Financial Planning for Your Creative Business| Nick Garofalo

PROFITABLE TALKS...

In this episode, Christian Brim interviews Nick Garofalo from Open Handed Wealth, discussing the importance of financial planning for business owners and creatives. They explore the common pitfalls of business valuation, the necessity of having a financial plan, and practical tips for managing finances effectively. The conversation emphasizes the need for business owners to treat their businesses as investments and to seek out qualified financial advisors. Nick shares insights on budgeting, pricing strategies, and the significance of understanding cash flow in relation to business value.

PROFITABLE TAKEAWAYS...

• I want to help Christian families fulfill the Great Commission.
• If you're married with kids, you need an estate plan.
• Most business owners don't have a financial plan.
• Your business is worth more to you than the market.
• You need to know how much you need to live on.
• Find a fiduciary advisor who works for you.
• The credential does not make the advisor.
• Treat your business like an investment.
• You need to charge based on the value you provide.
• Ask your clients what problems they need solved.

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Transcript

Nick Garofalo (00:00.172)
my last name is pronounced Garofalo.

Christian Brim (00:00.292)
Yes, I knew that. Yes. Yes. Yes. Yes. That's what my business coach just, he just says, yes. Yes. Okay. Welcome to another episode of the profitable creative. The only place on the inner webs where you learn how to turn your passion into profit. I am your host, Christian Brib. Special shout out to our one listener in Brunswick, Ohio.

I've never been to Brunswick. I'm assuming that's where they made the bowling machines for bowling alleys, but I don't.

Nick Garofalo (00:35.05)
Is that where the stew comes from?

Christian Brim (00:36.828)
It could be where they invented the stew. Yes, I don't know. But thank you for listening anyway. Joining me. I've never had Brunswick stew. I've heard of it. No. Well, let me let me introduce you first. Hold on. My guest today is Nick Graffalo with Open Handed Wealth. Nick, welcome to the show. Now you can talk about Brunswick stew.

Nick Garofalo (00:40.0)
It's great. And for the stew, if we give you credit for that, you've never had it. Traditionally, it's made with rabbit.

Nick Garofalo (00:58.958)
Thank you, Chris. Well, traditionally it's made with rabbit and that's kind of controversial, but if you're a, you know, a poor kind of subsistence family in the late 1800s, so you're just out hunting, you're hunting rabbits or foxes or squirrels and you put that into Brunswick stew. Nowadays it's typically made with some type of barbecue beef or like pork or something. There's this little barbecue joint up the road for me and they make phenomenal Brunswick stew and they get all their vegetables for it from the farm stand across the street. So I don't know if Brunswick, Ohio is to thank for that, but.

Christian Brim (01:13.596)
Yeah.

Christian Brim (01:18.075)
Yeah.

Christian Brim (01:25.692)
and the meat.

and the meat from the highway out front. Make it authentic. Nick had been on my other podcast, The Chris Project. If you haven't checked it out, you might want to. And we discussed his company, Open-Handed Wealth, and that was a brilliant interview, and you should go listen to it. And I invited him on the show, and in between here and there, I was like, huh?

Nick Garofalo (01:32.472)
That's right.

Christian Brim (01:57.34)
I'm not real sure what we're gonna talk about, but in the green room, we hashed this out and I think this is gonna be a brilliant episode. Okay, so Nick, let's just lay the foundation, what you do in open-handed wealth.

Nick Garofalo (02:11.886)
I do fee only financial planning. And my stated vision is, I mean, really I want to help mainly Christian families, Christian businesses to leverage their wealth to fulfill the Great Commission. That's kind of the grand vision, but like in practice, it's cashflow management, it's investing, it's tax planning, it's estate planning, know, it's insurance gap analysis, it's all that stuff on a recurring basis for a fee for my client families.

Christian Brim (02:37.018)
Okay. That is distinct from what a lot of financial planners do and investment advisors do. for, you know, the menu of services that you're describing is generally more for affluent clients. I mean, very affluent clients. I don't know that that's necessarily who your clients are, but like you have a premium

array of services that most investment advisors don't do is my take, but you may not agree.

Nick Garofalo (03:16.588)
Well, I will say this, I think...

Though all of those things can apply to very affluent clients. When I say estate planning, if you're married with a dog, you need an estate plan.

Christian Brim (03:23.953)
Mm-hmm.

Christian Brim (03:31.952)
Yes.

Nick Garofalo (03:38.493)
I think we're having technical difficulties.

Christian Brim (03:40.924)
You're back though, I can hear you.

Nick Garofalo (03:44.59)
There we go. All right. So if you are, I said, if you're married with a dog, you need a state plan. I'll say if you're married with kids, you need a state plan. Whether or not you have, whether or not you, yeah, a dog maybe not, but you know, if you're married with kids, you definitely need a plan of some kind and place. You know, if you plan on retiring,

Christian Brim (03:53.596)
100%, dog maybe not.

Nick Garofalo (04:05.866)
ever at some point or not being able to work anymore, you definitely need to save and invest. Everyone needs a budget, wealthy or otherwise. We all probably need life insurance and disability. So it's like, you know, whether you're a fluid or whether you're massive fluid or whether you're just getting started, the menu of services can apply and meet you where you are in the process, right? Obviously the state plan needs of someone with a $20 million net worth are going to differ. But

Christian Brim (04:33.99)
Yeah, think most business owners need the foundational elements. They need a will, durable power of attorney, medical directive, trust, know, those basic things. Yeah, I mean, I think every business owner needs those things. And there are attorneys that do that for a reasonable fee.

Nick Garofalo (04:48.638)
all these terms.

Christian Brim (05:00.868)
Like for most people in simple situations, that's not a complex lift and it needs to happen. But okay, so where we got talking in the green room here was this idea that business owners have most of their wealth trapped in their business, right? And it produces most, if not all of their income. And

The majority in my experience of business owners don't do, that's the end of their financial plan. There's no financial plan beyond the business. And that plan is not really well thought out or planned. No, it's not really a plan. It's just like someday I'll sell it and somebody will give me some money and I'll go retire. yeah, the end. But that's not the way it works.

