Episode 129:

Hello everyone and welcome to The Upstream Leader. My name’s Jeremy Clopton. Excited to be with you for a conversation about financial planning. We talk a lot about leadership aspects on this show, I was recently having a conversation with our guest, Shane O’Hara. And we were talking about how when you make that jump from employee to owner, that it’s not just a title change. There are a lot of things that change: You go from employee to owner, it feels like it’s all the leadership things, the people things, the responsibility aspect of the world, but there’s also a lot that impacts on the financial side and decision-making. And the way you approach things is also going to change. So we thought, you know what? Rather than just he and I having that conversation, let’s bring it to everybody and I would expect that there will be some value for that. So, with me, as I said, for this conversation is Shane O’Hara. He is the Principal and Executive Vice President at ProVise Management Group down in Clearwater, Florida. Shane, welcome to the show.

Great. Thanks, Jeremy, for having me. Really appreciate it.

I’m looking forward to the conversation. I know this is something that you experienced several years ago when you became a principal and that “aha” moment of, hold on a second. There’s a lot more changing than just my title and my responsibilities. There’s a lot of things that change outside of that from a financial standpoint. Before we get into that, I do have a question that I’m going to ask you that I ask every guest, but before I do that, I should say: This conversation is for informational purposes only. We are not giving advice. We don’t know your situation if you’re listening in, so please make sure that you consult your tax professional, your wealth advisor, your attorney, or anything like that before you make decisions. This is just a conversation that should be informational only. So disclaimers aside, we got all the compliance stuff done, I’m going to ask you, Shane, the same question that I ask everybody. How did you become the leader that you are today?

Yeah. So for me, it’s really been quite a combination of terrific mentors that we have here at ProVise. They’ve provided me with a lot of opportunity, especially early on in my career, and then also some mistakes I made along the way that kind of turned me into the person that I am today. Early on it was a lot of focusing on my own individual career path and helping clients make good financial decisions, and then as more opportunities were given as different titles changed for me and kind of moved up the career track, it became a lot less focused on me and my particular clients that I was working with, and more focused on building and leading the team that we have here and making sure that they’re providing that same high level of advice to all of their clients as well.

Very good, I appreciate that. Mistakes, you know, they’re one of my favorite learning tools that we have. We all try to avoid them, but man, they’re very effective when it comes to shaping who we are, aren’t they?

They certainly are.

So you made the jump to Principal. I say made the jump as though it was overnight. You worked your way to the Principal role is probably a more accurate way to say that. As we talked about the title changes, the responsibility changes. Now you’re in charge of people and helping them advance their careers. But you also said that you noticed that the financial side of things changed in maybe a way that you weren’t necessarily fully prepared for. And being on the wealth management side, I think there’s probably always that assumption. It’s kind of like with accountants: Well, of course, you know all the financial stuff. We know the financial stuff that we’ve been told. So I’d love to know what did you learn through that experience about what else changes when you make that jump to owner from employee?

I think the main thing for me was just figuring out how important having a plan in place is. Everyone hears about becoming a partner and knows the career track and assumes that it comes with maybe higher income or different types of income. But really what people don’t focus enough about is the importance of having a plan for that different or higher type of income too. You may go from being an employee earning a salary every couple of weeks and maybe a bonus or bonuses throughout the year, where you’re responsible for half of the employment tax and half that employment tax is the responsibility of the employer. And depending on the structure of the partnership and everything, you all of a sudden could be responsible for all of that. And maybe you go from being paid every couple of weeks to being paid once a month or once a quarter, or a couple times a year. And so all of a sudden, your own cashflow situation changes. Although preparing for partnership doesn’t happen overnight, your cashflow situation really does change overnight. So it’s important to start preparing for that well in advance of making that shift.

How does somebody prepare for that? Because in a lot of firms, I would imagine that we have some folks that are listening in that are on that track to partner and they’re thinking, “I don’t even know how our partners make money yet, because nobody’s ever told us that, let alone what they make or how they get paid, or any of those details.” How do you recommend somebody that’s getting ready for that, how early do they need to start making that plan, and where do they go find all the information to make it effective?

