Business valuation for group practice owners with Alan Franks
In this episode (quick summary):
Business valuation for group practice owners is the starting point for making clearer growth, risk, and retirement decisions. Dan King speaks with Alan Franks, a Certified Financial Planner and founder of the Business Planning Institute, about tracking your practice like an asset, planning for continuity, and using practical cashflow frameworks so you can lead with more confidence and less financial stress.
TL;DR:
Know what your practice is worth, build a continuity plan, and create a cashflow system that pays you properly while you scale.
What you’ll learn:
- How to estimate and track business value annually so decisions stop being guesswork
- How continuity planning protects your team, your clients, and your family if you’re suddenly out
- How “Profit First”-style buckets can reduce tax surprises and stabilise owner pay
- How to align accountants, attorneys, and advisers so your plan isn’t stuck in silos
Alan Franks’s quote: “Your business is an asset.”
Best for: Group practice owners who want clearer valuation, cleaner cashflow, and a plan that reduces operational and personal risk.
Key terms: business valuation, practice valuation, continuity planning, buy-sell agreement, tax planning, cashflow management, organisation/organization alignment, counselling/counseling businesses, programme/program budgeting, owner compensation
Business valuation for group practice owners: why knowing your number changes every decision
“Your business is an asset. And just like the 401k, we need to track the value of that asset.”– Alan Franks
Business valuation for group practice owners is often treated like something you only do when you’re ready to sell. In this episode, Dan King speaks with Alan Franks, a Certified Financial Planner and founder of the Business Planning Institute, about why valuation is actually a day-to-day leadership tool—especially for owners carrying the clinical load, the operational load, and the emotional load of running a practice. If you can’t confidently explain what the business is worth (and why), you’re making decisions about hiring, growth, and your own future without a scoreboard.
Alan’s core reframe is simple: your practice is an asset, and assets need measurement. Once you have a consistent way to estimate value, you can start to reverse-engineer real goals: “If I sold today, would I be financially secure?” If the answer is no, valuation becomes a growth target—not a vague hope. For group practice owners, this matters because revenue alone doesn’t equal value. Quality of earnings, systems, team stability, referral diversity, and your reliance on the owner-clinician all shape what a buyer (or successor) would actually pay.
From there, Alan moves into the part many owners avoid: continuity planning. He frames this as passing not only the “Italy test” (the practice can run without you for a few months), but also the more confronting “cancer test” (the practice can run without you for a long period, with clarity on leadership, authority, and finances). In group practice terms, this is about protecting client care, clinical quality, and staff wellbeing while also protecting your family’s financial outcomes. It is also where valuation connects to practical agreements and decision-making, including buy-sell thinking and succession pathways.
Next comes cashflow—the area where many practice owners feel successful on paper but stretched in real life. Alan recommends using a framework (such as “Profit First”-style allocations) that forces you to pay yourself consistently, set aside tax money safely, and run the business within constraints that encourage smarter decision-making. For a group practice, this can reduce reactive spending, clarify what you can afford in wages and supervision, and create cleaner reporting that supports practice growth without compromising sustainability. It also makes it easier to diversify wealth outside the practice over time, rather than leaving everything trapped inside one asset.
Finally, Alan highlights a leadership reality that resonates with practice owners: your “professional team” often underperforms compared to the standard you hold inside your organisation. Accountants, attorneys, insurance advisers, and investment advisers frequently operate in silos, and their incentives aren’t always aligned. Alan’s “quarterback” approach is about getting the right people in the room, improving communication, and ensuring estate planning, tax planning, and operational decisions reinforce each other. That coordination supports clinical leadership too, because when owners have financial clarity and risk containment, they make calmer, better people decisions—hiring, boundaries, documentation expectations, and culture included.
Takeaways
- Track your practice like an asset: estimate value annually and use the same method each year so trends are meaningful.
- Use valuation to reverse-engineer decisions: set growth targets based on what you need for financial security, not just revenue goals.
- Build continuity planning around real scenarios: define who leads, who signs, and what happens to cashflow if you’re suddenly out.
- Adopt a simple cashflow framework that pays you and funds taxes first, then forces disciplined operating decisions.
- Reduce “owner-dependence”: strengthen systems, delegation, and team stability to lift enterprise value over time.
- Business valuation for group practice owners improves negotiating power—because you’re making decisions from numbers, not stress.
Chapters
00:08 Meet Alan Franks and his shift to fee-based planning
01:36 Why your practice is an asset and how valuation changes strategy
06:03 Business continuity planning: the “Italy test” and the “cancer test”
09:24 Financial independence beyond the practice (and why it improves exits)
12:20 Cashflow frameworks that stabilise owner pay and tax planning
14:12 uilding an aligned professional team (accountant, attorney, adviser)
20:35 Professional incentives and why planning gets stuck in silos
23:02 Life outside work: family, learning, and baseball
Resources
Connect with our guest:
LinkedIn: Alan Franks
Website: Business Planning Institute
Connect with our host:
LinkedIn: Dan King
Produced by VevaMEDIA
FAQ
How do I estimate the value of my group practice without paying for a full valuation?
Start with a consistent, repeatable estimate based on your financials so you can track changes year to year. Business valuation for group practice owners is most useful when it becomes a habit, not a one-off event.
Why does continuity planning matter if I’m not planning to sell?
Continuity planning protects client care, your team, and your family if you are unexpectedly unavailable. It also strengthens systems and leadership structure, which usually increases enterprise value over time.
What’s one cashflow change that reduces financial stress quickly?
Use a simple allocation method to pay yourself and set aside tax funds as money comes in, rather than “hoping there’s enough later.” This makes budgeting decisions clearer and prevents tax surprises during growth.
How does business valuation connect to hiring and operations in a group practice?
Business valuation for group practice owners rises when the practice is less dependent on the owner, has stable systems, and shows consistent performance. That often means investing in leadership capacity, documentation workflows, and team stability—while keeping cashflow disciplined.