Nick Garofalo (05:43.79)
It's not really a plan.

Nick Garofalo (05:52.182)
The end.

Christian Brim (05:56.772)
It doesn't, it's not just creative entrepreneurs, it's every business owner runs into this conundrum of the business is worth more to them than it is on the open market, right? And that puts them in a situation of having to continue to own the business, to work the business, to provide financially for them.

way beyond the point that they would want to or care to. But I think we should start with the valuation question. What is your business worth?

Nick Garofalo (06:40.056)
So I'd like to just draw a quick distinction here because everything you said is totally true. And I think it could get lost in the shuffle if we're not careful because what you're basically saying, Chris, is like,

Christian Brim (06:43.729)
Mm-hmm.

Nick Garofalo (06:55.744)
My business if i'm an entrepreneur my my video production company my whatever is not worth as much as I think it is and Or what it's worth to me Yeah And I just like to ask a question of like if you are buying a company, would you rather buy a mcdonald's or would you rather buy? Jackson pollock and companies You know art art making company, right if he even has an art. I don't even know what he has right? But obviously like well

Christian Brim (07:02.556)
Or what it's worth to me. Yeah.

Christian Brim (07:21.05)
Right. Right.

Nick Garofalo (07:24.202)
Jackson Pollock is the thing. He is the magic Midas touch for making paintings. If I buy Jackson Pollock's brand and go out and like splatter paint on some nice big piece of canvas, it's not gonna be worth anything, right? Because all the value is in his creative power and ability and presence and reputation and all of that. Versus a machine, an engine like a McDonald's franchise that's just spitting out cash and...

Christian Brim (07:39.152)
Not without him, no.

Christian Brim (07:46.704)
Yes.

Nick Garofalo (07:53.918)
and very viable, very sellable, very transferable because the good is the consumable being purchased. It doesn't matter who makes it, right?

Christian Brim (08:03.292)
Correct. And that segues nicely into what I was going to say, which is the business is only worth the value of the future cash flows. That's it. That's in a nutshell. There are extreme cases.

Nick Garofalo (08:22.54)
nod to my college finance professor for that one.

Christian Brim (08:25.996)
Yes, there are some extreme cases where you might have some intellectual property, a specific client, a specific employee that might be worth something. You know, I have seen businesses bought less for the cash flow and more for the capacity. That's possible, but you don't want to rely on that. And the vast majority of business sales

are not cash sales, they're financed. And that means that the valuation is capped by the terms of the bank loans. And with the SBA, you can get loans out to seven years unless you've got real estate involved. so, you know, the absolute most anybody can pay you is capped by how much the bank will lend them, which is seven years cash flow.

So that's it. mean, and then you have to factor in the things you were talking about, like, okay, the owner's not there. How does that affect the cashflow? Right. And so that's the most. And then everything else just comes off, off the top and you get down with some residual amount that your business is worth. If you're the whole business, if you're doing all the work, if you're doing all the selling, if you know,

All of these things, you have a job, you don't have a business.

Nick Garofalo (09:57.216)
And Christian, think this applies 10 times more frequently to creatives and to, you know, any type of creative industry, entrepreneurs than it does to most other businesses. Most other businesses are seeking to create a cashflow engine, right? They're seeking to create some sort of economic, you know, flywheel that's going to just continue on in the future. Unless you have some type of recurring revenue or residual or like contract revenue to create something like, you know, for your clients, then yes, it's, it's largely.

Christian Brim (10:05.286)
Yes.

Christian Brim (10:10.672)
Yes.

Nick Garofalo (10:27.522)
You know, a discounted cashflow analysis just to kind of project out your cash flows, which are going to be limited to your current pipeline and your current client base and your current capacity.

Christian Brim (10:35.472)
Yes, and that's usually what happens is businesses get sold for pennies on the dollar of what the owner thinks they're worth because there is no future cashflow that's predictable. You mentioned recurring revenue and I talk about this in Profit First for Creative. That's not usually the creative's specialty is recurring. They do a lot of project work. They do a lot of custom work.

Nick Garofalo (10:47.021)
Right.

Christian Brim (11:04.238)
All of those things devalue the business. I'm not saying your business is bad. I'm just giving you the harsh reality of what someone will pay for it. And it, the extent that you have predictable cash flows for the future, you have value. Everything like lack of processes, your involvement in the work, the fact that it's project work versus recurring revenue. All of those things take off the top.

and reduce the value of your business.

Nick Garofalo (11:35.438)
Do we need to back up? Cause we're operating under an assumption that people want to sell their business someday and that they think it's worth something. Do we need to back up and build a case for why that's a viable option?

Christian Brim (11:41.295)
Well.

Christian Brim (11:45.352)
Well, okay, I think the reason why I'm starting with that is because then you need to think about, if the business is not going to have value to fund my retirement, then what are the alternatives, right? What else do I need to consider? And I would say that you should always build your business to be saleable whether you want to sell it or not.

If you think about your house, you don't sit there and the roof is leaking and you say, well, I'm not selling the house, so I'll fix that whenever I want to sell it. No, you fix it then because you know that it's going to cause more damage. Right. And, and so the analogy is not great, but I think it's, it's equivalent when you, when you have a business, you want a profitable business, you want a saleable business. And that's what you should be working towards at

all points, whether you're ready to sell it or not.

Nick Garofalo (12:49.166)
So well said. That was great.

Christian Brim (12:50.596)
Okay, I thought you had something to add. Okay. All right. So here's what I see happen a lot of times. Business owners get to a point where they want to sell or they're thinking about selling and they start kicking around the question, well, what's it worth? And then they find out and then they say, well, shit, I can't live on that. if you, if...

