Decision Dialogues
Decision Dialogues

Episode 25 · 10 months ago

You Don't Know What You Don't Know

ABOUT THIS EPISODE

On Episode 25 of Decision Dialogues, Mark Willoughby talks to Modera’s own John Ceparano about the importance of sound, expert advice. John discusses decisions he’s made throughout his own career as well as decisions he’s counseled his clients on. John’s overriding theme is that the more expertise you can muster, the better those decisions are likely to turn out.

Get the full show notes and more resources at ModeraWealth.com/DecisionDialogues

Are you paving the way for the life you want facing decisions that may affect you personally and financially? The decision dialogs podcast, brought to you by Modera Wealth Management, presents personal stories about navigating through life's pivotal moments, narratives that we hope will inspire you as you create your own story. You'll learn what influence their next steps and gain insights that could help you with your own critical choices. Welcome to decision dialogs. Thanks for joining us on decision dialogs with thrill to have you along. My name is mark will it be, and I'm a principal and wealth manager here at Madera Wealth Management Llc in our Atlanta Office. Today I'm joined by my colleague John Sepparano, who's also a principle and wealth manager at Madeira Wealth Management in our central Florida office. The two of us will be chatting today about a number of items. John, welcome to the show. Thank you, mark. I look forward to having a good conversation and hopefully with everybody finds it interesting, and so am I. So let me set the landscape for our listeners for this particular podcast. You know, we've been focusing this year on decision dialogs and having conversations that feature business owners and the decisions and the challenges that they faced and and the financial lessons they've learned. And let me give you a little bit of background on John. John founded a CPA firm in central Florida decades ago and along the way he morphed it into a firm very similar to modera wealth management and then ended up merging his firm, Joseph capital management, with Moderia back in two thousand and fourteen. Now, John, I know as a business owner and a practice owner you faced some big decisions along the way and there's going to be some learnings we're going to flush out this morning. And uniquely, as...

...a planner, you've not only have you been a business owner, but you've worked with business owners because that that is your area of specialization. So I think we're going to offer our listeners an interesting jewel angle perspective on this this morning. So let's just dive right in and sort of learned from John Briefly, initially about how he started in business, the business he he started off with and where he brought it from there. So, John, at a high level, why did you start your own firm, why didn't you just, you know, work for somebody else? Well, I grew up in a family that had a lineage of entrepreneurship, so I was always surrounded by my father, his father, my uncle having her own businesses. Though I was always in creed that the opportunities that it presented themselves, I also saw some of the decisions that they made that either help them flourish or actually help them back. So when I went to college, I decided that I wanted to go into business and I didn't know that I was going to wind up getting a degree. I knew I'd get a degree in business, but I didn't know that I'd turn out to be a CPA and as it winds up and wound up being a financial background for me that is helped me in all my business decisions. But what I really enjoyed is trying to solve the puzzles of how you create something, how you can help but flourish and as much as you could take advice for a lot of people, sometimes you got to go down the road of hard knocks and learn on your own. So when I was started out and came out of college immediately work for a very large firm, ACPA firms, price waterhouse. had a fantastic experience there and learned a lot of the basics about what successful businesses that I was exposed to had to do to get where they wore. Key ingredients at that time, especially just a back in the late s early s. It was about infrastructure.

But you know, when you starting at your first business you got to try to bring on clients and take on things that otherwise you might not do if you're a mature business. But it actually helped you grow. You look back in hindsight and you realize that if you hadn't taken those stones, you wouldn't make the better decisions later in your career. So so, as it winds up, I decided to move to Florida with my wife and our three children so they can go up around a grandparents. Had No business, no job. I got here. My wife knew that I was determined and with it. About six months she kicked me out of the house because I kept telling to keep the kids quiet and it wasn't working. So it forced me to open up my own business because when I moved to the era that I'm in, central Florida, they were not a lot of opportunities and everybody wanted to pay me a lot less than I needed to make a living. So we went through a lot of savings, which means that I had to be very prudent in our financial decisions. And I decided to open up my accounting firm back in nineteen, I think it was one thousand nine hundred and ninety five, in central Florida, and then I realized that I really enjoyed the consulting aspect of a working business owners and individuals. Sometimes it was work with a lot of retires or in tax season, but quite frankly, my business owners took up the girth to my time because their business is on going throughout the whole year. Yeah, and that's when I really focused on the tax station and a knowledge about that. Coming Down to Florida in order to have my Cek a license, they transferred. I had to go back and get my masses and taxation. So that happened in Midlife, so to speak, and my s pointree kids, three kids, trying to run a business and I remember studying on a cruise ship on my kids are going, let's go play dodgeball and I was like now dad's got to pass the test. Yeah, you had plenty free time, right. Yeah, I mean it's just the human nature, sure of what you got to do to try to balance life, and that's what I've been doing with children and running a business. But as it happens, I've been blessed her up my whole life and just through do to put my nose to the grindstone. The HEPA firm took off.