Transcript: Business valuation for group practice owners with Alan Franks
“Your business is an asset.” — Alan Franks
Read the full transcript
Dan King:
[0:00] Hello, everyone. It's Daniel King here. Excited to bring you another interview
Dan King:
[0:04] and especially excited this time because my guest just recommended some excellent gluten-free beer. That's a huge point in his favor already. His name is Alan Franks. He's a certified financial planner, author of Empowered Money, and founder of the Business Planning Institute. Welcome, Alan.
Alan Franks:
[0:19] Thanks for having me, Daniel.
Dan King:
[0:21] It's great to have you. So could you tell the audience what you do and why you so enjoy doing it?
Alan Franks:
[0:27] Yeah, so I've been doing, I've been in the financial planning industry for maybe 15 years now. It's the only thing I've ever done. Actually, I studied economics in college and graduated 2010 and just one of the worst job opportunities out there. So I thought I was going to be jet setting for Boston Consulting Group. I actually had an internship lined up in London with Lloyds of London and just everything fell through. So, next thing you know, I found myself doing commission only life insurance. And I was like, oh my gosh, as a 22-year-old, right, calling on people and asking them to help do their financial planning. So, I did that for about five years, said this is for the birds. And that's when I married my wife, moved to Atlanta, and joined what we call a fee-based financial planning firm, which is where we charge an upfront fee to be able to do consulting on all different levels, right? You know, too many financial advisors just do investments or just do insurances. And we wanted to really help our clients out in almost everything, whether it's estate planning, tax planning, things of that nature.
Alan Franks:
[1:28] Shoot, just helping them understand what house to buy or how to use a home equity line of credit.
Alan Franks:
[1:32] And so we did that for a while. I wrote my book during COVID. My book, Empowered Money, is really what I charge people thousands of dollars to do. It's an A to Z guide on getting a really good financial plan because what we find is When people DIY their plan, They tend to be really good at either stocks or, you know, maybe real estate, but they're really missing out on what to choose for employee benefits or they haven't done their estate planning, right? So it's really an A to Z guide on a comprehensive financial plan. And then what we've been doing here, you know, last five years or so is really helping business owners understand a couple things. Number one is that their business is an asset. And just like the 401k, we need to track the value of that asset, and we need to focus on growing the value of that asset. So it's helping them understand what that value of that asset is and giving them a way to methodically track it every single year once they file their taxes, having a really good way to track it on a yearly basis on there. The second thing is to help business owners understand that there is a different tax playbook for business owners. Than there is for the W-2. It's much more vast than our W-2 tax boy book. So helping them understand how to mitigate the three main problems that we do help solve, which are income tax problems, capital gains tax problems, and if we do the right planning and we grow that business large enough, estate tax problem.
Dan King:
[2:55] Let's start with that first piece on valuation. So how do I, as business owner, so much of my net worth is tied up in my business. How do I know how much that's worth?
Alan Franks:
[3:05] That is the number one question we ask. We ask a business owner two questions when we first need them. We ask them what the value of their business is because I want to see how they respond. I know that they don't know. So I want to see how they respond when we ask that. It's more, have they ever even thought of their business as an asset with a value? And so that's one of the first questions we ask. And what I would tell them, actually, if you go to our website, thebusinessplanninginstitute.com, it's spelled exactly as it sounds. I'm sorry it's so long.
Alan Franks:
[3:38] Thebusinessplanninginstitute.com. We actually have a form there. In about 20 minutes, you could get a really good valuation of your business. Now, is it going to be accurate? Yeah, it's going to be probably 5% to 10% within that value. The only way to really get an accurate estimate by taking your business to market, that's very time consuming and you don't want to do that unless you're really serious about selling. But just having, whether it's accurate or not, it's just having something that consistently tracks the value of that business. Because once we know the value the business, we can now do so much with that. We can plug it into your personal financial plan and say, hey.
Alan Franks:
[4:13] If you were to sell your business right now, do you have enough to retire? Well, okay, maybe $5 million is not enough at age 50. What if we were to build it up to $7 million or $10 million? Is that enough then, right? And now all of a sudden we can start playing with this. We kind of reverse engineer what you want to do as a business owner and what goal we need to set for the value of that business. What else can we do with evaluation? Well, the second question I ask a business owner after asking what the value of the business is worth is, hey, what would happen to your business if you did not wake up this morning, right? Because the truth is, is that death is much more imminent than we all want to believe, right? And so we need to have a plan in place. If your top salesperson or your top management person were to go out on a disability or, God forbid, a premature death, you need to have a backup plan. Who steps in to fill that role? And I think most business owners understand that. What they don't do is they don't take the time to think about, well, what if I go out, right? We talk about passing the Italy test, going to Italy for three months and the business is still running fine, right? But we need to be able to pass the cancer test too, right? Which is maybe two years, right? We need to be able to say, okay...
Alan Franks:
[5:22] Something happens to me. Here's what everybody's doing. But what we can do with that is we can also talk about buy-sell agreements, right? We got a partner. We need to have a really strong buy-sell agreement. Well, okay, well, how much should it be? Well, now we have a value, right? What if we don't have a partner? I want a buy-sell agreement.
Alan Franks:
[5:38] Why? Because let's say this happens a lot in the legal firms that we work with. Okay, if somebody passes away, this legal firm cannot be, their wife cannot or their spouse cannot run this legal firm, right? Well, we need a one-way buy-sell agreement with their top employee saying, hey, if something happens to me, you're paying my wife X amount over the next
Alan Franks:
[5:59] X amount of years here so that all my hard work doesn't just disappear. Because the thing about being a business owner is that business owners realize this, nobody else does, is we have sacrificed presence, okay? The emotional, we talked about, you know, sweat equity. What about the emotional equity that went into this, right? What about the, hey, there's a fire at work and you're trying to have dinner with your family and actually be present. So you're having to constantly battle and not think about that email that you just got, but really just focus in on your children's recital or something, right? That's the cost of business ownership more than anything is the fact that we can't check out at five and just come back at nine. We deserve to get fairly compensated for that whether we're alive or dead or disabled we deserve to have a really good plan there so it's really cool about having a a good method of valuing your business is that not only does your financial planning but also your business risk management gets a lot better from that.
Dan King:
[6:57] Yeah, and there's something, I think, psychologically empowering about knowing how much the business is worth.
