Christopher A. Panagiotu is a respected financial author, podcaster, and trusted wealth manager. His financial planning business in Washington state, CAPitalize Your Finances, led him to create a podcast and book of the same name, “CAPitalize Your Finances: The How-To Financial Framework That Takes You from Compoundingly Clueless to Monetarily Magnificent.”
Chris joins Succession Stories host Laurie Barkman to discuss what eventually all business owners need to determine about their exit and financial future.
Know what you need to live on so you don’t find yourself surprised if the after-tax number doesn’t fully meet your retirement needs.
Listen in as they talk about ways business owners can capitalize for retirement today. Why you should work with an M&A Advisor to reverse engineer what you think you are going to sell that business for, and know what you actually need to live on during retirement — that way, if there’s a gap you’ll have time to close it.
Enjoy this Succession Stories episode about how business owners can capitalize their retirement with Chris Panagiotu.
Find Chris Here: https://capitalizeyourfinances.com/
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Chris Panagiotu, welcome to Succession Stories. I am excited for this. We are going to have a good time today talking about finances. How can we make that exciting? I know you’ll be able to do that.
Yes, there is nothing more that I would rather do than be on your show bright and early on this Monday morning. And I want your listeners to know at home normally I wear a suit and tie. However, with a nearly six month old at home, she just discovered the art of spitting up in so the tie had to go but the show must go on. So here I am.
I think that the jacket with no tie is a good look actually.
I didn’t mean to digress but I just wanted your listeners to know I’m normally in a suit and tie because I want to be representative of people that listen and follow me. But we had to pivot today.
We had to pivot. We are fast friends, we just met not too long ago. I have read your book, you have read my book. One of the notes you wrote to me in the book, which was very lovely. You said that “I am now in–you are now in the Barkman family circle of trust”, which I thought was very appropriate because I wanted to share with the listeners, not only have I been reading your book and listening to your podcast, but I have also introduced it to my children. Well, at least one of the two at this point, the other one is going to happen. I think that’s the point of why I wanted to have you on the show. Why I want to have this conversation with you about capitalizing your finances. First of all, let’s just start there–- what the heck does that mean?
Okay, so what is capitalize your finances? What is being a capitalizer are all about? For your listeners that do not know me, Chris Panagiotu, The CAP in Capitalize, I teach people across the country how to capitalize on their money. Now what is a Capitalizer? Capitalizer is someone that goes above and beyond just the basic understanding of not just money, but really anything that they’re passionate about in general. So for me, I struggled early on in my career, because I didn’t know the absolute depths of every angle that I needed to regarding money. Now, the good news is we’re past that. The bad news is for the first couple of years, it was grotesquely difficult to build myself because I was not immensely confident in providing what is now known as comprehensively as capitalizing one’s finances. Being a capitalizer, it’s that ruthless obsession with understanding something that you’re extraordinarily passionate about. Obviously, capitalizing your finances is about finance. I happen to be in the health and fitness. So whether you’re capitalizing your health, your wealth, your happiness, you name it, that is the embodiment of a true Capitalizer, which is what our fans are.
It’s about setting a goal and coming up with a plan and going for it.
Yes. And then after that, not settling for just the basic understanding, becoming so obsessed and confident. Not cocky or arrogant about it. But it could come off that way. When you’re talking to someone it’s almost like you are the expert. And I’m the guinea pig. I’m the Capitalizer guinea pig and I give it to my listeners.
I love that. We’ve talked about what got you started. What do you do for clients?
What do I do for clients? I run Capitalize Your Finances a planning business, not to be confused with the podcast and the book. We have a range of clients. Obviously, we want to talk about our business owner clients. Basically, any business owner that comes in our door. If they have any question about money, I help them with it. For example, if you’re a new business owner, and you’re just getting going, let me let me backtrack.
If you’re just getting going, you’re just trying to survive. After a couple of years and if you’re not financially destitute, people come in and they go, “Okay, we’re starting to grow our wealth. What do we do? “ We’re able to do a number of things. We set up retirement plans, such as a 401k. Try to avoid Simple IRAs just because they’re not exactly the best thing in the world. We’ve done SEP IRAs, things of that nature.