Wound up merging with a number of people. It wound up after realizing that I wanted to do more planning than just pure accounting and CPA and tax work during tax season. I want to help people throughout the whole year. So we decide to sell off our business. Back in two thousand and four. It's got it set up for, you know, stale and I think it was by the end of two thousand and five we sold it, but we'd already started going into the wealth management business to make sure that we were going to enjoy it, and we did well. As it winds up the business, because I dedicated myself to this and it really enjoyed it. Had A lot of passion for it, had a lot of great introductions through networking. We wound up doing extremely well within a very short period of time and within about five or six years I wasn't just work with my clients that I found in Florida, but I started getting referrals up and down the East Coast from colleagues that I knew and networks that I had for when I was up in the New York area and in two thousand and thirteen on a trip to go see about seven of my clients through up in the Long Island and New York City area, I wound up calling up a colleague because I was and I was with another colleague that I broke with me and I said I can't keep doing this mule trip by myself, going back and forth that term. I wasn't the technology guy that I've, I don't want to say have become, but I've had to become more student and I was hauling files in this and that and I'll go this is got to be a better way and I reached out to a couple of firms. One of the people that I ran into is Tom Marecchio at that time, and I called them up and I said I'm going to be here for a couple of days. Would you mind if I stopped then if this is something of interest to you, I need somebody to work with up in the New York area, New Jersey are and metro area, and he told me he goes. We'd love to have a firm down far because a lot of our clients, you know my great to a non tax date. Yep, for just want to get away to the sun. So all of a sudden, eight months later, we remembered we we I don't say we perfectly Lyne but it's got as close as possible. And then the operational side, actually mark was very involved in and within about one...

...year we had merged. And market already gone through this only like three years earlier with another firm that they had put together to form Modea. So this one went a little bit smoother and they've been going smoother since. So let me cause you there for a second. And I knew as as the moderator with John Sepperano, I wouldn't have to work too hard as a moderator because John has got so much passion for what he does and I knew this would be an easy job for me this morning. But let me let me read recap them. So there wasn't you know, to recap the first let's say fifteen, twenty years of your career, you kind of found accounting or accounting found you. You built one CPA firm in Florida. You then transition that into a more consulting based firm with changing it to a wealth management firm. You sold your CPA business and you know, within ten years you had essentially merged your new wealth management firm into another wealth management firm that had offices in New Jersey and Boston. So this kind of sets us up nicely for what we really want to dive into for the rest of the chat this morning, which is two areas that John has particular expertise in. is in retirement plans for businesses and, as you've already heard, he has a passion for the tax code, bless he's heard, as they sit down here in the south. So I wanted to kind of take it deeper dive into those two areas because John, as you folks have just heard, has a lot of experience in creating, growing, selling and maintaining businesses and along the way he's had to make some big decisions both for himself as a business owner in the tax planning and retirement plan arenas, but also for his clients this past couple of decades. So, John, let's just dive into retirement plans at a very...