So I think there’s two sides to that equation. The first side is whatever you can do personally to prepare, knowing your own balance sheet, knowing your cash flow situation, knowing how much you have in fixed expenses on a monthly basis are all really important things to know. But I think also, talking to other folks within the organization, and you all know your own organization better than I do, so be careful and make sure you go about it the right way. But early on, for me, what was helpful was talking with people in my own firm about how it works. And the dialogue was well known that I wanted to be on the partner track and wanted to be working towards that, I knew that that was something they wanted for me to have happen as well, and so I had a lot of conversations with people here early on that really shaped and helped me understand the cash flow situation, the income situation, and really how I would go about affording buying into the partnership too, which again, is different for every firm. But for my particular firm, it was buying equity, It was not being given equity. And so that’s a significant undertaking to go about doing as well.

Yeah. And I would expect that those conversations may not have included lots of numbers saying, oh, well, you’ll definitely make this, or definitely make that, but they were more structural. Is that an accurate assessment? You’re not looking for, “Hey, tell me what I’ll make when I get to partner,” but instead, “Help me understand structurally how it all works out?”

Exactly right. Structurally, how does it work? And then the only thing that got down to the numbers for me is providing at least a range of how much that purchase price would be, and how I would go about financing that purchase price at the time too. So, to more directly answer the original question that you had, I think it’s at least two years before you’re hoping to be offered partnership, two to five years is probably the sweet spot. Five years and earlier, people might be like, what the heck is this person doing? Are they crazy to be talking about it this early? So I think that’s probably the two to three year mark is a good time.

That five years might be one of those, “We want you to show initiative, but that’s too much initiative. Let’s dial that initiative back a little bit.” What are some of the things that when you make that jump to more of a partner economic, and now this is assuming it’s a partnership, so you’re no longer an employee, you’re not getting paid a W-2, you’re moving to a partner. What are some of the things that you see individuals maybe don’t think about that catch them off guard when they make that jump? What should they be aware of?

Yeah, I mean, the big thing for me, and what I’ve seen for others too, is making sure that you have a place that all the money is going on a monthly or quarterly basis. And by that I mean, you’ve got your operating account that all the bills come out of: the mortgage, car payments, food, dining, all those types of things. And then you really do need that second bucket focused on tax. Because again, you probably are responsible for the majority, if not all of the federal income tax and maybe some employment tax on those distributions, depending on the structure and everything, of course, too. And then the third bucket is, what are you putting away for savings down the road, too, and just because you’ve become a partner and you may have to purchase that equity from the organization, doesn’t mean that you should stop those other things that you’ve been doing while you’re an employee as well, whether that’s saving to a 401(k) or an IRA or something like that, or putting money into a non-qualified account to provide a little bit more flexibility down the road as well. So that’s one of the things that I think is really important for people to kind of lay out and get right from the get-go, just to make the transition a little bit easier when you become a partner as well.

Well, and the way you describe that, having an operating account, it’s almost like the business of you, or the business of your family, or whatever it may be, understanding that, alright, once the income comes in, I’ve got a lot more responsibility, most likely. I know for me that self-employment tax, that first time, it’s like, don’t get me wrong, I’m very glad that I am earning what I’m earning, so I have to pay this, but that’s a big check to write on a quarterly basis, when now all of a sudden you’re writing the whole check rather than it just, there’s something different when you never see the money versus when you actually have to part with it voluntarily.

Exactly.

Or I guess involuntarily, however you want to view it. But having that operating, having that tax account, and then having that future account, I would imagine it’s easy for that future side to maybe get neglected because you’re thinking about everything else and perhaps lifestyle creep and all of that comes in. When you think about those individuals that are making the transition into partner, I always tell folks a lot of the time when you make partner, you’ve got more of your career ahead of you than you have behind you. You’ve still got a couple decades, perhaps, maybe more before you’re looking to retire, and it can feel very easy to think, “I’ll worry about future me later. That’s a 10 or 15 years from now problem.” But then I talk to partners that want to retire and they’re saying, my financial situation isn’t quite where I want it to be yet. What do you see from a best practice that works really well for folks jumping into partner, all of these changes are going on, you’re thinking, all right, I’ve got to buy in. I’ve got to do this, and get that taken care of, the tax and all that, how do you keep the future front of mind and what do you see working really well for earlier career partners?

And so I would say, kind of just as a comment first, it’s not uncommon for us to see partners in law firms and accounting firms that are very high income, that are kind of a ways off of becoming wealthy, because of exactly that. The income’s high, there’s more obligations, family obligations, fixed expense obligations. So, kind of some rules of thumb that I think are helpful for people as they make that jump are to really try to not increase the fixed costs in your life. So as soon as you get the promotion, don’t run out and get the new, bigger house with a larger mortgage, don’t run out and get the fancy car with the high interest rate. Try to have at least a year, I say, of adjustment time where you’re getting used to the new way that you’re paid. And just taking care of the tax bucket that I talked about before, making sure the operating bucket is flowing correctly, I’m a big proponent of paying yourself first and doing what’s called reverse budgeting, where you either do it independently or if you work with someone, come up with the number that you need to save by the time when you want to be financially independent and no longer have to be in the practice of law or medicine or accounting or whatever your profession is, and then figure out how much you need to put away on a monthly, quarterly, or annual basis in order to hit that number.

