Founder at Cultivate Financial Planning
https://www.cultivatefp.com/

Ashley’s been my own financial advisor for a number of years now. She’s smart and savvy. She’s help me sort out my investments, insurance needs, retirement plan, some debt restructuring, and generally kept me from making several dumb mistakes with my money. She’s also a fee-only planner which means she works on a fixed fee - instead of taking a percentage of assets like some other companies in the space. – Bryant

Disclaimer from Ashley:
Obviously, this AMA is for informational purposes only and is not intended as tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information discussed here should not be relied upon as the sole factor in decision making for investments or general finances. Your use of the information is at your sole risk. Consult your tax preparer, attorney, financial planner, or other relevant professional for advice tailored to your specific situation.

Shew. Now that we have that out of the way, I’m on to answering.

Q: What are some of the biggest mistakes that you've seen small business owners make in regards to planning / saving for retirement?

The biggest one is that they don't plan or save for retirement. As a small business owner, it's easy to put your personal finances on the back burner while you focus all of your energy on the business. Here are a few other common mistakes:

Not paying taxes or not paying enough taxes on time. Work with your accountant to make sure you're paying enough to avoid penalties and surprises at tax time.

Not paying yourself. You probably wouldn't work for someone else for free so don't work for your business for free either. If you haven't read the book "Profit First" yet, I highly recommend it.

Not saving for retirement. Many times the business IS the retirement plan for small business owners. Sometimes that works out great but sometimes it doesn't. Make sure you aren't putting all of your eggs in one basket and invest in a retirement account for yourself as well.

Q: What's your take on crypto? How much if any would you include in part of your investment portfolio?

Thanks for asking this. It's a popular question these days. I'm not against it and I don't think crypto is a fad that will simply go away.

However, I don't have solid a way to price it or understand the value of it. With a stock like Apple, you can look at the books, run the numbers, and come up with a rough estimate of what one share of the company's stock should be worth. With crypto right now, that's impossible (at least for me).

So, if I'm building a portfolio for a client, I'm generally not adding crypto as a holding. However, if a client is interested in it, I think it's fine to own it so long as all your other financial planning boxes are checked.

I'd be comfortable with 2% in most cases, maybe more in some cases. If you hit it big and your investment goes up 2,000%, great! If it goes to $0 and you lose 2%, no big deal. Just make sure you're harvesting the gains at predetermined points.

Q: We have a mix of shop owners here. Some who have quite a ways to go until retirement and some who are within 5 years of trying to sell their shops and retire to the beach somewhere.

What would your 2-3 “MUST DO” recommendations be for both groups?

Ooo. That's a good question.

For those with lots of time left:

Plan where you want your business to go. It won't work out exactly that way and you'll need to adjust it along the way but keep a framework going. Plan around what you want for yourself as the owner (work life balance), what you want for the company (are you building an empire or keeping it small), and what will your exit strategy look like.

Your business is an asset for you but don't make it the only asset. Diversify by also having retirement/investment accounts

For short-timers before retirement:

Hopefully you have an exit strategy in place, if not, start making one! Then work on making your business attractive to buyers.

Consider how you'll be impacted by taxes with the sale. Are there things you could be doing or should you adjust your plan to sell in order to minimize those?

Q: Any best practices for minimizing tax liabilities at the end of the year for small business owners?

Great question! The easiest ways are:

Prepay some expenses if you can. This only works if you're a cash basis tax payer and you're paying expenses for a service or benefit in the next 12 months.
Make retirement contributions.
Buy equipment/capital but ONLY if you need it. I always hesitate to say this one because I've seen business owners go purchase a bunch of stuff just to reduce their tax liability.

“Buy equipment/capital but ONLY if you need it. I always hesitate to say this one because I’ve seen business owners go purchase a bunch of stuff just to reduce their tax liability.”

Totally guilty of this one in the past. Rather spend it than have it taken away.

Any rules of thumb here?

I just normally think through the following:

Are you planning to buy this in the near future anyway? Would you be buying it if it wasn't saving you $x in taxes?
Is it a ‘real’ need?
What will your return on investment be?
How will this impact your business cash flows?

Q: Inflation - WTF? Clearly it’s crazy right now. Are you worried about this long term? What are you telling your clients to do about it in the short term?

It is crazy right now for sure. Long term, I'm not worried for most people (only for those with fixed incomes that don't adjust with or enough for inflation). Short term, it's hard for everyone.

For Wall Street, we're seeing the impacts of inflation in the market right now as companies are struggling to make adjustments with the rising costs of labor, fuel, and everything else. Eventually, they'll figure out how to balance it (likely passing it on to the consumer) and things will wash out.

For Main Street, it's kind of the same thing but on a smaller scale. you personally have higher expenses at the grocery store and gas pump and if there isn't enough wiggle room to consume the difference, you have to make more income. For W-2 folks, that means asking for a raise or looking for a better paying job. For self-employed folks, it means raising prices or finding fat to cut off in the expenses.

Q: What is a good way to figure out a base salary for yourself?

As a 1 (almost 2) person shop I've never really taken a paycheck, and it's been tough for me to budget myself on a personal level.

As a spin off from this, or second part, how do you figure out what you can afford to pay someone?

This depends to some extent on how you have your business setup.

As a sole proprietor (filing a schedule C, not an S-Corp, etc.), it doesn't matter tax wise what you pay yourself but it does matter for your business and personal cash flows. I definitely recommend reading "Profit First" by Mike Michalowicz to get a good framework for allocating business cash and paying yourself.

