The Small Business Owner

Rebecca Baker & Joanne Schwartz, 40 & 42

Self-employed Chiropractor and Self-employed Massage Therapist
Incomes: $85,000 and $195,000


Rebecca and Joanne had been looking for a financial planner since they got married 5 years ago. They’d interviewed several, but couldn’t find anyone who wasn’t focusing on investment management or looking to sell them an insurance product. What they needed was a plan. They each have their own successful practices, but they’ve never really been able to translate their business success into personal wealth. Rebecca is a sole-proprietor and has recently been growing her business significantly while Joanne’s business is more established and has employees. Joanne’s business brings in over $500,000 per year in revenue and had consistently grown substantially every year- hers is the salary they’ve primarily depended on. The problem is, the couple’s expenses haven’t grown with their revenue yet they’re still stressed about money and meeting payroll and they aren’t systematically saving or investing. They’ve received bad advice in the past which cost them thousands of dollars in interest, fees, and taxes. To rectify the situation, they sold their house and rented an affordable apartment to be able to start over. They have no debt, but they also have minimal assets. Their main desire is to understand how much they can and should be paying themselves, spending, saving and investing as well as what their options are for growing their assets. They’re concerned with retirement and would also like to have a baby so planning for maternity leave and lost income is an important part of the plan. They also work hard and want to continue taking weekend trips and a longer summer vacation while making progress towards their other goals.

Plan Options To Consider

The first thing I did after getting Rebecca and Joanne’s financial documents was to create a balance sheet with their financial documents. When looking at the balance sheet and their tax returns I immediately noticed that the amount of money coming into the household was substantial, but they didn’t have much to show for it. It was clear they were overspending, but I needed to determine whether this was happening personally or whether Joanne and Rebecca’s business expenses were the main cause. As it turned out, their fixed expenses were low, but some of their discretionary spending was out of balance (they were spending $1,500 per month on groceries for two people) and Joanne wasn’t paying herself enough through payroll to cover those expenses which meant she was forced to take random draws from the business to cover them. This created a bad habit and with the craziness of running a business and the stress of covering payroll and expenses with variable cash flow, draws were being made regularly without a strategy. We took a deeper look at where the couple was spending their money, and they needed to decide how much they wanted to spend on what. Then Joanne needed to decide how to adjust her personal salary, but also take a look at ways to improve flow for both their businesses to assist with taxes, social security, and other business needs. Since Joanne is also the “breadwinner” and has employees, it is also important for her to examine ways to protect her income and business overhead if she got sick or injured. Consulting a business insurance broker can assist with these needs. Considerations for choosing the proper retirement account also needs to be considered, including whether or not Joanne should start a plan for her employees. The final point of consideration as Rebecca’s significant amount of student loans that was weighing her down, so evaluating whether consolidation is the best option versus staying in the current payment plan was a high priority.

The client experience described may not be representative of any future experience of our clients, nor considered a recommendation of the advisor’s services or abilities or indicate a favorable client experience. Individual results will vary. Strategies mentioned may not be suitable for every individual.