Alan Franks:
[7:03] 100%. We have gone to so many business owners. So, when we're working with business owners, most of them are broke, okay? I mean broke. Now, I don't mean broke financially, okay? Some of them are, by the way. Some of them just reinvested so much in the business, right, that they're personally broke. But I'm talking about broken emotional, broken energy wise, broken, you know, intellectually just, you know, zonked out. Right. And so what we've done so many times has gone in and say, hey, Mr. Roofer, Mr. Insulation, Mr. Doctor, you've done this for 20 years.
Alan Franks:
[7:37] You're bored. You're bored. You need a new challenge. Right. Well, what if I told you that your business is worth five million dollars and that I think we can get it to 50 million in the next 10 years? Right. Whoa, whoa, right? What do you mean? What do you mean we can do it? Yeah, yeah, yeah. So we take them, we show them, hey, 10X-y over the next 10 years, that's a 25% CAGR. It's not as different. But if you're going to do that, you're going to have to think differently. You're going to have to act differently. You're going to have to do things differently, right? And the purpose of the goal, by the way, a science of scaling is such a good book. A recent book that came out, it said this so eloquently. the purpose of the goal is not to hit the goal. The purpose of the goal is to inspire, to dream, but most importantly, to change the way that you're doing it, to go from incremental gains, saying, well, what would I have to do in order to grow my business from $5 million to $50 million, right? And guess what? If we only get to $50, you're probably not going to run out of money, right? So there's so much empowering to that because what happens is we go... Oftentimes from entrepreneur with a ton of excitement and energy to entrappedpreneur where we're trapped in our business, right? We go from entrepreneur to entrapped.
Dan King:
[8:56] I have no idea what you're talking about. Never.
Alan Franks:
[9:00] Exactly right. So we've all been there. Anybody's run a business like this isn't fun. I don't want to do this anymore. Right. And, you know, I'm having to work 60, 70 hours a week. Right. So, and what we're trying to get is obviously this goal of the untrappedpreneur, where the business is running itself, of independence, the business that's independent
Alan Franks:
[9:21] from you and you are financially independent from the business, right? And so, so much work that we do is, everybody thinks, oh, financial advisor works for business owners. You just want to show up at the day of the sale and collect X amount of money. And the truth is, yeah, that'd be the perfect world, right? We've got $4.5 million getting wired to us this afternoon from a sale of business. Yes. All right. That's great. But we've been working on this business owner for five years, right? And what we did was we got her financially independent. So this $3.5 million, this is icing. The $4.5 million is icing on the cake, man. That's what this is. Icing on the cake. And what it did is it made the sale side go so much smoother because she wasn't nickeling and diming over every single thing. We're like, no, you've got enough. This is a good offer. This is a fair offer, right? Could you go get half a million more similar? Maybe, probably, right? But do we really want to do that over the next six months, a year? And she decided no, right? So it's super important that we try to get financial independence outside of the business and try, meanwhile, get that business independent from you.
Dan King:
[10:30] So if I'm following the conventional advice that most entrepreneurs get, that if I really want to grow something very substantial, I want it to be scalable and I want it to be interesting enough to a professional investor acquirer, Don't I have to focus single-mindedly on it? How can I be financially independent outside of the business, given that advice?
Alan Franks:
[10:51] Yeah, you know, obviously there's different phases of the business. When you're in the startup phase, you could really make, you almost have to, you almost have to just pour everything back in, into the business, right? And then you get into the growth phase. And now all of a sudden in the growth phase, okay, we're maybe starting to make a little bit more money, right? We start to set some stuff aside and taxes all of a sudden might be creeping up on us, right? But eventually we are going to reach maturity in our business, okay? Now, maturity becomes before decline, okay? And we really want to make sure that we exit our business during the maturity, beginning of the maturity stage, not in the decline stage on this. So just a little bit of a tangent to your question here. Well, we see it a lot recently. There's a lot of baby boomer businesses where they were comfortable making X amount of money, whatever that amount of money was, let's call it half a million bucks, right? And they're making half a million bucks in 2020, and they're still making half a million dollars in 2025, 2026, right? Well, guess what? That five, six year difference, as you know, my gosh, right? The value of the dollar has really gone down over the last five years, right? So what happened was, so they were still growing, just not as a fast of a clip, but their expenses were growing, astronomically because we live in the most expensive world that we've ever lived in right and they weren't keeping up they weren't adapting so all of a sudden the value of those business goes down and down and down right but going back to okay.
Alan Franks:
[12:21] When can you actually start taking care of yourself? I do like the book Profit First because it gives you a framework, right? A framework of what you should be paying yourself. And say, if you want to make $10,000 more personally, here's what you got to go do on the business side revenue wise, right? So having a framework of how to pay yourself is super important because what happens is we treat our businesses like our babies and kind of like our own children. We'll just give them all the resources that we need to give them. And what happens, we end up doing marketing that doesn't work, right? Or buying a consultant that may be outside of our price range, right? And so having a framework of what you can actually spend money on is going to make you get a little bit more creative rather than just throwing money at problems on here, right? So ideally, what we want to do is set up some sort of framework where you are paying yourself a percentage of every single dollar that comes in. Let's call it 30 cents on every dollar goes to you. 20 cents of every dollar goes to Uncle Sam so we don't fall behind in taxes. That's a big problem, by the way, with businesses in a growth phase. Is that the pay-in tax quarterly estimates based on last year's growth?
Alan Franks:
[13:29] No, last year. Not this year's, right? So, they get behind on tax. It's really hard to get caught up. And then we have 50 cents of every dollar going to the operating. It's just, you know, we can maneuver the numbers a little bit, but just having some framework. And now, all of a sudden, knowing that we get 30 cents of every dollar, well, shoot, you know, if we're revenue of a million bucks, we're making 300 grand. We can now start doing some financial planning around this, right? We start setting some money aside and get diversified a little bit. So it's not just business.
Alan Franks:
[13:57] Maybe we go by the building that the business is in. Now we're in real estate, right? Maybe we go, you know, maybe like real estate, we do some rental homes, right? Maybe, you know, we're making 300 grand. Now we're in a different tax bracket.