...high level. What are the things that you've done rice in the retirement plan arena? What are the things that you might have done a little bit better, and what's the best advice you've given your business owner clients when it comes to their thinking about installing a retirement plan for their growing business? Well, just philosophically or retirement plan is really just a form of diversification. It's setting side money up for your future and, as the time is progressed, the IRS has created different opportunities to help business owners save for themselves as well as trying to not discriminate and be able to say for their employees. When I first started out and was going to college, you know, we knew all the basics, but we didn't know where they applied and how they applied the different businesses and situations. So there is no one size that fits all. You know, the basic person who maybe doesn't have a retirement plan at work and works for a very small company, their best choice, you know, is some form of IRA, which is limited in how much they can put away, but as they get involved with either growing their own business or working for a company, they can move up past that and get to other types of accounts for themselves, such as set plans and for one KP plans. Now, set plans are typically designed for small assances that a mostly family oriented. becast of that they wind up getting out of them when he start hiring people outside of their family, because they'd have to give in the same percentage as they do. So then a fore KP plan typically has worked well for a lot of people as the first for a into being able to put away more money, and and the amounts that you've been able to put it away have grown, you know, with inflation over time. Currently they're in excess of I think it's like nineteen five this year for a single person under fifteen.

Then you can add another sixty five hundred if you're over fifty. It's thought to catch up, but if you're a business owner, a lot of times it's also used to attract and retain employees. But for those that stuck to do very well in business and want to be able to put more money away, I had to do a lot of homework and research to find out the different ways you can use these plans. Historically larger plans like maybe my parents and marks parents, you know, they may have been exposed to, if they were lucky to have pensions in their corporations, that basically they were called to find pension plans and basically said over a certain number of years, instead of US giving you pay, will retain some of that money invested so that when you retire at sixty five or so, you can get a thousand dollars a month, five thousand dollars done, depending on your status with the company and your pay and everything else. You get that, but you wouldn't get a lump stump. Over the last twenty plus years, the government has created these other opportunities for businesses to save and get away from the companies having to put away these large sums of money which in many cases and put some of these companies under water because they had to allocate so much of these resources. So instead they created contributory plans where the employees contribute and employers have the option of matching them and if they do match him, the owners themselves can put larger amounts in for themselves and that led to components of adding a profit sharing plan and then other new types of plans, which call hybrid plans, such as cash balance plans. These plans, depending on the facts and circumstances, can significantly increase the amount of taxes that people say currently and basically have what they call a tax arbitrage. So if a business owner is very successful and they're in a highest tax bracket now, when they go to retire they may be in a bracket that's at least ten to fifteen percent lower. They...

...can get these large ductions now when they're in their peak earning years, and then when they go to retire, to get out at a much lower tax rate. And during that whole period this money has been deferred and has not been taxed. So, depending on the facts and circumstances and the census of your employees and what the individual owners wanted to try to accomplish, there is a plan out there that can be customized to meet those goals and the key in many cases when people are asked about what is best for them, it also depends on the cast flow and whether it's consistent or not. Some businesses have cyclical natures to them and they need more flexibility. On one you're putting in a lot, the next year putting in nothing or a little amount, and there are plans now that can help you do that without the rigidity of some of the old defined benfoot plans that people would not sign up for because there are penalties if you did not meet these minimum funding. So it's been very interesting to see how this landscape changed. So let me jump in there, John and sure, yeah, let me jump in there and sort of put you on the spot, like going for the two extremes. Can you think of you know, I'm thinking of best case worst case. Can you think of a situation where a client can really miss the boat with the opportunities that exist in the in the tax code to put together a terment pains? Think of a best case and a worst case, like what's the worst case scenario for a business owner in terms of just missing the boat on the opportunities that exist? Well, the real question isn't when they missed the boat, the reasons why they missed the boat. We don't know what we don't know. So if you don't surround yourselves with informed people that are have experience to give you these options, if you don't know that you had an opportunity, they will be missed, and it happens very frequently small business owners. In trying to be frugal and driving your business to high success, sometimes maybe you know advisor foolish. And it's not about just us, I mean just in...