If I can only sell it for that and I got to pay taxes on it, well, that's not enough left over. And so that's where they end up in this conundrum of it's worth more to them as an ongoing job income stream than it is to sell it. So the question then comes, what are the alternatives? And I think Nick and I would both recommend that you take a portion of your income that you've generated from the business.

and invest it in things outside the business. Would you agree with that Nick?

Nick Garofalo (13:52.27)
100%. I just was going to put some numbers to it just for context in case that would help. Yeah, so let's say you're making $80,000 a year doing your creative business. And let's say that's your take home. In order to amass an income generating investment that will return $80,000 a year for you,

Christian Brim (13:53.742)
Okay, please do.

Nick Garofalo (14:15.246)
Basically in into perpetuity for, or at least for the next 30 to 40 years of retirement, assuming you know, if you're tired 60 and live to be a hundred, let's plan, you know, pretty, pretty conservatively there and, and hope that you're going to live that long. Uh, you need 40 years of $80,000. Well, that's about a $2 million portfolio. Lots of factors, lots of variables there, but that's kind of just like the, the, you know, rule of thumb, right? $2 million on your $80,000 a year income from your business. What do think that would go for that business for?

Maybe 300.

Christian Brim (14:46.972)
Yeah, maybe. Yeah. Yeah.

Nick Garofalo (14:48.274)
Maybe, maybe 250, because it's going to be some type of cashflow calculation plus maybe some assets. Let's say you've got $100,000 of gear and equipment that you could sell for 75 or 50, know, tack that onto the, so yeah, let's say maybe sell it for 250, 300. Where are you going to get the other $1.7 million you need to sustain the lifestyle of, of what you've had as long as you've owned your business? Well, the answer is

Christian Brim (15:12.326)
Yes.

Nick Garofalo (15:14.454)
We wanted to think about this 30 years ago, right? There's that old Japanese proverb, the best time to plant a tree was 50 years ago. The second best time is today. Right, so those are just some numbers for context.

Christian Brim (15:20.966)
Yes. Yes. Yes. Well, and I see a lot of people freeze up when they start talking about numbers that large and they start thinking, well, I'll never get there. I've waited too long. But, know, I guess the alternative is just keep down the path and have nothing. Right. Like, I mean, to your point, if you wait another year,

Another five years, you're not going to be any better off. So, I, I think having a, having investments outside of your business is sound strategy that most entrepreneurs don't, follow. They just don't, they, they, they, they put all their chips in the business and hope, hope they draw a royal flush. And most of the time they don't.

Nick Garofalo (16:20.75)
Yeah, I mean again very well said so So what do do Christian?

Christian Brim (16:27.62)
Well, so I think that there are a lot of alternatives. And I know you are going to have specific recommendations based upon what you do. And I'm going to share some of those. I'm also going to have some more esoteric ideas. But the reality is you need something. Whether that's real estate.

Nick Garofalo (16:40.526)
I am. Yes.

Christian Brim (16:55.738)
Whether that's investing in stocks, it doesn't really matter. That's a personal decision and a personal risk tolerance decision that you need to have with a qualified financial advisor to help you work that out. But not knowing what to invest in or what that investment would look like is not an excuse to not have the conversation.

Nick Garofalo (17:25.356)
Yeah. The, as is true with so many things in life, overlooking it does not make it go away. So invite somebody else in and it'll be, it'll, it'll get less scary, right? But let's not keep prolonging and postponing and hoping that, well, you know, maybe someday out when I can afford to save, I'll start saving and invest and do a Christian and Nick are talking about like, no, no, no, let's talk now. Let's, let's start now. Right.

Christian Brim (17:34.768)
Mm-mm. No.

Nick Garofalo (17:54.126)
Can I jump to a couple of practical suggestions? Okay, first and foremost is you have to know actually how much you need to live on. I threw out 80,000 is just like a random number. In reality, you may be living on less. If you're single, especially if your housing expenses are low, you could be living on much less than $80,000 a year. That's an important number to know. The only way to know that is by having a budget. You've got to have a zero based.

Christian Brim (17:54.234)
Yes. Please.

Nick Garofalo (18:21.71)
cash based budget of I made this much money and I'm putting it toward all these things, my rent or mortgage, my utilities, my fuel, my car insurance, my groceries, et cetera. When you live by a budget, you're telling your money where to go instead of asking where it went, right? I'm a huge Dave Ramsey fan in that sense. think his personal cash management approach is second to none. mean, the envelope system is so tried and true.

and the digitized version of that in either every dollar or my personal favorite, which is you need a budget. It's changed my life. It's changed many people's lives. So you need a budget first. Once you have a budget, you will probably find one of two things either you'll find you have absolutely no money left over you need to drastically cut your expenses, which fantastic. That's a an excellent thing to discover now. Or you'll find you actually aren't spending as much as you thought.

Christian Brim (19:13.265)
Yes.

Nick Garofalo (19:17.87)
And you have some extra money. You have some extra cashflow, which is of the two. Obviously that's the better alternative. Uh, but either way you win because you'll get knowledge and knowledge can be power. And so if you find you have some extra cashflow, what do you do with that? Well, I highly recommend, uh, consulting again with, with an advisor and trying to pick out the best business retirement plan for you. If you're a solopreneur,

Check out a SEP IRA. If you are a small business owner, check out a starter 401k.

SEP and starter. And then obviously if you own, if you've got larger team, maybe consider a 401k, but a business retirement plan is a way to put more income away into tax advantaged accounts than just a traditional IRA. So say I actually probably start with an IRA. It's probably a place to start, especially if you're a solopreneur.

Christian Brim (20:12.56)
Yeah, because you know, a lot of people, you know, I would agree with you. I'll go back and say, I am not a Dave Ramsey fan, but I don't ostracize people that are. But his envelope system is exactly the same as Profit First, which, you know, we're of course big fans of. So, you know, you can apply Profit First

Nick Garofalo (20:26.798)
Clearly.

Nick Garofalo (20:36.814)
I'm a big fan of Profit First.