Once we set up a retirement plan for a business owner and their employees, there is something called profit that you get to experience after a couple of years assuming you haven’t crashed and burned and so what do you do with that? What we do is we enlighten these clients on being prudent with that profit. Now, that doesn’t mean you automatically invest with me. Let’s say you have a high-interest rate on an SBA loan that is just bleeding you dry, we may pay that off sooner. Let’s say that you’ve got student loans and for whatever reason, these business owners, I’m thinking specifically in the medical field. Even though the interest rate is really low, their cash flow is just depleted, because the student loans are killing them. We may enlighten them on paying that off. And then of course, on the investment side as well, fast forward through the spectrum of how we connect and vibe. Eventually, someday they’re going to sell their business and transition off into the sunset or second venture or what have you. And it’s really important to know what the hell you need to do monetarily, to capitalize your finances, so you don’t screw yourself over, because you’ve worked in some cases for 20 or 30 years. And you could screw it up in a matter of months. That’s where I come in.
I think that this is such an important part of your book, one of the things I really enjoyed about it was that you are talking about people at different stages of their life, such as my 20 year old who’s trying to understand what the stock market is. To people who have their business who are taking on debt. Then the next phase of thinking about retirement.
That’s typically when I meet business owners. When they have a well established business, they’re probably five to ten years away from retiring and their company is their largest asset. They may not think of it as an asset, they may think of it as a job.
Let’s start with this idea of your business as an asset, and not just a job. Not just a source of funds that you can use as a little slush fund for vacations and things for your family but as an actual asset. I know Capitalizers are going to think that way. But do you find that there’s a conversion that when you talk to people the light bulb goes off? Do you have any comments about that?
In 2016 or 2017, when I was still building the brand, figuring out my framework and all that. One thing I realized early on was what you just said. A number of these business owners, basically all of their worth was tied up in their business, which I’m not going to say is necessarily a bad thing. Because you look at all of these great companies that were built on one or two people. That’s how it was for the majority of time. But I’m not gonna get into diversification. That’s another conversation.
One thing I read was this idea of wealth beta, which part of it’s probably a little bit of a marketing term, but the concept was really valuable. I stopped using it a couple years ago, just because a lot of people were coming to me and saying, “Well, Chris, just do it.” Like “just do what needs to be done.”
But it’s a really good thinking process in understanding if something happens to your business, how successful are you going to be financially? Like, are you going to be good? It gets people to understand if you need to take some profits out of the business and reinvest in yourself. One thing I loved about your book was you build a business to eventually sell it. I mean, that’s, that’s not why hopefully, you start a business in the first place. But you’ve got to think of it that way. And one thing that’s a little unique about our business is as far as longer-term investments, unless my wife and I have invested in it already, we don’t recommend it to a client. And that’s something that’s very valuable for me because that’s my word, that’s my brand. And if you think about it, that is wealth beta to the extreme, because every year that goes by for our family, life gets a little bit easier because you take the distributions. You look at prudently what’s available, you capitalize on it, you invest, you move on. A lot of business owners jive with that because I run my own business. So I’m putting my money where my mouth is.
Now, if you plan to transition five to ten years out, now is a perfect time to start revving that engine. Now, you and I know obviously the last hurrah won’t come until the sale is through. That’s where you really get to look under the hood and see what else is out there. Not to mention, setting money aside for taxes. Unless you want to pay an exorbitant amount in tax, by all means, go for it. I am yet to meet a business owner thrilled to pay a ton in tax. But you’ve got to plan for it. You’ve got to plan to invest in some more conservative investments. We call that capitalizing today. But when it comes to getting profits off of the table, out of the business into yourself, I would say the best time to do that, if you’re five to ten years out is yesterday, and you probably haven’t done it. So do it now.