Alan Franks:
[14:09] Okay, well, maybe we do set up that 401k plan. As it grows and we start making $500, $700 million of income, then we want to start looking at defined benefit pension plans because now all of a sudden we can deduct a heck of a lot more money, right, our cash balance plan. So when we're looking at building net worth for a business owner, it's really two sides of it. Yes, we want to get diversified, but we also want to do so in the most tax advantage way possible. And the cool thing is there's a lot of mechanism that business owners can do to make that happen.
Dan King:
[14:41] So, and if I'm setting aside, so let's say I'm going with your framework and, you know, I pay myself first and, you know, I want to set aside a whole bunch of money for business operational expenses and I want to set aside some money for taxes. For that tax portion, should I be sticking that in a money market account? Is there any way to get a little bit of yield in between quarterly tax payments?
Alan Franks:
[15:06] Yeah. So, you know, obviously, high yield savings accounts have been very popular here. A little bit harder to find for businesses, but they are out there. What I would tell you to do, though, is if you're an investment person, we all have high yield savings or treasury accounts that we can, you know, put money in that's probably going to be better than the high yield savings accounts that you would find at the bank. And the high yield savings accounts at the bank are oftentimes personal accounts, not business accounts, right? So if you've got a good investment person, you know, what I would do is talk to them about that, but we'd want to be safe, right? This is money that we're probably going to owe Uncle Sam, you know, in the next 12 months or so, right? So whenever you have, frankly, whenever you have a timeframe that's shorter than 24 months, some of you would name it, say five years, which is a traditional market cycle, you do want to be really safe with that. And so what does that mean? Yeah, I mean, treasuries are high yield savings account. You don't want to. That's not that's not the place to be aggressive.
Dan King:
[16:05] Yeah, yeah, yeah, yeah, yeah, yeah. We don't want to try to get an extra percentage point and risk our soul here.
Alan Franks:
[16:12] That's right, because taxes are due. Obviously, you can extend, but you're going to be paying some interest and penalties in doing so, right? So if the market goes down and you owe your taxes, it's very inflexible when those taxes are due, right? If the market crashes, let's say somebody's trying to retire, right? If the market crashes right before retirement, they're just going to work another year or two. Let the market come back up, right? We don't have that flexibility with taxes. Let's do it, right? So we do want to be safe because we just don't control the timing of that.
Dan King:
[16:43] So if someone is going to, wants to work with you, they really want to get a financial plan in order. They want to understand the value of their business. You were earlier talking about different phases of business growth. At what point does it make sense to work with someone like you? Is it during that startup phase? Is it during the growth phase? Is it later?
Alan Franks:
[17:00] Yeah, yeah. Yeah, well, for the people listening, I would say, hey, I highly recommend that free assessment on our website. Do that. I just want to let you tell if you do that, we probably will reach out to you, right? It is definitely a week after.
Dan King:
[17:11] People get that.
Alan Franks:
[17:12] Yeah, we'll be transparent, right? But, you know, we tend to work with people when they have tax problems, when they start having large income tax problems, when they're looking at selling the business and they're looking at mitigating the capital gains of that. business, right? When they're looking at their estate planning and they're saying, oh my goodness, I started and built a rather successful business and I don't know if I want to give, I've got three kids in my business, my net worth's 15 million. I don't know if I want to give each kid 5 million bucks. How do we maybe create a trust with some parameters so that our legacy reflects our values, right? So these are the times where we could really get involved and really help is when there's a large estate and tax conversations to be had. And what I like to tell everybody is.
Alan Franks:
[18:05] It's amazing when we meet with a business owner in our first meeting, we ask them to rank the members of their team. We start with their account, and then their estate planning attorney, then their banker, their investment advisor, their insurance advisor, their employee benefits person, their realtor, their mortgage lender, right? We want to see who's on their team. Because the truth is that these people have built unbelievable businesses, and they would not have tolerated subpar performance from people on their team in their business. Yet when they look at their professional team.
Alan Franks:
[18:40] Oftentimes when we ask them to rank them on a one to ten we get a lot of fives we get a lot of sixes.
Alan Franks:
[18:46] Why i think it's because they just don't know of another professional and they're afraid of the work that would go in to getting a new accountant or to getting a new attorney i've already paid them they already know my taxes right listen getting a new account is very easy right um so what we try to do is the same way that they build a really strong internal team And we like to be the quarterback and the head coach there that helps them build their professional team and help them understand, hey, this is actually we need to get this football over to the attorney. This is a really good question for them. Or we need to get this football over to the accountant or the investment person or the insurance person. Right. And help them understand and get all of these players on the same page. Because what happens is these professionals, they work in silos and they do not want to work with the other professional. Yes. No. So what your attorney's doing on the estate side is super important for the accountant to know, right? So what we like to do is we like to go in and we like to put windows on these silos so that people can see what the other people are doing and make sure we are all on the same play call, moving this football down the field, reading the risk, which is the defense in this scenario here, and hopefully get the ball into the other zone here, right? But it takes a full team effort to do this really well. And so more than anything, more than a financial advisor or an author or whatever, I'm more or less a team builder, right? A team builder and a professional team to help make these goals a reality.
Dan King:
[20:15] Yeah, yep, yep, yep.
Alan Franks:
[20:18] Yes.
Dan King:
[20:19] That's very interesting. And you're right. Each of these professionals has different interests that they bring to the table, right? They have their self-interest as well as the expertise that they bring to help an eventual client. And reconciling all of that, that's not an easy thing to do.
Alan Franks:
[20:35] But what's also interesting is that they get paid differently, right? So we've got a big-time client who is exiting the business. His accountant gets paid a one-time fee to do his taxes. Well, his attorney gets paid by the hour. So guess which one's really easy for me to meet with? The attorney's willing to hop on the call whenever, right? And so I'm constantly talking to the attorney on this, right? Meanwhile, I'm getting the accountant to show up to the meeting. It's kind of like pulling tea, right? It's like, ah, another one of these things, you know? So it's amazing. We need to understand how people get compensated, what their interests are, right? And we need to understand, you know, when we need to actually bring in the attorney because he is going to bill you on an hourly basis.