And then everything after that, however it’s spent, me as a financial planner, I don’t really care if it’s on Netflix or dining out or whatever else, it’s really just paying yourself first and making sure that that bucket’s not neglected, but also knowing at the same time too that everyone’s lives happen in cycles, and especially for newer partners that most likely have young kids that have their own financial obligations that come with having young children and school payments and maybe a larger house, it’s tough to balance all of it. And so I think just having a plan and all of that laid out is definitely helpful for people as they go through that transition.

On that, you mentioned the year adjustment period. I’d imagine It’s similar to stepping into the new leadership role that comes with that promotion to partner is, “Hey, it’s different, I’ve got to get used to it before I can be really effective within it.” And what you’re saying is the same thing from a budgetary standpoint and a financial management and cashflow standpoint is, hey, before you start completely reshaping how you do things, get comfortable with the rhythm and then figure out what you’re going to do. And it’s not to say that you can’t enjoy a bit of the spoils of the higher income, but to your point, paying yourself first takes care of future you, and gets you toward that financial independence.

What do you see that that does? Because a lot that we talk about at Upstream, we talk a lot with partner groups about the fact that what people get paid to do is what they will do. And the psychology of compensation, and as I said earlier, I’ve seen some partners that want to retire, they know they probably are at the right time to retire, it might be better for their clients and for their firm, for them to retire, but they don’t have the financial ability to do so. And it seems like what you’re suggesting, Shane, is in a way it’s helping you free up yourself for better decision-making down the road. Would you say that’s fair? How do you see that playing out?

A hundred percent. I don’t think that having all of your finances in order necessarily makes you the leader that you want to be. But not having your finances in order definitely makes you the leader that you don’t want to be. And that’s, you’re distracted with everything and the chaos that comes with being somewhat disorganized in having your own finances in flux. And so having the plan and having an idea of where everything goes and everything accounted for, does a much better job of freeing you up to provide your best and greatest every single day to the people that count on decisions that you make on a daily basis.

How do you see that impacting decision making for leaders? Because in a lot of accounting firms that are run as a partnership, most everything at the end of the year is distributed to the partners. It goes to the partners and they get their distributions, but then, enter AI and more expensive staffing and all of the investments that are necessary right now: What is your view on how having your finances taken care of frees you up to make better long-term decisions for your firm? Thoughts on that?

Yeah, you hit the nail on the head there, that if you’re worried about every new distribution coming in to cover some sort of fixed expense or fixed overhead that you have, you’re not going to be able to make the best decisions there are for the business. And whether that’s investing in a new facility or office space to help employee morale and boost employee morale, whether that’s hiring new accountants to provide the same level of client service that clients are used to having, if you’re sitting there and criticizing every expense that the business has, because you’re worried about your own financial situation, you’re going to be limiting the business’ long-term trajectory and probably the success that the overall business has too.

So really, the neglecting of your own finances and financial planning impacts your ability to lead with the firm’s best interests as top of mind?

A hundred percent. Absolutely.

Okay. It seems like a pretty strong business case for financial planning, and as you step into partner, I don’t know that we talk about that enough in any profession, frankly, that your individual financial situation, and I realize some people may be listening, thinking “My individual financial situation is not your problem, and it has nothing to do with leadership.” However, it sounds like it really does have an impact on your ability. And I know I’ve heard you use the phrase before, that financial readiness supports leadership readiness. Is it because of freeing up that mental capacity of worrying about the future? Is that the biggest thing, do you think?

I think that’s part of it, absolutely. Finances are one of the major causes for people to get divorced from their spouse, and it’s no different with business life too, and it’s a huge component of someone’s life and it can be distracting and can take attention away to focus on your finances and the difficult situation that’s going on there if you don’t have everything in order, and it takes away your ability to lead the firm.

And you just used a word that I am very keen on and that is attention. We don’t have a lot of it. Everybody would say attention, I think, is shortening attention spans and all of that, but time hasn’t changed. We still have 24 hours in a day, 168 hours in the week. What we have less of, it seems though, is undivided attention. What I’m hearing you say is that if the attention is focused on, well, I’ve got to make sure I take care of me through this decision, that means your attention is not on what’s in the best interest of the firm.

Absolutely. That’s never a strong position to be in, to make good long-term decisions for the people that count on you. And everyone and their own individual livelihoods are counting on you, and the rest of the partner group or management group or whomever, depending on the firm, to make good decisions for the firm overall. And you can’t do that if you’re distracted, and it doesn’t have the correct amount of attention.

So how did you, If I may be so forward, how did you navigate this? Because you said when you made that transition to Partner or Principal at your firm, it was a bit of an eye-opening experience and, wait a second, things are changing, it’s more variable, all of that. How did you approach it? I always love to hear, the theory is great. The practical, “here’s how I did it,” is almost always better. So I’m curious, how did you do that?

So I’m kind of giving advice here that is advice that I tried to follow as best I could back then too. But I think the first thing that I didn’t do is I gave it the amount of time that I thought was appropriate to not make any changes in lifestyle or big expenses. We still live in the same house that we lived in six years ago when I became a partner, basically drive the same types of cars, we’ve had a child at this point, so that’s an extra expense that was worth it.

Small one.

Yeah, exactly! But at the same time, I tried to, whenever I got any sort of distribution or payment from the business, put some of it in the operating account, withhold the 20–30%, obviously depends on the state that you’re in, and income level and everything else into the tax bucket, and then continued to pay myself first with a monthly amount that went into a non-qualified account. And again, that’s kind of on top of the regular contributions that I’m making to a 401(k) and everything through work as well. So I really try to automate as much as I possibly can because I do this full-time, this is my job, but I am the least focused on my own personal financial situation. I would imagine most accountants would feel the same way about the clients that they help too, is their clients take precedent and they worry about them more than they worry about themselves. So as much as you can automate in your own financial situation, the better, because then that frees you up to give great advice to your current clients, provide terrific decision making for the firm overall, and again, be less distracted about what’s going on in your own personal financial situation.

Again, not formal advice. Again, you’re going to talk with your advisor, but I do love that guidance, which is when the transition occurs, when any significant transition occurs, there’s change. Pause, adjust, create a plan, and automate it.

Absolutely.

That way you’re not having to think about it every single day, it’s not pulling from the things that you’re wanting to do, that you need to do, and it frees you up to make the best decisions possible.

Well said, yep.

I like it, very good. What have we missed, Shane, that you think would be really important for someone that’s making that transition to partner and thinking, “Alright, I know I’ve got to lead, I’ve got to do all the different things, responsibility-wise.” What else might they be missing?

I would say the only other thing is making sure your spouse or partner, assuming that you have one, is on board with the decision, because it’s a big decision not only from a financial standpoint, but from a business and personal standpoint too. Because as you said, Jeremy, you have more years ahead of you when you become a partner, most of the time than you do behind you with becoming a partner. And so you need to make sure that it’s the right decision for you and your family and spouses and partners, your life partners, have tremendous advice that they can give you and will help you along the way too, as you navigate that transition and the years ahead of you as well.

Yeah. That’s very well said. I think it’s always important to get that perspective. When I talk with folks who are about to make partner, we always fixate so much on the title, and it’s exciting, and don’t get me wrong, I think it’s incredibly exciting to be invited into partnership. But at the end of the day, what you’re essentially saying is, “Do I want to co-own a multimillion-dollar company with these folks?” And that’s a big decision. And it’s one that if you’re married, it’s important your spouse or partner is on board with, because they’re going to get to know those folks very well over the next several years or decades ahead, and it will have a significant impact. So I think that’s incredibly valuable advice.

Well, Shane, if somebody is listening to this and they’re thinking, I don’t really know who to talk to, but Shane seems like he’s got it figured out, how could they reach out to you, how could they learn more about what you did to help partners that are going through this?

Sure, so the easiest way to find me is just our website, which is ProVise.com. You google my name and ProVise, it most likely pops up for you too. I try to be active somewhat on LinkedIn, writing about topics that I think relate to especially new partners, and try to be helpful wherever I can. So always happy to have a conversation, and help however we can.

Well, we’ll put a link to your LinkedIn profile as well as to your website in the show notes so that anybody that’s listening in wants to reach out and learn more, they’re welcome to do so. Shane, thank you so much for this conversation. It’s one that I think gets overlooked, so I appreciate your willingness to join me and talk about it with our listeners.

Yeah, thanks again for the opportunity, Jeremy. Really appreciate it.