Yeah, do it now. It’s easy to say, hard to do. If they haven’t started, I think there’s two categories of people that I meet. One is they’ve planned for their retirement all along, they probably have money set aside. Perhaps they’ve been taking distributions and doing some investing with it, purchasing property or other passive income types of things. Then there’s the folks who are in their 60s and 70s. They are still very much reliant on the business. Therefore they’re not prepared to walk away from it. For valid reasons; the biggest is financial, it’s their income. They don’t have any other alternative sources.
There’s one example. It’s a father and son, and the father definitely needs to retire from the business. He’s holding it back, the son is ready to buy the father out as well as his sister, the aunts, the sisters. The father is just not ready to do it. It’s causing a problem in the office too, because everybody else is like, what’s going on? Why isn’t he moving on? I suspect that income is a big part of the reason.
I want to shift the topic to thinking about retirement. In your book, you talked about three phases. When we are accumulating, when we’re going over this hump, and then deep accumulation. Let’s talk about these phases of retirement in the context of being a business owner and the challenge that I’m seeing. What can we think about now, as you said, the best time is yesterday. But if we haven’t done that necessarily, what can we do if we’re about five to ten years away from selling the business and truly retiring? What are some things in this hump phase that we might want to think about?
I’m going to rapid-fire these answers. If you have not set up a retirement plan you need to do so. I tell people all the time. The greatest investment you can guarantee is not an investment as the taxes you avoid. Again, if you want to pay more taxes, by all means. I’ve yet to meet someone that fits in that camp. Once you’ve done that and you start understanding that you can distribute money and invest it, you’re going to want to do that immediately.
Now, without getting into specifics because I always hesitate giving advice on particular investments. One, because compliance has a gun to my throat. Also, because what may be right for me and my clients may not be right for you. But I’m going to give you the general idea. A combination of the market, or shall I say really good publicly traded businesses, private equity businesses, real estate, there’s something called a BDC (Business Development Corporation), which is a lending vehicle. I’m not a huge fan of hedge funds unless the right one comes about. But the whole point is there’s a number of these longer-term vehicles that you can go and invest in now. Why would you not go and invest in shorter-term investments and more conservative investments?
Well, let’s think about this. You’re going to have that big sell-off in five to ten years, I’m just going off of what you said. So in five to ten years, when that sell-off comes about, you’re going to have this massive influx of cash or a series of payments of cash. And that’s where you can invest a little bit more short-term because you’re going to need that today and the compounding of the long-term investments has had time to grow. Now regarding understanding what you can sell your business for, obviously, that’s where you come into play. But even without getting into the granulars of it. Because again, my elementary mind in the world of M&A, you should get a bare-bones understanding of what businesses are selling for in your industry and kind of reverse backwards from that.
There’s a great quote, Charlie Munger, who I love to death, could be dead by the end of this call because he’s literally a millionaire. His thing is always as a lifelong strategy, if you can reverse engineer your own obituary, you cannot help but have a successful fulfilling life. That quote has hit me massively, because I’ve done it in a lot of aspects of my life, whether it’s personally, professionally, health, and fitness.
For these business owners, reverse engineer what you think you are going to sell that business for, and in five to ten years, all you’re doing is working backwards to this point. Then you know what’s coming down the pike when it comes to the sale. And then the last thing is know what you actually need to live. It is astounding to me, Laurie, how many business owners, they don’t have a clue how much they actually need to live on a day to day. And that question is single-handedly the most important question to ask yourself, because at that point, you’re just working backwards, numerically. And you’ve seen that in my book. And that makes it really easy. But start a retirement plan, know what businesses in your industry are selling for, reverse engineer what you’re going to get at that period of time, and then take those profits and start investing for the long term until you get the windfall.
Yeah, and I realized I never said the title of the book, and I am holding it up. If you’re watching the video, capitalize your finances. And there’s this–this sounds complex, it sounds like there’s a lot of choices. I think the main message I want the audience to take away is that it really is never too late. Because when you sell your company, this is a part of the book, I actually was like, Oh, this is really important. When you sell there are things you can do to make sure you’re capitalizing your finances, capitalizing your income, whether it’s tax, trying to minimize taxes, or save, defer, etc, etc.