Christian Brim (20:40.048)
to your personal finances as well as your business finances. I would say an IRA is a good place to start for most unless you have more than $10,000 excess that you need to shelter for taxes on an annual basis. And then you can start looking at those business retirement plans that give you higher limits. So yes, I would agree with you.

Nick Garofalo (21:07.63)
Well, again, I like Mike McCowat a lot and Profit First and everything they're about. I really, really do. think that what Mike did was create for the business owner, again, the same kind of cash-based budget structure that's needed to have the kind of cashflow clarity to really make good decisions and know where you're going.

Christian Brim (21:23.195)
Mm-hmm.

Christian Brim (21:30.406)
Yes. so then the conversation becomes with your financial planner, whether that's Nick or whether it's this core, it doesn't matter. It could be anybody. Well, not just anybody. They need to be qualified. How does all of this project out to the future? And then how does the business fund the retirement potentially? And yeah.

Nick Garofalo (21:49.667)
Who?

Nick Garofalo (21:56.366)
Let's talk about that real quick though. Talk about looking for a financial planner advisor. What are the top three or four things you would suggest for your listener? you're, if you are listening and you're thinking, I don't even know where I'd find one. I'm not even sure I never really needed one. What do you recommend Christian?

Christian Brim (22:02.842)
Hmm, okay.

Hmm.

Christian Brim (22:16.89)
Well, I think historically the industry has been sales driven, right? And to a large extent, it still is. And so there are a lot of advisors that are out there that are hustling to get your money and then you never hear from them again or the level of attention and service drops dramatically. I would recommend and I

I I don't step on your toes, Nick, but I would find a fiduciary advisor, a, that, works on a fee for service basis, not someone that has paid commission based upon what they sell you, or how much money you bring into them. I think that, and, and this may be offensive to some in the industry. I think you don't have to find the perfect advisor.

because 80 % of the performance is gonna be the same from everybody because we're all playing with the same deck, right? I think the advisor's primary role beyond the clarity and planning is to help you take the emotion out of the finances, right? I think that's the most value that they bring. And I'll give you an example. I had...

Nick Garofalo (23:37.485)
Yeah.

Christian Brim (23:40.348)
An employee of a retirement plan for one of our clients after Trump got elected the first time He called me Literally the week after and he said I want to sell everything and go into cash because Trump is awful And he's gonna tank the stock market and I said, okay Let me ask you a question has anything changed in your financial situation. Did you lose your job? Did your spouse lose their job? No, okay anything change

adopt a child, you know, any of these life change events, any of that have divorce, you know, no. Okay, my recommendation is do nothing. He's like, well, I we got to sell and I'm like, I tell you what, call me back in a week. And and and if you still want to, we'll move you to cash. So he did he called me back in a week and move it all to cash. I said, okay.

And of course the stock market went up like 20 or 30%. And the point is not that Trump made the stock market grow up or that I, you know, held the stock market could have gone down and then he would have been pissed that he didn't move to cash, right? That's not the point. The point is the advisor's role is to help you stay focused on the things that are important and the plan that you've put into place and not be reactionary to what's going on in the market.

Nick Garofalo (25:05.838)
100 %

Christian Brim (25:08.742)
So I don't know how you find that person, but that's what you're looking for.

Nick Garofalo (25:11.884)
Okay, well, could pick up there. Yeah, so I'm everything that you just described. I'm a fee only financial fiduciary advisor, I have to put my clients in, you best interests. First and foremost, I don't sell products, I don't make any commissions. And I don't just chase assets. I think you should find someone like me. Honestly, because

Christian Brim (25:13.776)
Please.

Nick Garofalo (25:35.054)
And you can, and there's a wide variety of price points, right? There will be advisors that will charge you 50 bucks a month for this type of service. And there will be char, know, advisors that will charge you, um, you know, 2,500 a month for this type of service. Um, and it's all based on your level of complexity and your level of need. Right. Uh, so obviously, you know, if you're only making a hundred thousand, I don't recommend paying your advisor $5,000 a year for, for a flat fee service engagement. That's not a good fit. And the advisor.

will tell you that should tell you that should and typically will. most of, I've got dozens of colleagues in this space and we share stories about this all the time and try to make sure that like new clients that we bring on that we're giving them a reasonable price for the service that they can expect. So a lot of times you'll find somewhere around one to two or even 3 % of like household income. So if you're making, you know, a hundred thousand dollars a year expect to pace them between 1500, 2500 a year for, for, you know, a financial planner.

Christian Brim (26:05.532)
Should do you that, yeah.

Nick Garofalo (26:32.77)
Consider a project based engagement with a planner. That's how you would work with someone. and a lot of advisors in my role will gladly take on a one-time project. It's usually a higher fee, but instead of paying a yearly $1,500 fee or $2,500 fee, might be 2,500 once. And then in six, seven, eight years, one year financial situation changes again, you need some, some additional, advice, get the plan reworked with the same advisor.

So it's a way of dramatically reducing your annualized expense. Okay, so where do you find one? Well, there's a couple of places. I personally recommend feeonlynetwork.com. They are a network of fee only advisors and you have to fit that qualification very narrowly in order to be presented on that website. So feeonlynetwork.com is a great platform. Alan Sliders, the founder is a friend of mine, great guy.

I am on that platform. I don't get anything for recommending it. Just FYI. I'm also a part of XY planning network. So you can go to xyplanenetwork.com, click the find an advisor search and find an advisor within the XY planning network community. And again, we are a community of fee only fiduciary advisors. A lot of great people. A lot of us got into our industry, our side of this industry, because we want to help people.

Christian Brim (27:36.24)
Yes.

Christian Brim (27:58.235)
Yes.

Nick Garofalo (27:58.799)
We want to see people thrive and do well. We want to help them in their navigate the relatively complicated financials, like waters that we all live in now in 2020, whatever. And you know, our interest in helping people is what drives our business model decisions, our conversations with clients, the work that we do. you know, just like you got into your space because you want to create something beautiful. You want to put your,

passion and your skill to work to turn a product or a piece for someone that will be a one of a kind or a special thing or something that will, you know, help help you know, be a whatever adj to them. So I'm kind of I'm rambling at this point. But yeah, I mean, like, the industry is not just full of people that are just trying to charge you, you know, through the nose or show you commission products.