It can be tough in the first few years of business when you aren't bringing in enough to pay yourself what you could make elsewhere but you should be paying yourself something if you're cash flow positive.

Hiring someone goes along the same way. Make sure you're paying yourself a reasonable amount first and covering your expenses, then look at what it would cost to hire someone. Are you able to eek that out of what's left over? Or can you at least expect that, by hiring someone that your revenues will increase enough to pay them what they'd cost and have profit left over?

Yeah that has been my biggest issue. I just take a draw whenever I need to. So it doesn't help on a personal level. I'll give that a read as my next book.

It's tough with a business that experiences ups and downs but try to pay yourself a consistent amount each month, even if it's lower than your average draw. Otherwise, it's very difficult to budget for your personal side, as you mentioned.

Q: What are the best options for retirement accounts for small business owners who have somewhere between 3 to 30-ish employees in their business?

Would there be a different recommendation for a solo-preneur?

For a solo-preneur, SEP and solo 401(k) are great once you get past the basic IRA and Roth IRA threshold or contribution limits.

For a Solo-Prenuer SEP, you can contribute up to 25% of your eligible compensation. The reason to choose a solo 401(k) over a SEP as a solo-prenuer are the higher contribution limits. With a Solo 401(k), you can do the 25% of eligible compensation PLUS contribute up to $20,500 as an "employee".

For a small business with employees, you have plenty of options but you have to be careful that you're being fair. "They" care a lot about that.

SEP IRA: The employer is the only one who can contribute. You have to contribute the same % of salary for everyone. If you give yourself 20%, you have to give each employee 20% too. The max is 25% of compensation with a $57,000 cap.

SIMPLE IRA: The employer AND employee can contribute. You have to either match 100% of the first 3% the employee contributes or contribute 2% of their salary

401(k): Employer AND employee can contribute. There are a lot of different ways to make a 401(k) work. If you go this route, it's 100% worth it to work with a third party administrator to make sure you're abiding by the rules. Guideline does a good job of this and Employee Fiduciary is good too.

I know almost all of the banks in my area suck for business accounts (and probably personal accounts as well).

For brokerages, I'm partial to TD Ameritrade. They'll become Schwab soon, which is also good. ETFs and stocks trade free, customer service is good, and their tools are user friendly.

If you just want to invest in mutual funds, I love Vanguard.

I like Quickbooks for accounting.

Banks are tough. I still like using a local bank but sometimes technology stinks there. I'm a big fan of online savings accounts like you'd find at Ally if you have personal savings earning 0.0001% at your local bank.

I'll try to think of others here…

I'm assuming we're talking about personal and not business here. If everything is covered (no high interest debt, saving enough for retirement and other goals, etc.), you could absolutely spend it.

If you don't have a specific want or need, I'd be looking at saving it to a taxable (non-retirement) investment account so that you're putting your money to work but you can also access it without penalty when a want or need comes up.

Since we all know this is not financial or legal advice and it’s for informative purposes only, any particular investments you might recommend?

I'm just a big fan of boring investments. I don't personally own a single individual stock. Instead, I'm in mutual funds and ETFs. Pick a few cheap, well diversified ETFs (Vanguard, iShares, SPDR, etc.) that match the time you have before you'll need to withdrawal the money and stick with it.

Q: What is your framework / decision making process for paying off debt vs investing?

For context, I’m thinking of things like paying more towards a car payment or a mortgage vs investing that in an index fund, stocks, etc

Great Question!

As always, it depends on the situation but for a general rule of thumb, if the interest rate is > 5%, pay the debt off.

If it's a low interest rate debt, and especially if it's tax deductible like a mortgage on a rental property, I'm inclined to pay the minimum payment and invest the rest.

Q: Thanks so much for joining and dropping the financial knowledge on us. What’s the preferred way for anybody here to contact you if they want to learn more about you or Cultivate Financial Planning?

The website is https://www.cultivatefp.com/ and it has all of my contact info.

My email is the only thing not listed there to ward off the bots. It's ashley@cultivatefp.com

If any of you are looking for a financial planner, I highly recommend checking out

https://www.XYPlanningNetwork.com

Every independent planner who is a member of XY is a CFP(R) professional, is fee only (won't sell you anything), and is always a fiduciary (acts in your best interest).

I hope you all have a wonderful evening! I'm off to feed the pigs.

Appendix

Ashley’s Bio

“My favorite part of being a CERTIFIED FINANCIAL PLANNER™ professional is watching clients succeed. I am passionate about helping each client cultivate their own best financial life (current and future).”

It was at Radford University, where she graduated summa cum laude, that Ashley discovered her passion for finance, thanks to some great professors and a wonderful organization. She participated in and was the first female president of the Student Managed Investment Portfolio Organization (SMIPO), which is a student led organization that manages real assets for the Radford University Foundation (almost $2,000,000 now). She continues to be involved with SMIPO by serving as Chair for the organization’s Board of Directors.

Ashley started her career in finance at the National Bank of Blacksburg during college. From there, she worked for a Broker Dealer that managed investments, where she passed her Investment Advisor Representative and Life, Health, and Annuity Insurance licensing exams. However, it always seemed like investing was just one piece of a much larger puzzle. Continuing her push for the remaining pieces of the puzzle, she joined an independent Registered Investment Advisory firm, where she earned her CFP® certification. She constantly pursues learning and has since earned the Enrolled Agent credential, the highest credential the IRS awards. In 2018, Ashley founded Cultivate Financial Planning.

When Ashley isn’t engaged in Financial Planning, you’ll likely find her outside on the farm with her husband Matt where they raise chickens, pigs, cows, and a garden.

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