Let’s talk about that. This is this is probably still in the hump phase technically you are describing because we are not yet taking distributions. It’s that understanding of what’s going to happen to this chunk of cash you have. Let’s say you get millions of dollars in cash at closing for your business. What are you going to do with it? You’ve got another 20 years to enjoy life, let’s say. That’s a that’s a very common situation.
They they probably have some things to pay off at the closing. Maybe there’s some debt, and maybe there’s a success fee to folks like myself, fee to attorneys, and yada, yada. There’s a net number that we look for. Once we have that net number, we understand what we need to do. What do we need to you have these buckets, right, the short-term and the longer immediate, and the longer-term? And I think that that’s so important that it isn’t over, once you sell, you’ve got a real opportunity here to do something with this cash or with these, you know, these other things that you may have that you didn’t have previously, and how should we be thinking about that?
So one thing as you were going through that, that just popped in my head, because a lot of people and I think you would agree on this would tell business owners. You know, think about what you could sell your business for or think about how much you will need to sell your business for generally speaking, I’m a little conflicted on that last part. Because if you built a successful business, unless you are blowing money, like a drunken sailor, you’re probably going to be fine on how much you actually need from a retirement standpoint. So that was just kind of a side note. But what you need to do to set up the hump if you will, okay? Which again, you know, I’m not exactly a marketing genius. So that was my marketing brilliance. You know, it not to sound repetitive, but it comes back to what your expenses are. So if you took a million dollars, okay, well, right off the bat, you’re not gonna get a million dollars. Okay. Now, let’s say you started this company out of your garage, which is what most people do, they started out of a garage or some, you know, for me, it was a makeshift kitchen, which was brilliant, right? So your cost basis is basically zero not to get technical here. So your gain is basically a million bucks. Now, it’s not quite that but for simplicity’s sake, let’s just say it’s a million. Well, right off the bat. So, you’ve got about 25% of that, that gets to go to Uncle Sam. Well, now you’re really thrilled. So now you’re netting about 750. Now, what do you do with that remaining 250? You know, it’s going to Uncle Sam and about a year, according to when we’re recording this. And so one thing that I’ve told people is, look at some risk-free rates of money that comes due right before tax time, you know, the blessing? Well, I can’t believe I’m saying this, but the blessing of interest rates rising right now is you can get some really good returns on short-term money. I think the US government T bills, which are, you know, backed by the government. And I guess if the government went under, then we’ve got other issues, but they’re basically fully-fledged and guaranteed by the US government, you can get a four-month bond at like 5.44%. If that’s too complex for you, you can get an online savings account and earn almost four and a half percent on your money. Now, that’s not going to set you up. But good god that squeezes blood out of the turnip, and I’d love to get paid for money that I know is going to be pissed in the wind, Uncle Sam, I’m never going to see it again. So after that, 250 is gone. You’ve got that 750 left, that’s where you go in you basically recapitalize, pun intended, your money. So there’s a general rule in our industry, where if you earn 4%, on your, excuse me, if you take 4% out of your portfolio, every year, there’s a 95% chance your money will outlive you. Fun little fact, that was my bill Ben Gunn, who was the runner-up for the financial north. Note, Nobel Laureate in 1991, a great year, I got to interview him on my show, and we actually kind of went back and forth on it. But it’s a great guideline to understand where you’re gonna go. And once you know that this is where it gets a little complex. Then it comes down to what a client actually feels comfortable with. Now, a lot of these advisors will go and say, Oh, what are your hopes? What are your dreams, and then they put you into the same crap that they put everyone else into? I hate that. I like I absolutely despise that. I don’t hate much. Right. I hate that. I’m allergic to cats. And I hate chocolate because I can’t have it because my Crohn’s other than if you’re okay with that now. I’m okay with that. Yes. Okay. Other than that, I’m pretty loving guy. So let’s say that someone comes in, and they’re a business owner, they’ve sold their business, let’s get to that point. 