Dan King:
[21:20] We're all messy, disorganized humans trying to do a job. And the culture of our industries varies, right? I always wonder, part of the reason it's been a challenge for me personally to find a good accountant, I realize is that accountants almost all undercharge. So what that means is they need to have 80,000 clients. Every accountant that's been operating for a while has a lot of clients. Because they have a lot of clients, it's very hard to get their attention. When it's tax planning season, good luck. You know how many phone calls they get, how many emails they get. They are so beyond busy, they're exhausted. So not that this is a pitch for a ton of empathy for accountants, but it's so important to understand the incentives that all these different messy humans are operating with.
Alan Franks:
[22:03] It's amazing. You know, when I got in this industry, I was actually really afraid of accountants, right? Because honestly, people hold their accountants out on pedestal. And I would present a financial plan. They're like, well, let me talk to my accountant about this. Well, shoot, you know, now it's at the whim of what one person who you're not going to talk to for the next four months is going to tell you. And what I realized rather quickly is that there's a lot of tax preparers in this world. They'll prepare your taxes. There's not a ton of tax planners. And so, you know, what I ended up doing is basically almost filling in and that boy that was there on the tax planning side and saying, hey, your account is only really going to plug in the numbers that you get them. Let's let's take a look at your books and let's see what numbers to actually give him. Right. And in doing so, we've been able to add a lot of value to our clients.
Dan King:
[22:54] Alan, as we come towards the end of our time together, I think folks will really
Dan King:
[22:57] appreciate the interdisciplinary conversation we'd have here about financial planning. Can you share a little bit about what's fun for you personally when you're not pursuing your mission at work? What do you do for fun?
Alan Franks:
[23:09] Totally. The most fun thing right now is we are just in that such exciting phase of life. We've got I've got a two year old daughter who's just telling me exactly what to do at all times of the day. She's my boss. Right. Yeah. Show me where to sit, what to do, what to wear. It's so much fun. And we have a five month old son as well who's really starting to engage. And so that's that's where a lot of my free time is right now. I do love to read books. You know, we mentioned Science of Scaling today. We mentioned Profit First. I'm constantly trying to read and learn as well. But I'm also, I'm from Atlanta. I'm a big Atlanta Braves fan. I do want to go to every single ballpark in the United States. And so I'm just a general baseball fan. I love the game. I love the ambiance. Just told my family that we're going to go up to Omaha for the College World Series this year. So that's, you know, I'm kind of boring, man. I don't gamble. I don't golf, right? You know, I've gone hunting once, right? So I mean, I'm a little boring in that sense. But as we talked about, Daniel, I am quite fun to go out and have a beer with. So if you're in Atlanta, right, or if anybody listening is in Atlanta, reach out to me. I know all the great breweries. And we go have a beer and talk shop and talk about growing businesses and have some fun.
Dan King:
[24:30] I love it. Thanks so much, Alan. Appreciate your wisdom.
Alan Franks:
[24:33] Daniel, thanks for having me today.
Transcript: Business valuation for group practice owners with Alan Franks
“Your business is an asset.” — Alan Franks
Read the full transcript
Dan King:
[0:00] Hello, everyone. It's Daniel King here. Excited to bring you another interview
Dan King:
[0:04] and especially excited this time because my guest just recommended some excellent gluten-free beer. That's a huge point in his favor already. His name is Alan Franks. He's a certified financial planner, author of Empowered Money, and founder of the Business Planning Institute. Welcome, Alan.
Alan Franks:
[0:19] Thanks for having me, Daniel.
Dan King:
[0:21] It's great to have you. So could you tell the audience what you do and why you so enjoy doing it?
Alan Franks:
[0:27] Yeah, so I've been doing, I've been in the financial planning industry for maybe 15 years now. It's the only thing I've ever done. Actually, I studied economics in college and graduated 2010 and just one of the worst job opportunities out there. So I thought I was going to be jet setting for Boston Consulting Group. I actually had an internship lined up in London with Lloyds of London and just everything fell through. So, next thing you know, I found myself doing commission only life insurance. And I was like, oh my gosh, as a 22-year-old, right, calling on people and asking them to help do their financial planning. So, I did that for about five years, said this is for the birds. And that's when I married my wife, moved to Atlanta, and joined what we call a fee-based financial planning firm, which is where we charge an upfront fee to be able to do consulting on all different levels, right? You know, too many financial advisors just do investments or just do insurances. And we wanted to really help our clients out in almost everything, whether it's estate planning, tax planning, things of that nature.
Alan Franks:
[1:28] Shoot, just helping them understand what house to buy or how to use a home equity line of credit.
Alan Franks:
[1:32] And so we did that for a while. I wrote my book during COVID. My book, Empowered Money, is really what I charge people thousands of dollars to do. It's an A to Z guide on getting a really good financial plan because what we find is When people DIY their plan, They tend to be really good at either stocks or, you know, maybe real estate, but they're really missing out on what to choose for employee benefits or they haven't done their estate planning, right? So it's really an A to Z guide on a comprehensive financial plan. And then what we've been doing here, you know, last five years or so is really helping business owners understand a couple things. Number one is that their business is an asset. And just like the 401k, we need to track the value of that asset, and we need to focus on growing the value of that asset. So it's helping them understand what that value of that asset is and giving them a way to methodically track it every single year once they file their taxes, having a really good way to track it on a yearly basis on there. The second thing is to help business owners understand that there is a different tax playbook for business owners. Than there is for the W-2. It's much more vast than our W-2 tax boy book. So helping them understand how to mitigate the three main problems that we do help solve, which are income tax problems, capital gains tax problems, and if we do the right planning and we grow that business large enough, estate tax problem.
Dan King:
[2:55] Let's start with that first piece on valuation. So how do I, as business owner, so much of my net worth is tied up in my business. How do I know how much that's worth?
Alan Franks:
[3:05] That is the number one question we ask. We ask a business owner two questions when we first need them. We ask them what the value of their business is because I want to see how they respond. I know that they don't know. So I want to see how they respond when we ask that. It's more, have they ever even thought of their business as an asset with a value? And so that's one of the first questions we ask. And what I would tell them, actually, if you go to our website, thebusinessplanninginstitute.com, it's spelled exactly as it sounds. I'm sorry it's so long.