Christian Brim (28:46.012)
No, no, they're not. They're not. Although it seems like there's, I mean, you would think that 2008 had washed most of those people out, but it's kind of fascinating how they've, they're like cockroaches. just kind of, they scattered when the light came on, but they didn't die. And they've, they've, they've hung around. What are your thoughts on like credentials? Like

CFP or those types of things. are your thoughts on those?

Nick Garofalo (29:22.026)
Hmm. Okay. So the credential does not make the advisor. however, generally speaking, advisors that are dedicated to delivering really great service will pursue credentials. If your advisor has nothing but a couple of licenses, they probably fall more into that commission side that sales oriented side of the industry.

Christian Brim (29:27.802)
Mm-hmm.

Christian Brim (29:37.478)
Mm-hmm.

Christian Brim (29:50.139)
Mm-hmm.

Nick Garofalo (29:51.619)
the designations are kind of honestly, they're kind of like, you know, mini degrees essentially is probably a good way to look at those. You know, the, the CFP, the CFA, the CPA, the CIMA, the, mean, there's, there's 50 million of them, but like they all require significant education, rigorous testing, high failure rates, lots of sleepless nights to learn more, to be able to give greater value to your clients. So

Christian Brim (29:56.507)
Yes?

Nick Garofalo (30:18.912)
I am a big fan of education. I'm halfway through my master's degree in personal financial planning now. I'm earning the CFP credential right now through the rest of my hours of experience. I plan on finishing my degree and probably pursuing additional designations after this because I have a respect for, you know, always be learning, leaders or readers, right? Be a lifelong learner. That's my personal commitment to it. And I think

Christian Brim (30:42.244)
Yeah. Yeah.

Nick Garofalo (30:47.842)
There are so many great advisors out there with three, four, five, six designations after their title to demonstrate how much work they have gone to, be able to deliver to you really good service. But that, like I said, the credential doesn't make the advisor. There are a lot of great advisors that it's not to say that those that don't have credentials are not good advisors or don't care about their craft or are not devoted to helping you. It's just.

Christian Brim (31:18.148)
I know. I agree with you. is a, I think it is a commitment to the craft, a commitment to the profession. It exhibits, it designates a certain level of competence, not to say that you have to take the test to have that competence, but you know, if you didn't, why wouldn't you take the test if you did have the competence? right.

Nick Garofalo (31:43.705)
Well, think about a doctor. You walk into a doctor's office and there's, two orthopedic surgeons that can operate on your knee for you. One of them has a wall full of placards and praises and, you know, accommodations and fellowships. And the other one is just, I'm a doctor. Here's my degree. Which one would you rather? Yeah.

Christian Brim (31:58.778)
Right. Baby Doc's School of Medicine in Haiti, you know, yeah.

Sorry for the listeners in Haiti, that was not meant as an insult. But no, you're exactly right. And then I'm gonna throw this little nuance in it. Have you noticed, since you brought up the medicine example, and I think this exists in all professions, who do people, so like, you don't know whether a professional is good at their job, right?

You know, I don't know whether a doctor is good, whether the advice they're giving me is competent. And same thing, someone coming to you or me and asking financial advice, they don't know whether what we're telling them is right or wrong. They're they're they're trusting us. But here's here's the problem is that we gravitate to the people that we connect with. And so it's like my wife, I told my wife, I was like.

She was talking about her oncologist and her oncologist was just, I don't want to say she was a raging bitch because she wasn't raging, but she was really bitchy and she was very direct. She was this, this hard-nosed Lebanese woman that had been like one of two women in her medical class. like, so you get the impression like this, this woman had to bust her hump to get to where she was. And she was extremely direct.

and did not sugarcoat anything. you know, you would say she didn't have a good bedside manner. Okay. But the reality was I'm like, I want her as a doctor because I, I know that she's competent. She's got people coming to her, not because she's a nice person. Right. But when you, when you're dealing with professionals, we gravitate to the ones that make us feel good. Like, that guy's nice.

Christian Brim (33:59.59)
told me all the great things that they can do and how great my life is and how great it will be. like, I'd rather take the person with the worst bedside manner because I just have this feeling that they're generally more competent. What do you think? It's hard for people like us that are competent and nice, but you you get the idea. What's a you?

Nick Garofalo (34:23.316)
Yeah, well, you know...

Nick Garofalo (34:30.254)
I don't know. That's a, and then I don't know if you have to

Christian Brim (34:35.26)
No, no, but I'd be very suspect of the really nice ones. I don't know. That's just kind of my maybe I'm just a cynic. I don't know.

Nick Garofalo (34:45.176)
Well, I can tell you, you know, a handful of kids later, we've had experience with lots of nurses to know bedside manner and lots of obstetricians to know bedside manner as well. And grateful we've not had to pick between quality and care. yeah, I mean, there's a certain, there is something to be said for someone who's willing to say something that you may not want to hear. And a willingness to,

Christian Brim (34:45.628)
Pick me.

Christian Brim (35:10.108)
100%.

Nick Garofalo (35:14.828)
And if that's what you're hiring them for, then they need to be able to do that. Right. I'm not hiring my oncologist to be my friend. I'm not hiring my oncologist to, to tell me nice things. Right. you know, but my, my financial advisor or planner, I don't want to be condescended.

Christian Brim (35:18.298)
Yes.

Now, let's...

sugarcoat it for me. Right, exactly.

Christian Brim (35:34.628)
No, no, but you want truth. Like if you're using your example and you say, well, in order to retire and have this much money, you need $2 million and you don't have anything, you need the truth. Like it's not, well, yeah.

Nick Garofalo (35:38.135)
Sure.