250 goes off, and they’re really pissed off April 15, for taxes, and then they have everything leftover. Let’s say that they are a much more aggressive entrepreneur like they understand the growth mindset, why might not need to show them as much conservative money, whether it’s an annuity or bonds, or CDs, or whatever the case is, it may be more alternatives in the market as well. And again, I talked about this in my book a lot. On the flip side, let’s say someone comes in, and they, they are very risk-conscious, which is always ironic to me running a business. But let’s just say that’s the case, maybe alternatives which are illiquid. And they’re they are risky investments, maybe that’s not the right thing for them. Or let’s say that they are just very simplistic, and they don’t want the complexity, they just want a very simple or what I’d call a plain vanilla plan. It’s easy as Box One, two, and three, you can do that. But notice how I’m not asking you how you feel about investing you’re planning. That’s actually one of the worst questions you can ask. There’s a there’s a study called the dowel bar study of behavioral finance. And if you’re really lame like me, you’ve read it from cover to cover every year. And I believe it was from 1993 to 2012, because they study rolling 20-year periods. If you invested in the market, you would have earned about eight and a half. If you just kept up with inflation. Historically, it’s about two and a half. If you invested according to traditional financial advice, you would have lost to inflation by half a percent. Because what you’re doing is you’re yo yoing on emotion. So Lori, I’m going to kindly I’m not going to throw you under the bus. I’m going to I’m going to nudge you under the Prius. Okay. And which is the PG version. And let’s say you come in and you’ve sold your business I got Laurie, how do you feel about investing? Like I don’t have a clue? Cuz most don’t you Okay? And so you’ve got your money all in one balanced portfolio, because supposedly that’s supposed to be the right thing. And then the market has taken off, and you don’t take off as much. So now you’re pissed off. You uh, Chris, what the hell? Oh, well, Laurie, you said you’re kind of middle of the road and you didn’t know any better. But if you’re wanting to get a little more aggressive, we can do that and you go okay, and then the market takes a dump, which means you take Your portfolio took some time. And now you’re really mad. And now you’re scared. And now you invest more conservatively, and it’s this constant circulation of yo-yoing. So for me, my whole being, especially for owners in this situation, is to quickly annihilate any emotion that they will have towards that. Because once you get to the tail end of like capitalizing one’s finances, that’s where you can add the little sprinkle on top, which is then aligning the emotional side to the plan, because investments come and go. But the strategy is always going to remain the same. And that’s something that I think most business owners would get, because certain tactical moves that they’ve made in their business have come and go, but the whole core strategy of how they’ve grown their business, it remains the same. It’s the same in my framework.
Yeah, absolutely. There’s a lot to unpack. There’s a lot to learn in your book. Chris, if people want to get the book capitalized your finances, how do they find it?
Yes. So if you want to buy the book, Capitalize Your Finances: The How to Financial Framework that takes you from compoundingly clueless to monetarily magnificent, and most importantly, support my six-month-old daughter’s soon-to-be college fund, no pressure. Head on over to amazon.com, snag a copy, it is a winner. And then if you’re wanting to follow me on social media, you can go on Instagram, you can go on thread, you can go on LinkedIn, and go on Twitter, you can either try to type in my first and last name, or you can type in CAP in Capitalize or Capitalize Your Finances. And you’ll find me there.
One of the things I really appreciate you, Chris, and your style is that you are talking about complicated things, but you’re making it fun. And people who read this, I think will learn something that either if they know it all great, but maybe they’ll pass this book on to someone who doesn’t like me passing it on to my kids. And I know I learned a thing or two in here also. And I said to my husband, you should read this book. This is really, really good. And so it’s like having a conversation with you. And I’m reading the book because you’re so snarky. And you’re like, you know, you’re self-deprecating. And I just, I don’t know, it always made me kind of chuckle. And then of course, you and I were texting each other back and forth with comments. So anyway, I’m glad that people want to pick that up, I think that it’ll be really beneficial. Let’s put a bow on today’s episode because we’ve covered a lot of ground. You’ve dropped a lot of golden nuggets here in a good way. And you know, I know I want to drop gold you want to keep in your pocket. But I mean, you’ve shared some things. What would be three, three takeaways, what are three things that you want our audience to think about after today’s episode, and take action on?