...general. If you're working with the consultative CPA that understands the different types of plans that are out there that I had to dedicate myself to know, that's where the true value comes from working with the right professionals. You know, it's kind of like you find out that you need brain surgery, going to go to the general practitioner or you're going to speak out the best one and if you go to find the one that's has the experience as the knowledge, they can help you that out the pros and cons of each type of plan to pick the one that's worked for you today. Now it's really important is this. As businesses grow, their retirement plans need to change and or grow, so having the right advisor to know when those times are is critical. There are fees, you know, to be an advised. That their fees to set up these things. But if the tax benefits and the long term diversification of your resources are going to help you in the long run, let alone your employees, then you need to know about that. So I find that the biggest mistakes are is that people don't get this information early enough and they need to seek out somebody. You know, this is not the time to be, you know, foolish, you know, try to be cheap here, because it's only going to hurt you in the form of higher taxes or lost opportunities. Yeah, so, so a couple of things there. Then I would I would summarize by saying, and it I know to the listener this probably sounds self serving coming from to advisors, but be careful about making sure you get the right guidance at the right time as you're growing your business, whether that's the CEPA and actually a lawyer, you know, an insurance agent and financial advisor. Make sure you don't show change yourself, because it's John says, you don't know what you don't know. And by the way, when people are focused in their businesses, they are typically very optimistic people and sometimes, because of their optimism, they keep reinvesting all of their earnings back into the business which, at the beginning probably makes sense because you don't have a lot of savings. So as it's earning, you trying to...

...build this thing up. There's got to be some point where you try to diversify your risk. That business is inherently have. You have a concentrated risking the business and if something goes wrong, you don't to vest some of those resources, the earnings that you have, to other types of investment opportunities, whether be real estate or the bestocks and bonds, whatever it is. It gives you that resource to pull from in the need that you do. So typically I recommend the people save some of the money and Taxabo countsels out of the business, leave resources in the business to continue to grow it. Then also have the retirement not because mentally most people they think that if I put that money in retirement, I'm not to take it out, so then they're not relying on it. But that collocation of how much you take out based on their casts flows is very critical. To have somebody looking at it and see where this thing could go over a period of time and do some simulations. Now we all know the business has change and could change very quickly in a year or two years, and the key is, you know, retaining talented people to help you not only the outside of boxes but internally, because they'll make you aware. Some of my earliest staff said, John, you've got to take a paycheck and they wouldn't stay me. They wanted me to actually diversify. They wanted me to take a chance on myself. So I listen to my own employees sometimes and that's very helpful. So diversifying these opportunities is very critical and trying to spread out your risk. So we've talked about, you know, the missed opportunity. Let me, let me put you on the spot on and talk about if you can think of a favorite story of one who's gone ahead and, you know, put in a retirement plan at the right time, and can you give us like a quick synopsis of what that looks like for the business owner when they followed the guidance of installing a retirement plan and started putting the right one in and growing it? What does that look like? Give me your favorite story. There's a couple, but I'll narrow it down to one or two and I'll try to think of...

...just one here. About six years ago, to doctors wound up the beginning to do really well. And you know, in the doctor's world, which has been squeezed by insurance, you know, smaller reimbursements, they had to work longer hours and everything else, and with that they were like, it's got to be a way wherefore working this hard, that we don't have to pay in as much. And that time they had a very small practice and they treated their employees like family and with that they had a step plan and they didn't mind giving a larger contribution. So they can do it. But I said what if you could give you know, when I found out their circumstances and finally got with them on the accounting about a year or two later, when I found out how they were growing, and they finally opened up to me and said we really need your help them, you know, in terms of world wall financial planning, so we can get them be able to retire in the next ten years. Well, I said, how do you want to grow Your Business? You can have more employees, and they said yes, we don't want to be overwhelmed, but we do want to do that, but we have to start to be able to and we believe our practice is going to thrive. So I helped them design a building, I help them develop it so they have more space. And with that came more employees. And now all of a sudden the twenty five percent they were given to the two employees that they had was now up the stemen employees and it became a substantial amount of money. So they wanted to limit it to the amount that they've been giving in in dollars, but wanted to increase their share. So I looked into the perfect design for them at the time and it's built is has been to add a profit charing component combined with the cash balance plan. And as it winds up, they had to have for discrimination testing. They had a save harbor amount there, and that amount wound up giving them the ability to put up words of two hundredzero dollars each. So instead of putting the way just fifty eight thousand dollars a year each, now they...