Nick Garofalo (35:50.169)
You need the truth. 100%. So I'll give you a recent story. I'm working with, there's a client, I, I've had for awhile and they're going through kind of a bit of restructuring their small business right now. because they're having to face up to some, some painful realities in their overhead and their expenses and their cashflow and their, their staffing. they've kind of been a long time brewing and all this is happening.

Christian Brim (36:16.849)
Mm-hmm.

Nick Garofalo (36:18.678)
you know, and they're kind of in that boat that you're describing of, know,

not having taken the, there's all the steps necessary, right? To prepare for what if it doesn't sell. And I think it's really important for me to give them the truth, to be as honest and blunt as I can and to be compassionate and to be inspirational with them. Because the bottom line is truth can hurt. Sure. like, let's, let's, let's face the truth and now let's try to find a way, let's try to find a way forward together.

Christian Brim (36:39.461)
Mm-hmm.

Nick Garofalo (36:54.702)
And I think that there's a way to have an optimistic perspective without being too dogmatic. yeah, I think there's a way to balance those two.

Christian Brim (37:09.148)
All right, I'm going to pivot for our last segment and here's this is this is like next level shit. So if you want to tune out now, you're welcome to because this is this is going to hurt your brain. As a business owner, I see this progression where, you know, people start off and they've created themselves a job. And if they're persistent, they will build a business which is independent of them.

Nick Garofalo (37:38.958)
That's the dream.

Christian Brim (37:38.992)
But, right, rarely, very rarely does the owner look at the business as an investment. Okay? And to me, that's like the ultimate boss level is when you get to your business and you start treating it like an investment.

And let me tell you that distinction. The distinction then is, is that investment becomes part of your quote portfolio, end quote, right? And so you've got this asset, this investment, and maybe you've got some money in your 401k and maybe you own some real estate, but you're looking at it as a whole and you're saying, is this investment

giving me the right return on that investment based upon the money that I've put into it not your effort not talking about time or effort all right money that's in it and the risk you're taking okay now I'm accredited in business valuation I don't do business valuations anymore I thought I wanted to do that but that's but I still have the knowledge locked in here

When you look at business valuation, one of the key drivers of the valuation is the risk associated with that business. And all risk is, there's risk in everything. Like even if you own treasury bills, there's risk in everything, right? Businesses, small businesses generally have an adjusted risk rate of between 30 and 50%, depending upon

what industry, how big it is, et cetera.

Nick Garofalo (39:35.182)
Jeez, is that high?

Christian Brim (39:36.744)
Yeah, it's stupid high, which, means, which means that

Nick Garofalo (39:42.796)
You should be getting a fantastic return for it.

Christian Brim (39:45.83)
Correct. And we're not talking about your profit percentage. Okay. We're not talking about that's a separate conversation. It is I've got X dollars invested in the business. And that's, that's something that the financial professional can help you figure out what that actually is. But let's say it's a hundred thousand dollars. Okay. You've put a hundred thousand dollars in net of what you've taken out.

you've got $100,000 in this business. This is not what you could sell it for. This is the money I put into the business to make it run. And if you've got a 30 % return based upon the risk that it is a small business, that means that $100,000 should be giving you $30,000 in cash flow. Okay? Up to $50,000.

start looking at your business in that light. And then you'll be like, wait a second, this business is not giving me the return that I should be getting on it. Right. And maybe you should sell it and go invest your money somewhere else. That's a hard conversation. Most business owners don't want to have, because they're their person, their ego is wrapped up in the business. But I would, I would tell you,

I don't have any data to support this, but the majority of businesses are not getting an appropriate return on the investment that they've gotten, the risk they're taking.

Nick Garofalo (41:28.77)
That you know you're right to tee this up and call this like next level. I think that's a really great that that is a graduated level of viewing your business. It takes a brutal level of honesty going back to the honest perspective or the the you know the the bedside manner conversation because.

Christian Brim (41:36.988)
Mm-hmm.

Nick Garofalo (41:49.794)
Hmm. I think you'll see a lot of irregularity, a lot of noise in the cash flows. Cause if your business is small, like sub 10 million in revenue, there's going be a lot of volatility that's going to throw that return up and down. But I would look at your tax returns for the last three, four or five years with a financial professional and try to surmise like, what am I getting for all this? Right? Like is my actually really attaining a decent return level? Um, we are really,

Christian Brim (41:53.734)
Mm-hmm. Mm-hmm.

Christian Brim (41:59.6)
Mm-hmm. Mm-hmm.

Christian Brim (42:16.366)
Yeah. that's Well, and let me say that that's independent of the wage that you should earn. Whether you take that out of salary or dividends. I'm not talking about that, but like you're compensated for your time first. Right. So in my example, that 30,000 is after you got paid a market level wage for what you do for the business.

Nick Garofalo (42:41.356)
Yes, it's not including your compensation. We're talking about earnings after owner compensation.

Christian Brim (42:44.55)
Correct.

Christian Brim (42:47.9)
Correct. And that's why I say, you know, a lot of businesses, and this is the brutal truth, a lot of business owners would be better off financially, financially, if they did something else. I mean, that's a sad truth, but it's true. I've seen it. I've seen it in my own business.

Nick Garofalo (43:02.99)
Yeah. Yeah. I'll tell you where I see this go wrong too, a lot is the, but Christian, we're just on a growth phase. You know, it will come out of it, right? It's just been a hard year. It's just been, I don't know, the economy, the president, the whatever, you know, we'll, we'll come through. We'll be okay. Up to and including like, you know, during your personal savings to float the company.

Christian Brim (43:12.348)
Hmm.

Christian Brim (43:26.69)
Yeah, yes, no, I mean, I was there. for over a decade blamed a lack of profitability on growth. Now we were never not profitable, but we didn't make the money we should have made that our peers made. And I use the excuse of I'm putting it back in the company. We're growing like.

Nick Garofalo (43:51.414)
Is that I Mike's book on the shelf, isn't it? In profit first, where he talks about like the whole concept of reinvesting profits. Yeah.

