What separates great businesses from failures?
In case you did not know, there is a direct line between your corporate finances and a successful business strategy. Yet, many advisory firms fail to take the time to ground their business strategies in a sound financial reality. Doing so is at the heart of setting wise business goals.
At the most basic level, running an advisory business — or any business —comes down to one thing: making good investment decisions. Every new piece of technology, new hire and new service is an investment in the business that produces, hopefully, a return.
Which is why it’s so alarming that so many advisors operate without a strong understanding of the financial picture of their own businesses.
Your advisory business is an investment. How you invest in it will ultimately determine how well it preforms.
Ask the Key Question
Business strategy meetings are often filled with discussions around what you should do and what is not working. What if, all business strategies meetings started with the question: How are we going to invest in our business?
Based on my experience consulting for many advisory firms, starting with an investment question — rather than talking about goals, what’s not working and what needs to be fixed — changes the conversation for the better.
This focus creates a growth mindset and also gets firm leaders’ to give their full attention to solutions that ground the business in returns, instead of on spending resources to fix problems.
This is particularly important in partnerships. Most partners have a good idea of what will produce more revenue and profit in the business. But not all partners can agree on where spending needs to happen to keep the business moving forward.
At times, partners also can become self-serving. You might have one partner who’s overworked and overwhelmed with clients, and thus wants to hire an assistant; there may be another partner who needs more business and wants to boost spending on marketing.
Bringing partners together and having them look at the business as an investment, pulls these individuals out of their own isolated issues and helps them begin focusing on the collective, bigger picture.
In my experience, partners then begin to ask deeper questions about the business, such as:
- How can we all work together to keep growing?
- Where will our investments in the business produce the biggest return for all of us?
Set Financial Parameters
We all know, the more you invest, the more you gain — and the more you have to lose.
Investments in a business are rarely “safe.” We can’t always guarantee that our investment decisions in the business will produce the return we’d hoped for.
Therefore, just like when you diversify a portfolio, you must come together and decide what the limits on your investments need to be. Without clear financial parameters in mind, any strategic decisions you make will either be less than they could be or just plain bad for your business.
A good example is the hiring of assistants for overworked financial advisors and/or founders. Hiring one assistant may expand your capacity to serve 25 more clients. But an associate advisor for roughly the same price can nearly double your capacity. Which do you hire for the greatest return?
The bottom line is that numbers matter, and additional advisor talent expands your numbers faster.
This assumes, of course, that all members of a firm agree on the fact that the business of advice is really all about the how you invest in it and that, often times, it’s people who produce the greatest returns.