Alan Franks:
[3:38] Thebusinessplanninginstitute.com. We actually have a form there. In about 20 minutes, you could get a really good valuation of your business. Now, is it going to be accurate? Yeah, it's going to be probably 5% to 10% within that value. The only way to really get an accurate estimate by taking your business to market, that's very time consuming and you don't want to do that unless you're really serious about selling. But just having, whether it's accurate or not, it's just having something that consistently tracks the value of that business. Because once we know the value the business, we can now do so much with that. We can plug it into your personal financial plan and say, hey.
Alan Franks:
[4:13] If you were to sell your business right now, do you have enough to retire? Well, okay, maybe $5 million is not enough at age 50. What if we were to build it up to $7 million or $10 million? Is that enough then, right? And now all of a sudden we can start playing with this. We kind of reverse engineer what you want to do as a business owner and what goal we need to set for the value of that business. What else can we do with evaluation? Well, the second question I ask a business owner after asking what the value of the business is worth is, hey, what would happen to your business if you did not wake up this morning, right? Because the truth is, is that death is much more imminent than we all want to believe, right? And so we need to have a plan in place. If your top salesperson or your top management person were to go out on a disability or, God forbid, a premature death, you need to have a backup plan. Who steps in to fill that role? And I think most business owners understand that. What they don't do is they don't take the time to think about, well, what if I go out, right? We talk about passing the Italy test, going to Italy for three months and the business is still running fine, right? But we need to be able to pass the cancer test too, right? Which is maybe two years, right? We need to be able to say, okay...
Alan Franks:
[5:22] Something happens to me. Here's what everybody's doing. But what we can do with that is we can also talk about buy-sell agreements, right? We got a partner. We need to have a really strong buy-sell agreement. Well, okay, well, how much should it be? Well, now we have a value, right? What if we don't have a partner? I want a buy-sell agreement.
Alan Franks:
[5:38] Why? Because let's say this happens a lot in the legal firms that we work with. Okay, if somebody passes away, this legal firm cannot be, their wife cannot or their spouse cannot run this legal firm, right? Well, we need a one-way buy-sell agreement with their top employee saying, hey, if something happens to me, you're paying my wife X amount over the next
Alan Franks:
[5:59] X amount of years here so that all my hard work doesn't just disappear. Because the thing about being a business owner is that business owners realize this, nobody else does, is we have sacrificed presence, okay? The emotional, we talked about, you know, sweat equity. What about the emotional equity that went into this, right? What about the, hey, there's a fire at work and you're trying to have dinner with your family and actually be present. So you're having to constantly battle and not think about that email that you just got, but really just focus in on your children's recital or something, right? That's the cost of business ownership more than anything is the fact that we can't check out at five and just come back at nine. We deserve to get fairly compensated for that whether we're alive or dead or disabled we deserve to have a really good plan there so it's really cool about having a a good method of valuing your business is that not only does your financial planning but also your business risk management gets a lot better from that.
Dan King:
[6:57] Yeah, and there's something, I think, psychologically empowering about knowing how much the business is worth.
Alan Franks:
[7:03] 100%. We have gone to so many business owners. So, when we're working with business owners, most of them are broke, okay? I mean broke. Now, I don't mean broke financially, okay? Some of them are, by the way. Some of them just reinvested so much in the business, right, that they're personally broke. But I'm talking about broken emotional, broken energy wise, broken, you know, intellectually just, you know, zonked out. Right. And so what we've done so many times has gone in and say, hey, Mr. Roofer, Mr. Insulation, Mr. Doctor, you've done this for 20 years.
Alan Franks:
[7:37] You're bored. You're bored. You need a new challenge. Right. Well, what if I told you that your business is worth five million dollars and that I think we can get it to 50 million in the next 10 years? Right. Whoa, whoa, right? What do you mean? What do you mean we can do it? Yeah, yeah, yeah. So we take them, we show them, hey, 10X-y over the next 10 years, that's a 25% CAGR. It's not as different. But if you're going to do that, you're going to have to think differently. You're going to have to act differently. You're going to have to do things differently, right? And the purpose of the goal, by the way, a science of scaling is such a good book. A recent book that came out, it said this so eloquently. the purpose of the goal is not to hit the goal. The purpose of the goal is to inspire, to dream, but most importantly, to change the way that you're doing it, to go from incremental gains, saying, well, what would I have to do in order to grow my business from $5 million to $50 million, right? And guess what? If we only get to $50, you're probably not going to run out of money, right? So there's so much empowering to that because what happens is we go... Oftentimes from entrepreneur with a ton of excitement and energy to entrappedpreneur where we're trapped in our business, right? We go from entrepreneur to entrapped.
Dan King:
[8:56] I have no idea what you're talking about. Never.
Alan Franks:
[9:00] Exactly right. So we've all been there. Anybody's run a business like this isn't fun. I don't want to do this anymore. Right. And, you know, I'm having to work 60, 70 hours a week. Right. So, and what we're trying to get is obviously this goal of the untrappedpreneur, where the business is running itself, of independence, the business that's independent
Alan Franks:
[9:21] from you and you are financially independent from the business, right? And so, so much work that we do is, everybody thinks, oh, financial advisor works for business owners. You just want to show up at the day of the sale and collect X amount of money. And the truth is, yeah, that'd be the perfect world, right? We've got $4.5 million getting wired to us this afternoon from a sale of business. Yes. All right. That's great. But we've been working on this business owner for five years, right? And what we did was we got her financially independent. So this $3.5 million, this is icing. The $4.5 million is icing on the cake, man. That's what this is. Icing on the cake. And what it did is it made the sale side go so much smoother because she wasn't nickeling and diming over every single thing. We're like, no, you've got enough. This is a good offer. This is a fair offer, right? Could you go get half a million more similar? Maybe, probably, right? But do we really want to do that over the next six months, a year? And she decided no, right? So it's super important that we try to get financial independence outside of the business and try, meanwhile, get that business independent from you.