Yes, three takeaways that Lori’s fans need to take action on today. Number one, because I’m assuming you are owning a business if you’re listening to this. Although if not, this is a great podcast to listen to anyway, because you’re going to be inspired, you’re gonna know what to do when you run a business and sell it anyway. So first thing you need to do, if you have not set up a retirement plan for your business, you need to do that it’s purely on the tax side of things like that is such an easy win. Okay, number two, you need to look up what a business in your industry, generally speaking, is selling for. Number three, you need to think about when you’re going to try to sell that. And actually, I’m gonna give you a bonus one, then you need to work backwards and understand what you actually need to live off of. Because once you understand all of that in one bow, that sounds really simple, yet profound. You are going to be lightyears ahead of any of your friends, your family, your colleagues at run a business.
I love that. And for the audience members who have already read my book, they’re thinking, oh, yeah, Laurie wrote about that, too. They’re saying the same thing. Wow, isn’t that powerful. And if you haven’t read my book yet, you will see a chapter in there, which is exactly what Chris was saying was, let’s identify what your business could be worth today and if you want help with that, for sure. Reach out to me and I can help you. And then there are wonderful tools Chris has some that he’s got in his arsenal of how to help you think about what you need to live on. And how to enjoy the all your hard work in the future. Chris, this was so, so helpful. I really appreciate you coming on Succession Stories. I hope all the business owners grab a copy of your book, listen to your podcast, and the name of your podcast again is…
“Capitalize Your Finances” available on Spotify, Apple, and YouTube.
Absolutely. I ask everyone who comes on the show if they have a favorite quote. What inspires you?
Well, what inspires me is different than my favorite quote. But yeah, I will share the quote first. I have to pick one.
You can share two.
Okay, so this quote is actually from one of my guests that just came on, Gautam Baid, if you have not read the “Joys of Compounding,” you need to read it. It was one of those books that once I read it, I was actively saddened that it was done, because I wanted it to keep going very similar to how I felt, Laurie, with your book. And Gautam had a quote that hit me profoundly. And it is “Life is simple. But it’s far from easy.”
Now, what inspires me? Because that is a different question. That is, obviously, the main inspiration is our new bundle of joy, Abigail Panagiotu.
So someday, Abby, when you’re watching this, I’m sorry, if I’m mortified, you know, now, in tandem with that, not higher, not lower in tandem with that is my wife Stephanie, shout out to Steph, I love you dearly. But outside of the obvious, which is that the inspiration has changed a lot, you know, up until recently, as I was turning the corner in my own financial journey, because a lot of people think, oh, my gosh, like you’ve just been crushing it your whole life? No, I almost went under in 2017. Because I reinvested everything into myself. And I remember the meeting, that if I didn’t get it, if I did not close that client, or would have had to fire my system, Betty shout out to Betty love you to death, and probably filed for bankruptcy and found something else to do. Now, I’m not there yet. Now we’re at this point where I know, we’re going to be good. Like I could put this thing on neutral, and I’m fine. So the inspiration went from getting out of just the struggle of financially growing yourself to okay, I don’t have to do any of this. But I truly believe God put me on this earth to do what I’m doing. And so if I reverse engineer my life, and I’m, you know, knocking on the pearly gates, and I’m greeted by his lovely holiness, I would beat myself up for an eternity. If I looked him in the eye and said, Man, I dropped the ball once. So that is my inspiration.
I like that. You’re very dedicated to your family. You’re very dedicated. Your clients are dedicated to the cause of people capitalizing on their finances. Chris, thank you so much for being with me on Succession Stories. I appreciate you.
Absolutely. Take care, Laurie.
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