...were able to put an excess of four and five hundred thousand dollars a year each, and since that time till now the numbers have grown significantly from there. But the real point was is that accumulated in this could be for anybody in a situation. If you've got a five or attain your runway, you're able to make these tax savings in the thirty five percent or higher bracket, which these people are and have been. I calculated the significant savings after they go to take out this money, the numbers between the growth and the savings on the taxes from thirty five percent to, let's just stay down to twenty or even twenty five percent, we're going to be an excess of close to a half a million dollars saved. So with some planning, some for thought, that's the sort of opportunity that presents itself with the right advisors in the mix. As albertine sign said, the eighth wonder of the world is truly the power of compound interest. So now I'm going to given that we have a limited time frame here, I'm going to switch gears because I did want to give you some opportunit community, to give us some high level philosophical taughts on the income tax code. John, I know that you know the code as long as anybody I know. You've been working in tax compliance and planning for for decades now. In the short time that we have left, what are the things that you've seen people make really big mistakes in on the tax planning side and what are? What's your philosophy on on the right way to approach tax planning and tax compliants for small business owners? Well, one is looking at all the opportunities that we discussed about on finding the right plan at the right times and making those changes were return plans. The second one is making sure that your accounting is kept up to date. A lot of times, you know, the small business owner says, I don't want to spend the money and they wind up dropping off the shoe box to the accountant after the year is over and they said, how'd you come to me back last year? Or let me do your bookkeeping, or at least do your financials...

...once every you know, three to six months. Then we know where we are and we can plan for saving on taxes. So that's number one. But once a small business owner is towards the end of their career, I'm not talking about things, by the way, like, you know, go buy another car and get a ride off and things like that. Those because become very standard and those kind of suggestions, you know, and you have cash businesses and a cruel businesses. Cash businesses, they get at the duction when they write the check. So they all stunt try to write up all these checks in December, thirty feet and things like that. That's not really a lot of planning there. The real planning comes on when you realize that you want to sell your business one day. You have a transition and you have to think about that long before your want to put your business up for cell. You have to make sure that you've taken out personal expenses in the last two or three years spas on the other side of the coin, the buyers side, you are going to be saying, let's see how their business is done, let's see the trends, let's see the probability. So when you want to plan for your exit strategy, whether it's to existing employees or to solve to a third party, they're going aways, want to see objective financials that have been paid, typically by a TEPA that going on, see that your trend lines are either consistent or growing in most cases, so that you can get the most study of business. It doesn't matter what that business is. So you have to always be preparing your business for a sale and, quite frankly, should be doing it for yourself anyway. From the profitability standpoint. Look at your numbers, see where trends are, manage those things in terms of taxation. When you get to the point of actually selling it, you should have confident parties on your side and the right attorneys that have been dealing with sales of businesses in your industry in particular, and work with the TPA that can have the numbers up to speed and work well. So that's just while they're working. But the other thing is is that a lot...

...of these business owners have to think about what they're going to do after they make the sell and they have their big liquidity event. They have this money dropped in your lap and if they haven't had those conversations, sometimes they get sucked into the latest person selling him something else, or they get red put it into another business that then not even familiar with that they think all of sudden their real estate people and they can do it and it's easy, and I think that they have to sit back and realize that. Let me work either with the people that have the strengths, that have confidence on and have a history with, or learn about them and find out about them. Or to simplify your life and reserve yourself to how can I maximize the enjoyment of life afterwards? A lot of this is owns. One of the biggest problems. They don't know what their hobbies are going to be. When they retards that, they try not to return and push it off. I've even asked myself that, you know. So I'm trying to do different things myself, you know, as life evolves here and saying, you know, what's it going to be like in ten or fifteen years from now? So, from a tax standpoint, I think they have to prepare for the cell. I think they have to know what they're going to do with the money after the sale and how to invest it and know the time frame from, let's just say when they're sixty to seven years old they're seventy two years old. All the different choices they need have to make along the way which will impact the taxability of this big chunk that they just got or how they got it. Are they getting paid out in notes, you know, over time, or they getting a big amount down that they getting at all paid up front? All those things will have factors on what they have left after that deal is done. And once that deal is done, they've got to make a lot of decisions which now they may be considered their early retirees or waiting for their next thing to land, because now everybody who sells their business is sixty two or sixty five. Some people really do really well and sell their business in your s and they go what am I going to do with, you know, the next twenty years, while all my friends are still working? Yeah, so I'd literally get off the phone this morning with one of my close friends who just sold his business for millions of dollars and he's saying, I want to leave some money on the side to do this, but what am I going to do it? Also the cash. So he wants to know about liquidity for opportunities. He wants to have a long term plan for retirement.