Dan King:
[10:30] So if I'm following the conventional advice that most entrepreneurs get, that if I really want to grow something very substantial, I want it to be scalable and I want it to be interesting enough to a professional investor acquirer, Don't I have to focus single-mindedly on it? How can I be financially independent outside of the business, given that advice?
Alan Franks:
[10:51] Yeah, you know, obviously there's different phases of the business. When you're in the startup phase, you could really make, you almost have to, you almost have to just pour everything back in, into the business, right? And then you get into the growth phase. And now all of a sudden in the growth phase, okay, we're maybe starting to make a little bit more money, right? We start to set some stuff aside and taxes all of a sudden might be creeping up on us, right? But eventually we are going to reach maturity in our business, okay? Now, maturity becomes before decline, okay? And we really want to make sure that we exit our business during the maturity, beginning of the maturity stage, not in the decline stage on this. So just a little bit of a tangent to your question here. Well, we see it a lot recently. There's a lot of baby boomer businesses where they were comfortable making X amount of money, whatever that amount of money was, let's call it half a million bucks, right? And they're making half a million bucks in 2020, and they're still making half a million dollars in 2025, 2026, right? Well, guess what? That five, six year difference, as you know, my gosh, right? The value of the dollar has really gone down over the last five years, right? So what happened was, so they were still growing, just not as a fast of a clip, but their expenses were growing, astronomically because we live in the most expensive world that we've ever lived in right and they weren't keeping up they weren't adapting so all of a sudden the value of those business goes down and down and down right but going back to okay.
Alan Franks:
[12:21] When can you actually start taking care of yourself? I do like the book Profit First because it gives you a framework, right? A framework of what you should be paying yourself. And say, if you want to make $10,000 more personally, here's what you got to go do on the business side revenue wise, right? So having a framework of how to pay yourself is super important because what happens is we treat our businesses like our babies and kind of like our own children. We'll just give them all the resources that we need to give them. And what happens, we end up doing marketing that doesn't work, right? Or buying a consultant that may be outside of our price range, right? And so having a framework of what you can actually spend money on is going to make you get a little bit more creative rather than just throwing money at problems on here, right? So ideally, what we want to do is set up some sort of framework where you are paying yourself a percentage of every single dollar that comes in. Let's call it 30 cents on every dollar goes to you. 20 cents of every dollar goes to Uncle Sam so we don't fall behind in taxes. That's a big problem, by the way, with businesses in a growth phase. Is that the pay-in tax quarterly estimates based on last year's growth?
Alan Franks:
[13:29] No, last year. Not this year's, right? So, they get behind on tax. It's really hard to get caught up. And then we have 50 cents of every dollar going to the operating. It's just, you know, we can maneuver the numbers a little bit, but just having some framework. And now, all of a sudden, knowing that we get 30 cents of every dollar, well, shoot, you know, if we're revenue of a million bucks, we're making 300 grand. We can now start doing some financial planning around this, right? We start setting some money aside and get diversified a little bit. So it's not just business.
Alan Franks:
[13:57] Maybe we go by the building that the business is in. Now we're in real estate, right? Maybe we go, you know, maybe like real estate, we do some rental homes, right? Maybe, you know, we're making 300 grand. Now we're in a different tax bracket.
Alan Franks:
[14:09] Okay, well, maybe we do set up that 401k plan. As it grows and we start making $500, $700 million of income, then we want to start looking at defined benefit pension plans because now all of a sudden we can deduct a heck of a lot more money, right, our cash balance plan. So when we're looking at building net worth for a business owner, it's really two sides of it. Yes, we want to get diversified, but we also want to do so in the most tax advantage way possible. And the cool thing is there's a lot of mechanism that business owners can do to make that happen.
Dan King:
[14:41] So, and if I'm setting aside, so let's say I'm going with your framework and, you know, I pay myself first and, you know, I want to set aside a whole bunch of money for business operational expenses and I want to set aside some money for taxes. For that tax portion, should I be sticking that in a money market account? Is there any way to get a little bit of yield in between quarterly tax payments?
Alan Franks:
[15:06] Yeah. So, you know, obviously, high yield savings accounts have been very popular here. A little bit harder to find for businesses, but they are out there. What I would tell you to do, though, is if you're an investment person, we all have high yield savings or treasury accounts that we can, you know, put money in that's probably going to be better than the high yield savings accounts that you would find at the bank. And the high yield savings accounts at the bank are oftentimes personal accounts, not business accounts, right? So if you've got a good investment person, you know, what I would do is talk to them about that, but we'd want to be safe, right? This is money that we're probably going to owe Uncle Sam, you know, in the next 12 months or so, right? So whenever you have, frankly, whenever you have a timeframe that's shorter than 24 months, some of you would name it, say five years, which is a traditional market cycle, you do want to be really safe with that. And so what does that mean? Yeah, I mean, treasuries are high yield savings account. You don't want to. That's not that's not the place to be aggressive.
Dan King:
[16:05] Yeah, yeah, yeah, yeah, yeah, yeah. We don't want to try to get an extra percentage point and risk our soul here.
Alan Franks:
[16:12] That's right, because taxes are due. Obviously, you can extend, but you're going to be paying some interest and penalties in doing so, right? So if the market goes down and you owe your taxes, it's very inflexible when those taxes are due, right? If the market crashes, let's say somebody's trying to retire, right? If the market crashes right before retirement, they're just going to work another year or two. Let the market come back up, right? We don't have that flexibility with taxes. Let's do it, right? So we do want to be safe because we just don't control the timing of that.
Dan King:
[16:43] So if someone is going to, wants to work with you, they really want to get a financial plan in order. They want to understand the value of their business. You were earlier talking about different phases of business growth. At what point does it make sense to work with someone like you? Is it during that startup phase? Is it during the growth phase? Is it later?
Alan Franks:
[17:00] Yeah, yeah. Yeah, well, for the people listening, I would say, hey, I highly recommend that free assessment on our website. Do that. I just want to let you tell if you do that, we probably will reach out to you, right? It is definitely a week after.
Dan King:
[17:11] People get that.
