The attorney is looking at it for liability reasons and sometimes tax. The accountant is primarily looking at it for tax purposes. Then, I’m looking at it from different angles as well. How will this help with the transition of a business if they need to sell it? Or if they’re trying to raise capital, which entity is best to use? So there are different perspectives, but I am seeing a big move to S corporations or being taxed as an S corporation.
Another thing that I often see with my business owner clients – and I’m sure that it’s something that you see too – is where there are multiple owners, and did you ever execute any kind of an owner agreement between you? Sometimes the answer is yes and maybe it’s adequate, maybe it’s not, but I’m guessing that that’s also something that you ask about.
The answers to that are very similar to the estate planning questions Do you have one, or when was the last time it was reviewed? Usually, it’s been a while, sometimes there might have been new partners into the company, or maybe the partnership has changed. Reviewing that is important.
I’ve seen this not too infrequently with my business owner clients, and I probably am guilty of it myself – the common business owner’s mistake of leaving too much wealth inside the business and not having enough or any real personal wealth outside of the business. I’m sure you see this happen. What is happening there? Why are business owners doing that, and why is that a bad thing?
It may start off because they might be stuck in a mindset similar to that of when they first started the business, right? When you start a business, it takes a lot of capital to start any business. You’re injecting capital to buy equipment, to hire employees, get the right software, and then you’ve got to pay yourself and then pay taxes, and then you’re trying to grow and expand and scale. That requires constant injection of capital, whether it’s from your own profits or outside capital, whether they’re using debts or other investors. I think business owners get stuck in this mindset of reinvesting, and they get stuck in it because it works, right? It does. “We did an X amount of dollars last year, we reinvested, and now we’re profitable. We’re growing.” Why fix what’s not broken?
But I think that problem really comes to surface when business owners are faced with the possibility of having, or the need of having to sell the business. Because I mean, most experts know that less than 20 to 30% of businesses actually sell. Wow. That’s an astounding statistic.
And oftentimes, those businesses that do sell are going to be selling for less than what the business owners thought they were worth. It’s no different than a homeowner. A homeowner puts a house up for sale. They think it’s worth X amount. They refuse to offer, you know, to accept any penny less than that, but the market disagrees. It’s no different with a business. The business owner put blood, sweat, and tears into it. “I think it’s worth this much.” They want to sell it for an X amount of dollars, and yet the market’s not responding to that. That’s a big risk. That’s why it’s a bad thing, is when it comes to the point where you are near retirement or you have to sell the business, and then “I may not even be able to sell it at all, or it’s not valued for what I thought it was worth.” That’s a big problem.
If you’re expecting to retire by selling the business and living off of the sale proceeds, and it’s not going to be enough because you didn’t fill up your personal savings and personal investments bucket, that is a problem. Yeah, and it’s hard to see. Because, again, if cash flow is good and business is growing and they’re living a good life, most of us aren’t trained to think 10, 15, 20 years ahead and think, “Ok, well, I have income now, but how is my future self without a business going to survive?”
That is one of the biggest values, I think, of working with somebody like you, a financial planner whose job it is to look into the future and make sure this whole life is going to work and maybe crack the whip over your clients a little bit and then still whatever discipline you need to.
Yeah, absolutely. I think it’s a good working relationship because they still have the power. I always tell my clients, “Look, there’s Plan A and Plan B. Plan A is you do what you do best and grow the business, get that valuation up, and you can bring other parties to the table to help with that.” But my job is – at least, I try to make it my job – to help with Plan B. And that is, how do we get business dollars tax-efficiently transferred into our personal net worth? That way, by the time we get to that point, we want to retire or we want to exit the business and start another one. If it doesn’t sell, or it doesn’t sell for what we thought it would or what we needed it to sell for, we at least have all these other assets that we’ve built on the side.
How do you go about helping clients with that?
It starts with a deep-dive conversation about their goals and objectives. I get them to paint me a picture of their future. I want to be able to understand where they are living. How are they living? How much income are they going to need? Peeling the layers of their retirement goals and objectives, if you will. From there, we can start to measure how far we are from those objectives. Are you going to be successful based on the track that you’re on now? Are we doing the right things with business? You know, clients who want it badly enough hire people like me to do the planning and get the forecasting done. That way, we have the foresight to see where our strengths are, where our weaknesses are, where some opportunities are for us to perhaps optimize what we’re doing already, and ultimately figure out how to take those profits from the business – maybe not 100% of the profits, but a small percentage of that – and then moving that over to our personal bucket.
And the longer the runway, in other words, the earlier they start this kind of planning with you, the better, the more likely it is to succeed, and the less painful it is as you go along. If we’re hoping to retire in five years, we have to be very aggressive, but if we have 20 years, we may only need to take a little bit out of the business every year.
That’s exactly right. That’s part of why, when working with business owners, I prefer to work with business owners who are thinking about a transition within the next ten years or so. The transition doesn’t necessarily have to mean retirement. It could just mean, “I don’t necessarily want to sell the business, but I don’t want to be working at this pace.” I want to work hard. I want to spend more time with my family, I want to travel more, or I want to pick up more time for my hobbies. Then that’s more about how we hire the right talent to allow for that business owner to step in – and take a different role within the company. So, there could be a variety of different forms of transition.
Well, Miguel, thank you so much for all of your insights. I feel like I’ve learned a lot for myself, personally. I see myself in some of this, and I’m sure our audience did as well. Thank you so much.
Thank you for having me on the show.
And we will connect with you next time. Remember, this is just one of multiple episodes where Miguel will be with us. My guest today has been Miguel Delgado with Legacy Wealth Management, and we will connect with you next time.
Resources Related to This Episode:
- A Will is Not Enough – Securing Your Legacy with Estate Planning Life can change in an instant. A will is not enough to be prepared. Get free access to our actionable E-book Guidebook #1 and start protecting your legacy today. https://absolutetrustcounsel.com/guidebooks/
- Learn how to comfortably define gray areas and assess your own unique needs to effortlessly build a secure future now. Check out Guidebook #2, Estate Planning Beyond the Basics, here > https://absolutetrustcounsel.com/guidebooks/
- Get our free introductory guide to the most used estate planning tool, family trusts, and understand how we plan to help protect your family. Guidebook #3: https://absolutetrustcounsel.com/guidebooks/
- Absolute Trust Counsel would love to offer access to our Incapacity Planning resource page: https://AbsoluteTrustCounsel.com/Incapacity-Planning/. We’ve collected our top planning information all in one place so listeners can find videos, guidebooks, blog posts, and a host of information with tips and strategies on implementing, planning, and protecting themselves and their loved ones.
- We’re pleased to provide a library of e-books to address common estate planning questions and concerns in practical, easy-to-understand language. https://AbsoluteTrustCounsel.com/Resources/.
- ASK KIRSTEN: If you’d like Kirsten to answer your question on the air, please email her at Info@AbsoluteTrustCounsel.com.
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