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The Practice Checkup
FINANCIAL MANAGEMENT
 

Introduction

A Financial Management System involves using the tools and disciplines to maximize the profitability of the practice. The ultimate objective of a Financial Management System is to create a business entity that can be passed on, sold, or leveraged for future income.

The Financial Management system is normally the last to become fully developed.  This is because during the Advisor’s Formative and Developing years, survival is the predominant theme and the Firm controls the distribution of commissions and fees. Generally, there are financial support mechanisms in place early in the Advisor’s career to sustain him or her through the ups and downs.

As the Advisor enters the Emerging and Mature lifecycle stages, however, his or her paycheck is more and more determined by decisions made at the individual level.

These decisions include:

  • Monitoring and checking elements of compensation, benefits, and bonuses.  The Advisor should be aware of all income streams and who’s controlling them.
  • Creating and sticking to a business budget.
  • Determining how to compensate staff members—hourly, salary, bonuses, benefits and incentives.
  • Using a business checking account and establishing a line of credit to use in developing the practice.
  • Deciding which products are most efficient and profitable.
  • Retaining outside professionals to assist the practice in growing, such as an attorney, CPA, financial planner, and performance coach.
  • Having checks and balances in place to govern the practice’s cash flow.

The outcome of establishing Financial Management systems is to have a practice that can be valued fairly and will continue to generate income for the Advisor long into the future.