Wealth Management

Down the line

By Matt McClellan

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James M. Caswell III, CFP
Vice President
Peachtree Planning Corporation

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In the havoc of the economic downturn, many business owners, like many private investors, have seen their retirement savings decline by 40 to 50 percent in value. Jim Caswell is a founding partner and vice president with Peachtree Planning Corporation. He is a certified financial planner and has been providing sound financial advice to his clients since 1984.

“If you go back to 1926 the average annual return of the Dow Jones was 10.5 percent,” he says. “If you suffered a loss of 40 to 50 percent last year, it will take almost 10 years of 10 percent annual returns just to recoup your 2008 losses. What this means is that, if your retirement goal was two to five years, even 10 years, you’re probably going to work longer than you thought or you are going to have to start saving at a higher rate than you were.” Caswell says your financial planning should reflect this new reality.

“Everyone needs to be taking stock of their financial health and have a clear understanding of how these market declines will affect their ability to achieve future goals.”

Smart Business spoke to Caswell about how to make sure your plan has what it takes to keep your business protected.

What are the key concepts to personal planning for business owners?

Business owners understand business cycles and anyone who has a successful business has operated in both good and bad times. They understand an old slogan: ‘Tough times don’t last, tough people do.’

Their business is their most important personal asset. Their business and personal financial planning are almost synonymous. The important thing is to help the client differentiate between business and personal goals and to understand how the risks assumed in business affect the ability to achieve personal goals. There are many advantages to owning your own business especially when it comes to saving on taxes. With a proper structure, you can utilize those advantages to enhance both your business and personal planning.

What can business owners do to make sure their business is protected?

During a recession, if a business begins to suffer problems from reduced cash flows, business owners will sometimes neglect their personal planning. I try to help these clients understand how important it is to pay attention to cash flow in this type of business environment.

Properly understanding and forecasting both your business and personal cash flows may be the most important way to ensure your business survives. This can require some tough decisions and people don’t like doing that kind of planning. It is absolutely critical that you plan with realistic numbers for what you expect to happen for the balance of 2009 in both your business and personal life.

How can business owners ensure their plan is financially strong?

It doesn’t happen by coincidence, it happens by design. First, seek out a professional. Get another pair of eyes to look at what you’re doing. Maybe two or three pairs. Find someone who can work with you and probably your CPA to make sure you are getting good timely information. Then perform what I call a financial physical. You go to your doctor for an annual physical to get a professional to tell you if something is wrong. The same thing is true with your finances. Your financial physical should look at everything that affects your financial life. Insurance protections: home, auto, health, life, disability, long-term care. Legacy planning: wills, trust, future giving. And retirement, tax and investment planning. All these things need to be analyzed and coordinated into an effective plan. If something is wrong with your financial plan, when would you want to know about it? Now, or 10 years from now?

How has the economy affected personal planning?

Back in the ’90s, everybody thought they could get 18 to 24 percent on their 401(k) every year. They thought that was the norm. They didn’t need to worry about cash, interest rates were relatively low; a great deal of wealth was created. Those days may be over for everybody. People are now very concerned about their world and they are naturally gravitating toward more and better financial planning.

It’s critical to make sure your mentality and mindset is correct for this economy; you need to remain positive. These are tough times but with good planning and quality leadership we will come through. You have to demand timely and quality information and you have to be realistic and flexible with your planning. Investors can continue to learn more from us in the months to come about how to thrive in uncertain economic times.

JAMES M. CASWELL III, CFP , is vice president of Peachtree Planning Corporation. Reach him at (404) 260-1600 or james.caswell@peachtreeplanning.com.