He doesn't want to make his kids trust fund baby, so he doesn't. He want to know how they're going to get it and spread it out. He wants to know that he still has the liquidity to be able to reinvest right now. But I said we need to see how these all work. So I'm meeting with them in two weeks to say let's look at your life now as six years old, in five year increments. Yea to your health is a big factor and a lot of these decisions and when you take self to security, when you make a decision to do roth conversions, which a lot of people miss because they're not talking to somebody, and how they're going to take that money out, what they're going to do it. And then you even get into the things that sometimes they don't think about, because if we just so focus on accumulating, am I charity be inclined and can I do it now, or do I need to just be Charlie inclined to help my family league that need it, maybe without making them dependent on them? So there's so many issues regarding taxation and every single client that we face, mark an I, you know, have unique circumstances. They can have the thing amount of money in same age, but they have different kids, different, you know, spouses, Stec the marriages, first marriages, health issues, there's so many issues that make our planning so unique and a big puzzle for us. That really drives our passion to solve these problems for people or at least alleviate the concerns so that peace of mind that they're in good chap. All right. So, John, we're getting close to the end here, but I do have one last question for you before we start wrapping up. Talk to our listeners about when is the right time to start thinking about these issues and start talking to the right people. You know, mark, it's kind of funny. It's like, you know, people call up and say, you know, should I invest the markets up or this of that, and they said we should wait. The reality is every day is an opportunity for you to take hold of your planning and I think this is an exceptionally extraordinary time to address these issues, with so many things going on that are distractions from people listening to the media, trying to see what the...

...government's going to do with taxation, what's going to go on with our country around the world, and, quite frankly, a lot of people become frozen and they don't do anything. This is the best time to take a very positive attitude about this and say whenever other people are fearful is when opportunities are created, and when these opportunities are created, you need to make sure that you're around the people that can give you sound, objective and independent advice to try to help you achieve your long term goals. You know what are your desires? What do you want to see come out of your life for you and your family and be able to enjoy everything you work so hard for? I love what I do. I love using my experience and learning from other people's circumstances to try to improve people's situations, and one of the reasons I really merge was to be around more talented people and get away from actually some of the administration and running a business that I'm not as qualified to do. Thank God our firm is not asking me to make any decision about technology, but they've taught me how to use it. So I think that every day is a good opportunity to learn something and if you could find a couple of advisors that can help and coordinate work with your other professionals, people would feel a lot more ease and feel very comfortable knowing that whatever comes up, they can pick up the phone of a virtual meeting or, as we unravel covid, get back together, hopefully soon, and enjoy the comfort of knowing you're not alone. As John, that's great way to end. I would echo everything you said. They're we like to indes with a kind of a nonstandard, fun type of question. John so I'm going to throw this at you. What was the last non financial decision you had to make, and that could be as recently as this morning? Well, besides personal things, helping my wife pick call us for our new bathroom, we had to read design because we had a water leak. Not Exciting boy. It was non financial...

...because we did get reimbursed by the Insurance Company. Good luck with that one, John. Thanks so hot. Okay, thanks John. Really appreciate just spending time with us today. Great Conversation and I really hope that your perspectives will resonate and be helpful to some of our listeners. And thank you to our listeners for tuning in. We'll hope you'll join us next time on decision dialogs for more stories from successful business owners like John so low. For now, thank you for listening to decision dialogs. We hope you found today's stories helpful for your own decisionmaking. If you like to listen to more episodes, you can subscribe on your preferred podcasting APP or visit our website, where you'll also find show notes and important disclosures. WWW DOT wellcom. Forward Slash decision dialogs. This has been a production of twin flames studios.

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