Alan Franks:
[17:12] Yeah, we'll be transparent, right? But, you know, we tend to work with people when they have tax problems, when they start having large income tax problems, when they're looking at selling the business and they're looking at mitigating the capital gains of that. business, right? When they're looking at their estate planning and they're saying, oh my goodness, I started and built a rather successful business and I don't know if I want to give, I've got three kids in my business, my net worth's 15 million. I don't know if I want to give each kid 5 million bucks. How do we maybe create a trust with some parameters so that our legacy reflects our values, right? So these are the times where we could really get involved and really help is when there's a large estate and tax conversations to be had. And what I like to tell everybody is.
Alan Franks:
[18:05] It's amazing when we meet with a business owner in our first meeting, we ask them to rank the members of their team. We start with their account, and then their estate planning attorney, then their banker, their investment advisor, their insurance advisor, their employee benefits person, their realtor, their mortgage lender, right? We want to see who's on their team. Because the truth is that these people have built unbelievable businesses, and they would not have tolerated subpar performance from people on their team in their business. Yet when they look at their professional team.
Alan Franks:
[18:40] Oftentimes when we ask them to rank them on a one to ten we get a lot of fives we get a lot of sixes.
Alan Franks:
[18:46] Why i think it's because they just don't know of another professional and they're afraid of the work that would go in to getting a new accountant or to getting a new attorney i've already paid them they already know my taxes right listen getting a new account is very easy right um so what we try to do is the same way that they build a really strong internal team And we like to be the quarterback and the head coach there that helps them build their professional team and help them understand, hey, this is actually we need to get this football over to the attorney. This is a really good question for them. Or we need to get this football over to the accountant or the investment person or the insurance person. Right. And help them understand and get all of these players on the same page. Because what happens is these professionals, they work in silos and they do not want to work with the other professional. Yes. No. So what your attorney's doing on the estate side is super important for the accountant to know, right? So what we like to do is we like to go in and we like to put windows on these silos so that people can see what the other people are doing and make sure we are all on the same play call, moving this football down the field, reading the risk, which is the defense in this scenario here, and hopefully get the ball into the other zone here, right? But it takes a full team effort to do this really well. And so more than anything, more than a financial advisor or an author or whatever, I'm more or less a team builder, right? A team builder and a professional team to help make these goals a reality.
Dan King:
[20:15] Yeah, yep, yep, yep.
Alan Franks:
[20:18] Yes.
Dan King:
[20:19] That's very interesting. And you're right. Each of these professionals has different interests that they bring to the table, right? They have their self-interest as well as the expertise that they bring to help an eventual client. And reconciling all of that, that's not an easy thing to do.
Alan Franks:
[20:35] But what's also interesting is that they get paid differently, right? So we've got a big-time client who is exiting the business. His accountant gets paid a one-time fee to do his taxes. Well, his attorney gets paid by the hour. So guess which one's really easy for me to meet with? The attorney's willing to hop on the call whenever, right? And so I'm constantly talking to the attorney on this, right? Meanwhile, I'm getting the accountant to show up to the meeting. It's kind of like pulling tea, right? It's like, ah, another one of these things, you know? So it's amazing. We need to understand how people get compensated, what their interests are, right? And we need to understand, you know, when we need to actually bring in the attorney because he is going to bill you on an hourly basis.
Dan King:
[21:20] We're all messy, disorganized humans trying to do a job. And the culture of our industries varies, right? I always wonder, part of the reason it's been a challenge for me personally to find a good accountant, I realize is that accountants almost all undercharge. So what that means is they need to have 80,000 clients. Every accountant that's been operating for a while has a lot of clients. Because they have a lot of clients, it's very hard to get their attention. When it's tax planning season, good luck. You know how many phone calls they get, how many emails they get. They are so beyond busy, they're exhausted. So not that this is a pitch for a ton of empathy for accountants, but it's so important to understand the incentives that all these different messy humans are operating with.
Alan Franks:
[22:03] It's amazing. You know, when I got in this industry, I was actually really afraid of accountants, right? Because honestly, people hold their accountants out on pedestal. And I would present a financial plan. They're like, well, let me talk to my accountant about this. Well, shoot, you know, now it's at the whim of what one person who you're not going to talk to for the next four months is going to tell you. And what I realized rather quickly is that there's a lot of tax preparers in this world. They'll prepare your taxes. There's not a ton of tax planners. And so, you know, what I ended up doing is basically almost filling in and that boy that was there on the tax planning side and saying, hey, your account is only really going to plug in the numbers that you get them. Let's let's take a look at your books and let's see what numbers to actually give him. Right. And in doing so, we've been able to add a lot of value to our clients.
Dan King:
[22:54] Alan, as we come towards the end of our time together, I think folks will really
Dan King:
[22:57] appreciate the interdisciplinary conversation we'd have here about financial planning. Can you share a little bit about what's fun for you personally when you're not pursuing your mission at work? What do you do for fun?
Alan Franks:
[23:09] Totally. The most fun thing right now is we are just in that such exciting phase of life. We've got I've got a two year old daughter who's just telling me exactly what to do at all times of the day. She's my boss. Right. Yeah. Show me where to sit, what to do, what to wear. It's so much fun. And we have a five month old son as well who's really starting to engage. And so that's that's where a lot of my free time is right now. I do love to read books. You know, we mentioned Science of Scaling today. We mentioned Profit First. I'm constantly trying to read and learn as well. But I'm also, I'm from Atlanta. I'm a big Atlanta Braves fan. I do want to go to every single ballpark in the United States. And so I'm just a general baseball fan. I love the game. I love the ambiance. Just told my family that we're going to go up to Omaha for the College World Series this year. So that's, you know, I'm kind of boring, man. I don't gamble. I don't golf, right? You know, I've gone hunting once, right? So I mean, I'm a little boring in that sense. But as we talked about, Daniel, I am quite fun to go out and have a beer with. So if you're in Atlanta, right, or if anybody listening is in Atlanta, reach out to me. I know all the great breweries. And we go have a beer and talk shop and talk about growing businesses and have some fun.
Dan King:
[24:30] I love it. Thanks so much, Alan. Appreciate your wisdom.
Alan Franks:
[24:33] Daniel, thanks for having me today.