Christian Brim (43:57.404)
Oh, yes, 100%. And it's absolute bullshit that entrepreneurs tell themselves.

Nick Garofalo (44:03.168)
I love that he's like, you didn't reinvest your profits, you spent money. Let's call it what it is. You didn't, you didn't have a profit. You had you spent all your money. Yeah, and that again, I mean, if you're building a, you know, if you're if you're starting YouTube, right, and you're one of those unicorns that you just are your business is gonna be worth $20 million someday, and you just have to ride out the growth wave. I get it. I know some guys that have done that they're in their 20s.

Christian Brim (44:07.276)
Exactly.

Christian Brim (44:12.354)
Exactly. Yes.

Nick Garofalo (44:30.7)
Okay. They're not, you know, supporting the family and pulling and typically in tech. Yeah. Or they're in something where they truly are seeing high growth numbers. Right. We're talking, you know, 30, 40 % client growth. We're talking mid double digit or triple digit financial revenue growth or numbers growth.

Christian Brim (44:32.526)
And they're in tech. Yeah, yes. Yeah.

Christian Brim (44:47.268)
Yeah, what's the what's

Yeah, I think the benchmark that VC looks at is that you add the growth rate and the profit and it's got to be 50 or 50 % or higher consistently. And so like you can sacrifice profit if you're growing at those rates, but the total has to be 50%. So like, you're fooling yourself if you're growing at 10%.

Nick Garofalo (45:03.83)
Hmm, interesting.

Christian Brim (45:20.61)
and making 10 % profit. Like that's, that, that is not reinvesting in your company.

Nick Garofalo (45:20.739)
Mm-hmm.

Nick Garofalo (45:26.414)
Or if you think that by hitting 10 % growth and reinvesting all your profits to where you have nothing left over that you're well, you're reinvesting to, be grow, you know, to be growthy. Like that's, that's not the case. So again, what do you, well, what do you do? Well, um, you need to either get incredibly judicious about your spending control and your overhead. You need to, you need to cut out everything. That's not absolutely mission critical. You need to find anywhere possible to save money. You need to do everything you can to

Christian Brim (45:37.292)
Mm-mm. No.

Nick Garofalo (45:55.715)
boost your pipeline and get more clients coming in the door. And you potentially need to consider going into a different business, which that's, think, where you're ultimately leading.

Christian Brim (46:05.2)
Yeah, you left off my favorite. You left off my favorite because I think expenses absolutely that is something that you need to manage and manage well. But you can only cut so much in expenses. And eventually, if you're going to increase your profit, you have to look at the top line and your profit margin. And you know, it's pricing. Yeah.

Nick Garofalo (46:29.376)
right. Raise prices.

Christian Brim (46:32.41)
Well, and it's not just, okay, I'm going to raise my prices because your service offering may not support it. Like, you know, because yeah.

Nick Garofalo (46:40.738)
That's why I didn't say it because I think a lot of times we, you know, we kind of charge what the, what the, market will pay.

Christian Brim (46:47.004)
Yes, yes. And, but I think that's, that's kind of the lazy persons. That's the lazy person's approach to pricing. Um, and, and as a, as an entrepreneur in a small business, you have the ability that large corporations do not have, which is to find a novel solution to a problem and extract the maximum value out of it. Um, and so that's, that's why, you know,

Nick Garofalo (46:55.566)
Mm-hmm.

Christian Brim (47:16.668)
I talk about this in the book and I talk about it on this podcast. You have to start with knowing what problem you solve and then understanding the value of your solution and charging the most that you can up to their alternative to the same solution. That's how you maximize your pricing. It's value pricing. It's understanding the value you deliver.

Nick Garofalo (47:25.037)
Hmm.

Nick Garofalo (47:29.518)
Hmm.

Nick Garofalo (47:36.034)
Yeah.

Christian Brim (47:44.824)
That requires work. It's not just, well, everybody else is charging $5,000 for a website, so that's what I'm going to charge. That doesn't work.

Nick Garofalo (47:55.032)
Hmm.

Yeah, I mean, again, that's kind of, that's a great point because if you're seven to 10 years into your business, or even if you threw to five years in and you're struggling to be profitable, once you've kind of gotten over that startup phase, which shouldn't last more than five years, shouldn't really last more than three years, you should be self-sustaining after three or four years, but you're still struggling in profitability, go to your clients and ask, well, maybe not go to your clients. I don't know. How would you approach like,

Christian Brim (48:11.078)
Mm-hmm.

Mm-hmm.

Christian Brim (48:25.57)
No, no, I think that's exactly where you start. You go to them and you say, are you? I've said this so many times. Stop thinking in terms of what you do currently and what your skills are. Go to your clients, ask them, what are you struggling with and shut up. What are your problems? And, and don't worry about if you know the answer of how to fix it. Just listen.

Nick Garofalo (48:27.042)
you know, ask them like,

Nick Garofalo (48:37.345)
Mm-hmm.

Nick Garofalo (48:55.958)
Mm-hmm.

Christian Brim (48:56.368)
Because what's going to happen is you're going to find things that you can help with. And if you ask enough people, you have enough clients, you'll start to see some commonalities between them. And they're like, all of these people are having this problem. All right. So now can I do a solution? And if I don't have the skills to do it, is there somebody I can partner with? Is there a way for me to drive the ship and...

Nick Garofalo (49:12.3)
Mm-hmm.

Christian Brim (49:24.7)
build the client and create the value and have other people do it. Like you don't, that's the beauty of entrepreneurship is it's not about what money you can make off of what you do. It's, it's your ability to make money off what others do.

Nick Garofalo (49:44.301)
Yeah, know, Christian, I think that's a really interesting point about going and just asking what the problems are. Are you familiar with the HBR article about the jobs to be done theory? It's essentially putting academics like to do, putting a structure and kind of an academic framework around what you just described, which is instead of positioning your company as a provider of services,

Christian Brim (49:53.955)
No.

Nick Garofalo (50:12.984)
Position yourself as a solver of a particular problem or two.

