Carr’s Capital: November 2010
It has been said that if you do not have a plan or a roadmap, any road will get you to your destination.
It has been said that if you do not have a plan or a roadmap, any road will get you to your destination.
In this environment of second opinions and great idea opportunities that seem too good to be true, how can people protect themselves from the hardships that bad decisions can create? In the past several months, several new clients have come into my office, each with a different story about how they made a decision based on trust only to find out that their money is gone or a great deal of it lost. The general thread that wove through their stories, although they didn’t know each other, was that they trusted one organization to deliver a product that no one else had reviewed. The other thread that they had in common is that they had no plan or roadmap to take them on their journey.
Who are the advisors who may have helped make a difference? The answer is, their lawyer, their accountant, a trusted friend in business, or, a family member who is perhaps named in their will as a guardian of their estate or family affairs. Another advisor who could have helped is a business financial advisor. You may be wondering, “How can a plan protect me from a loss like this?”
A plan gives you a roadmap that covers at least five different objectives. The first objective asks, “Where do you want to go?” The completion of this question lies in what do I want for my farm business and family and what are my expectations on this journey. I had a client who was going to invest several million dollars into a project and I asked him, “Does this expansion help to meet your future objective regarding the rate of growth and return on your business?” He replied, “I don’t know.” I then informed him that, “you are about to invest a lot of money and you haven’t asked what it is that you will be getting out of this and does it benefit your future planning.” So, in this case, the client was trying to make a much larger return than he needed and was taking 90 per cent more risk than he needed to. So, what do I mean by this?
Before you invest in anything, you need to have an expectation chart and you need to have your current plan alongside of that expectation chart to see if you need to take the risk in order to meet your overall objective. Usually, bad investment or expansion decisions are made in a void, trusting that the said return has a chance of becoming a reality. A person needs to understand the overall picture and what their next steps should be in relationship to a plan so that they don’t make a choice with very little information or research given to that decision.
Here’s a math example. A client who has $1 million in his account, his objective is to draw $40,000 from that account and not touch the principal. I offer my client a four per cent guaranteed return for five years. The client responds, “I was talking to a guy yesterday who can develop a portfolio for me and get me eight per cent.” I asked, “Is your objective four per cent or is your objective eight per cent?” The difference being that the four per cent guaranteed all of his needs while the eight per cent, although looking good on paper, actually cost a $250,000 loss in a market correction. The point of my illustration is stick to your plan, know your expectations and be well aware of the possible outcomes and of the risks attached.
Secondly, have a written business plan. Approximately 85 per cent of family farm businesses today do not have a written plan that speaks to expectations and that also addresses their goals, business objectives and various options so they can create and understand a direction that they need to take.
The third point is that you should have a proper will or multiple wills, trust accounts, business agreements, and holding companies where appropriate. This portion of your plan should be done by your lawyer and any specialty lawyers, and accountants that may be deemed necessary.
“How does planning actually protect me or give me direction to help me make a really good decision?” I am convinced that when clients develop a plan that includes the family farm business objective, legal agreements and discussions with accountants, and asks the advice of a trusted business friend or family member who is looking after some of the farm business affairs, it is difficult to have a great loss when you have asked this many people the right questions. The plan drives the questions, and receives the answers from professional planners and certified farm advisors who can help steer you in the right direction.
Next month I will provide you with some further thoughts and areas of concern regarding designing a plan. If you have any questions or you would like to know more about planning issues please send us an e-mail to Milt Carr at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .
In this environment of second opinions and great idea opportunities that seem too good to be true, how can people protect themselves from the hardships that bad decisions can create? In the past several months, several new clients have come into my office, each with a different story about how they made a decision based on trust only to find out that their money is gone or a great deal of it lost. The general thread that wove through their stories, although they didn’t know each other, was that they trusted one organization to deliver a product that no one else had reviewed. The other thread that they had in common is that they had no plan or roadmap to take them on their journey.
Who are the advisors who may have helped make a difference? The answer is, their lawyer, their accountant, a trusted friend in business, or, a family member who is perhaps named in their will as a guardian of their estate or family affairs. Another advisor who could have helped is a business financial advisor. You may be wondering, “How can a plan protect me from a loss like this?”
A plan gives you a roadmap that covers at least five different objectives. The first objective asks, “Where do you want to go?” The completion of this question lies in what do I want for my farm business and family and what are my expectations on this journey. I had a client who was going to invest several million dollars into a project and I asked him, “Does this expansion help to meet your future objective regarding the rate of growth and return on your business?” He replied, “I don’t know.” I then informed him that, “you are about to invest a lot of money and you haven’t asked what it is that you will be getting out of this and does it benefit your future planning.” So, in this case, the client was trying to make a much larger return than he needed and was taking 90 per cent more risk than he needed to. So, what do I mean by this?
Before you invest in anything, you need to have an expectation chart and you need to have your current plan alongside of that expectation chart to see if you need to take the risk in order to meet your overall objective. Usually, bad investment or expansion decisions are made in a void, trusting that the said return has a chance of becoming a reality. A person needs to understand the overall picture and what their next steps should be in relationship to a plan so that they don’t make a choice with very little information or research given to that decision.
Here’s a math example. A client who has $1 million in his account, his objective is to draw $40,000 from that account and not touch the principal. I offer my client a four per cent guaranteed return for five years. The client responds, “I was talking to a guy yesterday who can develop a portfolio for me and get me eight per cent.” I asked, “Is your objective four per cent or is your objective eight per cent?” The difference being that the four per cent guaranteed all of his needs while the eight per cent, although looking good on paper, actually cost a $250,000 loss in a market correction. The point of my illustration is stick to your plan, know your expectations and be well aware of the possible outcomes and of the risks attached.
Secondly, have a written business plan. Approximately 85 per cent of family farm businesses today do not have a written plan that speaks to expectations and that also addresses their goals, business objectives and various options so they can create and understand a direction that they need to take.
The third point is that you should have a proper will or multiple wills, trust accounts, business agreements, and holding companies where appropriate. This portion of your plan should be done by your lawyer and any specialty lawyers, and accountants that may be deemed necessary.
“How does planning actually protect me or give me direction to help me make a really good decision?” I am convinced that when clients develop a plan that includes the family farm business objective, legal agreements and discussions with accountants, and asks the advice of a trusted business friend or family member who is looking after some of the farm business affairs, it is difficult to have a great loss when you have asked this many people the right questions. The plan drives the questions, and receives the answers from professional planners and certified farm advisors who can help steer you in the right direction.
Next month I will provide you with some further thoughts and areas of concern regarding designing a plan. If you have any questions or you would like to know more about planning issues please send us an e-mail to Milt Carr at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .