8. Understand Your Own Risk Tolerance And Required Return
    You are familiar with the "efficient frontier" concept-any investor taking risk should get an appropriate return. How many of you apply that concept to your business? What rate of return will an investor (you) demand to hold a risky security (your small, closely held business) in their portfolio?
    Ensure you have adequate systems in place to report (even if it's just to yourself), evaluate and understand your investment returns and monitor your investment performance. In the financial structure outlined above, we described operating profit as the dollars that remain to fund future growth, distribute as firm-based incentive and pay a return to owners. In regards to the third component-the return on ownership-what is an appropriate level of return for an owner in a small, closely held private business? Is such an investment more or less risky than a Treasury bill? A certificate of deposit? A blue-chip stock? If more risky, then what should the required rate of return be? We like to see advisory firms generating a consistent 25% operating profit margin as a minimum level of return for what is a relatively risky investment.
    Understand the risk/return requirements of your staff as well. In a presentation she and I gave last fall on people practices, Deena Katz described two kinds of staff and what kind of "investors" they are in your business:
    A.Stockholders, those who are invested in building a career with your organization, invest considerable time and energy and take ownership in driving the business forward; and
    B.    Bondholders, those who consider their job a job. They show up-physically, mentally, emotionally-but do no more than show up; they don't want to take the risk or make an investment.
Both types of employees may have a role in your business, but recognize where their commitments, and therefore their opportunities, may differ. And be clear to your staff what kind of personal investment you expect to see them make in the business, and what kind of return that will warrant. It is the "stockholders" in your organization who drive the business forward.

9. Educate Yourself
    Read. Learn. Digest. Decipher. Most of you are avid at staying on top of what is happening in the market and other trends that will impact your clients. Educate yourself as well on what is happening in your business and trends that will impact your business. Teach yourself to be a better business manager and a more effective leader. Perform ongoing due diligence on your biggest investment-your business-and take a close look under the hood. Track your financial statements and financial ratios on a monthly basis, and understand what they mean. What does the trend in gross profit margin mean? What does the trend in clients per professional indicate about your professional productivity and capacity? What does the trend in profit per client indicate about your pricing?
    Educate your staff, too. Involve them in the learning you do related to your profession, encourage them to participate in industry conferences and outline a plan every year on how they will improve their technical skills, both through formal continuing education and structured on-the-job training. Educate them on practice management as well. Involve them in your strategy, either in the development of the strategy or at least in the communication of the strategy and the implementation of the tactics.
    Share your income statement results with staff on a monthly basis, at least at the summary level shown above. Most advisors who are reluctant to do so are embarrassed about how much money they make, or worry that their staff will want to know where the dollars at the bottom line go (and why not into their pockets since they are doing all the work?) Instead of hiding information, educate your staff on the difference between return on labor and return on ownership and on the rate of return required for an investment that has more risk than a blue-chip stock. Hopefully they will find the returns compelling enough to aspire to make a financial investment and be an owner one day themselves.

10. Monitor And Revise Your Plan
    In addition to monitoring your financial performance, monitor the achievement of your tactical goals and implementation of your long-term strategy. Tie staff's incentive, and your own, to the accomplishment of goals that will move you incrementally closer to achieving your strategy.
    As with a client's investment plan, revisit your strategic plan once a year. Make sure your long-term goals have not changed, and that your plan is still appropriate in light of any changes to the four perspectives that you considered in developing your plan. Adjust your course if required. Make sure you are being true to the guidelines outlined in your strategic plan. Be disciplined.
    You are a talented advisor and a skilled investor. Turn even a fraction of these skills toward your business, and you will find it has as meaningful an impact on your business, your family, your staff and your life, as you have on your clients' every day.

Rebecca Pomering is a principal in Moss Adams LLP and consults with financial advisory practices on matters related to strategy, compensation, organizational design and financial management. She is co-author with Mark Tibergien of the recently published book Practice Made Perfect.

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