Christian Brim (50:18.32)
Because at the end of the day, that's the only reason we get paid. Right?

Nick Garofalo (50:22.462)
That's, why we get hired. Right? So like, I don't, and I tried to do this in my own firm. It's really tricky. It's so hard because nobody does this. We always think about what we do in the terms of what we do, not in the terms of the problems that it solves. So, and it's different for different people. Right? So like my first pass at this with a marketing expert was not, do financial planning for business owners, but it was, help, you know, business owners dealing with the stress of fragmented financial life.

Christian Brim (50:31.482)
Yes.

Nick Garofalo (50:50.968)
find clarity and direction and finally peace in like a streamlined, cohesive, financial end to end, know, hand guided experience, right? You go from, I don't know my numbers. I don't know what I'm doing. I don't know my financial situation to not only do I know, but I actually have direction and I'm working toward my personal goals and objectives.

Christian Brim (51:13.754)
I had a client I was talking to that was a independent videographer. And he had a crew and equipment and he worked primarily with independent producers doing documentaries and asked the question, I'm like, well, why do they hire you? As opposed to any of the other videographers in the area. And we talked through that and I'm listening and I'm like,

And I knew what kind of people independent producers were. They're, generally hyper disorganized. They're one man shows. They're, you know, they're, they're overwhelmed. Like, you know what I think you do? I think you, you bring order. Like they know that when they hire you, you're going to show up at the right location on time with the right crew and the right equipment. And it's something they don't have to mess with. Like you're not going to show up at the wrong location.

because they changed it three hours before the shoot. Like, you know, because that's what they do. and, and he's like, yeah, that, that, that sounds right. And I'm like, now go test it, like, go, go ask, go ask because that's not necessarily self-evident to the customer. Like they may not understand it that way. They may say it a different way. but, but you know, it, it takes work. It takes a lot of work.

Especially when you're dealing with services that are intangible, right? Like what you do. I mean, it's hard. People do not buy financial planning. don't. No one goes out there and say, I'm going to buy financial planning. No, they're buying something else. And it takes work to figure that out. My bird clock tells me it's the top of the hour.

Nick Garofalo (53:10.03)
I was wondering what that was. I do.

Christian Brim (53:10.118)
Can you hear my bird clock? Yeah. It was a gag gift. And so I have to keep it. It's annoying.

Nick Garofalo (53:17.666)
We got a gag gift of a dancing, some type of dancing like cactus Christmas present somebody gave to my kids. It didn't make it home.

Christian Brim (53:26.662)
Yeah, you're lucky. This just showed him my my office. I would have been rude to throw in the trash. Nick, I feel like. Good.

Nick Garofalo (53:28.055)
You

Nick Garofalo (53:32.078)
I would.

Well, to piggyback on what you're saying, though, I would I want to point your listeners to a really, really good podcast that I I listened to over the summer with Chad Brown. It's called Video Income Secrets. was he was the guest. The host's name is Sam. I was looking up his name, Sam. Nyanui, I think he's African. I'm not sure.

If I said that right, but, Samuel Nyan we video income secrets. was the, it's like the second or third most recent podcast, on, his, on a show. think it's called the real secret to scaling your video business, but he talks about exactly this thing of like what made him a successful video production company with decentralized operations and steady recurring cash flows and all these things that like everybody wants, but nobody knows how to make in the, in the creative space.

hard to do was positioning his company as a solver of, I think, I think what they do is, employee onboarding and training videos. But it was like, cut your employee onboarding time by, you know, 70 % and you know, keep current with such and such and like two or three little value propositions of like, here's the problem I'm solving. It's like, by the way, I'm actually a video production guy, but you wouldn't have known that. Cause it's like, it sounds like you're a, you know, an HR consultant or like some sort of, you know,

Christian Brim (54:56.463)
Exactly.

Nick Garofalo (54:57.74)
It's like, well, that's what he does, right? He makes really good training videos or whatever it is, but like he's pitching directly to the people speaking their language of this is the problem you have your, your employee turnover and training people's opinion. I get it. I can fix that with my video production platform. And he talks probably for 20 minutes, just drives that point home in like 30 different applications for video for creating creative, creative businesses. And I just, it's a really good little.

Christian Brim (55:06.118)
Yes.

Christian Brim (55:14.864)
Yes. And that's the, that's.

Nick Garofalo (55:26.158)
50 minute section of the podcast.

Christian Brim (55:27.92)
That is the key, is you have to define the problem in the terms that your clients would describe it. Like you can't use your words.

Nick Garofalo (55:36.46)
Right. Right.

Christian Brim (55:39.75)
Yeah, Nick, I feel like we could continue. I feel like we had this problem in the Chris project to feel like we could talk forever, but our time is up. How do people find out more about open handed wealth if they want to know more?

Nick Garofalo (55:40.812)
Yeah.

Nick Garofalo (55:52.662)
Yeah, well, it's pleasure as always Christian getting to sit and talk with you about these things. You can find me at openhandedwealth.com Nick at openhandedwealth.com you can email me directly or find me on LinkedIn if you can spell my last name, which is a bit of a challenge, but you can certainly find me there. Links to everything go through my website though, and that's where I can be found.

Christian Brim (56:13.446)
Perfect. We'll have those links in the show notes. Listeners, if you like what you've heard, please rate the podcast, share the podcast, subscribe to the podcast. If you don't like what you've heard, go ahead. Go ahead, Nick. Try some Brunswick stew. Let me know what you think. Shoot us a message. Tell us your recipe for Brunswick stew. you've completely got me off track.

Nick Garofalo (56:23.592)
and try some breadsticks too.

Nick Garofalo (56:30.574)
You

that'd be good.

Christian Brim (56:39.836)
If you don't like what you've heard shoot us a message with your new Brunswick recipe and We'll get rid of Nick until then ta ta for now

Nick Garofalo (56:47.564)
Yes.

Nick Garofalo (56:53.282)
Ha