…Finally, if you want to make a difference in your community, one way to accomplish that is through charitable gifting. Charitable gifting is more than just giving money to a good cause, however. I’ll give you an example. I had a husband and wife client who owned their own company and wound up merging their business with a publicly held company. After the merger, they received $400,000 in combined wages plus $1 million in stock options. Both of those would have been taxed as ordinary income at a time when the couple was in the highest federal and state tax brackets. We created a plan for them to gift 7,119 shares of stock with a transferred cost basis of $1 per share (anything above the basis would be taxed at capital gains rates). This generated $420,000 in charitable deductions which offset the income that the stock options generated. By doing that and some additional planning, we were able to save that couple more than $145,000 in taxes.
As part of my series about the “How to Navigate and Succeed in the Modern World of Finance”, I had the pleasure of interviewing Wayne B. Titus III.
For Wayne Titus, working with clients means helping them understand their financial situations so they can become good stewards of their money. Wayne founded AMDG Financial and AMDG Business Advisory Services, PLC, in 2002 after more than 15 years in management at two large accounting firms, working with Fortune 50 clients. “While I loved the experience, I was looking for something more,” says Wayne. “Owning my own tax and advisory firms enables me to share what I’ve learned with my community, while at the same time, honoring my personal values of entrepreneurship, family and civic involvement.”
Wayne’s love of entrepreneurship was the impetus for his book, The Entrepreneur’s Guide to Financial Well-Being. Drawing on his personal experiences and professional background, he walks entrepreneurs through finding and building a dependable, communicative relationship with an adviser who has a holistic viewpoint.
A fee-only, fiduciary adviser, Wayne is committed to placing his clients’ interests ahead of his own, or those of the firm. In fact, AMDG Financial was one of the first 10 firms globally to be certified by the Centre for Fiduciary Excellence. The certification recognizes AMDG Financial’s adherence to global best practices for investment adviser fiduciaries.
Wayne holds a B.S degree in Accounting from the University of South Florida, a B.A. degree in Business Administration from Grove City College in Pennsylvania, and a Master’s degree in Employee Benefits Law at the John Marshal Law School in Chicago. An active member of the community, Titus serves as chairperson of the Michigan Association of Certified Public Accountants’ Financial Literacy Task Force, and a member of MICPA’s Tax Reform Study Group, through which he chairs the group’s education committee. Wayne is also a member of Rotary International, where he was elected to serve during 2015–16 as District Governor for Rotary District 6400.
Thank you so much for your time! I know that you are a very busy person. Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’ and how you got started?
Icome from a family of entrepreneurs. My dad owned a car dealership and I grew up doing all kinds of different jobs there, from washing cars to selling them, to becoming part of the management team. Later, I became a CPA after seeing my dad receive poor business advice from his accountant, and decided to open my own businesses just after the tech bubble burst in the early 2000s. At the time, I wanted what many entrepreneurs want: independence, and flexibility. But more important, I wanted the opportunity to make a significant impact on people’s lives and find the time to contribute to society.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lessons or ‘take aways’ you learned from that?
Before I started my businesses, I worked with a large firm where everyone had a computer or laptop to perform their daily work, so the first thing I did in 2002 when I knew I was leaving was buy a laptop, printer and scanner. In September of 2003, I purchased a tax and accounting practice and merged it with my own. That practice came with four employees. None of them had a computer. Instead, they shared two antiquated PCs that were set-up in the file room. I thought that was ridiculous and immediately bought a server and laptops for everyone, along with office printers. What I hadn’t considered was that the team really wasn’t familiar with technology. While they were familiar with the tax preparation program, they weren’t familiar with using Excel, Word, or even Outlook calendaring basics or email. I spent a lot of money much sooner than I needed to. To me, at the time, it wasn’t that funny. Now, I have perspective on how ridiculous my expectations were at that time!
Is there a particular book that you read, or podcast you listened to that really helped you in your career? Can you explain?
Built to Last by Gerry Porras and Jim Collins had a huge impact on me. The Big 4 accounting and consulting firm I worked for asked all the partners and senior managers to read it and to take it to heart. The firm was in the process of rolling out a new vision, mission and values post-merger. Many points in Built to Last have been beneficial to me in my career, but the one that touched me the most is the example the authors provided on how values can work in business. Values can act help businesses attract and retain great employees, but they can also act as a repellant, causing certain employees to be uncomfortable in their environment until they are “expelled like a virus”. Vision, mission and values matter.
Are you working on any exciting new projects now at AMDG Financial? How do you think that will help people?
I recently completed my first book, The Entrepreneur’s Guide to Financial Well-Being. Entrepreneurs often don’t know what they don’t know when it comes to finances, taxes and investments, and they also may not understand why it is crucial to integrate this approach. I wrote The Entrepreneur’s Guide to Financial Well-Being to help entrepreneurs understand that their needs are unique, and show them how to find a financial adviser who can support those unique needs. I love to engage with and educate my clients, and writing a book gave me the opportunity to share what I know with a broader community.
Thank you for that. Let’s now shift to the central focus of our discussion. Extensive research suggests that “purpose driven businesses” are more successful in many areas. When you started your company what was your vision, your purpose?
Our vision is to help make our clients’ life transitions successful on purpose.
I started my companies, AMDG Financial and AMDG Business Advisory Services, PLC, to serve the greater good. When coming up with a name, I didn’t think “Titus” Financial had quite the meaning I was looking to establish, especially since starting my companies wasn’t about me or my ego. The “AMDG” in my company’s name is a Latin anacronym, which to me means to serve the greater good. Ever since the beginning, serving our community has been a core value of our firms. We serve to live. A few years ago, we finally codified and expanded our values. Though this process we learned that our understanding of the definition of “community” expanded. We now see our community as our clients, their families, each other, our families, and our business partners.
Do you have a “number one principle” that guides you through the ups and downs of running a business?
Early on, before my businesses began to grow, I focused on the phrase, “Do the right things and the right things will happen.” I can’t say that I never worried about cash flow or profits when going through our ups and downs, but I never worried about our ability to make it through challenges in the long run, provided we always focused on doing the right things.
Lead generation is one of the most important aspects of any business. Can you share some of the strategies you use to generate good, qualified leads?
We primarily use an inbound marketing strategy, focused on content for potential clients in the various stages of their journey toward financial well-being, such as awareness, consideration, and decision-making. In addition, we also use Net Promoter Score surveys and actively discuss with “promoter” clients how they can refer friends, business associates, and family members to us. Once a prospect shows interest in our firm, we take them through our Fiduciary GPSSM process, in which we demonstrate how we work and show them our recommendations before asking them to sign an adviser agreement. During those initial meetings, we build trust through education and empathy, and most of the clients who go through the Fiduciary GPSSM process end up becoming clients.
If a fellow CEO would ask you for advice about whether to bootstrap or to look for VC capital, how would you help them weigh the pros and cons of that decision?
VC capital always comes at a cost. Generally, you need to give up equity, and possibly, control of the organization. Bootstrapping can pose its own challenges, like liquidity. If you are borrowing on lines of credit, you could move the company toward violating loan covenants if cash flow or sales and collections weaken. I think CEOs have to weigh the goals and objectives for growth and deeply evaluate the pros and cons in light of those goals and objectives. I’d also encourage and consider a third alternative — maybe it would be better to forgo substantial growth to become a “small giant.”
What measure do you use to determine the value of a company? What advice would you give to other leaders about how to get an optimal evaluation of their business?
In my business, so many factors go into business valuation. Revenue and enterprise strength impact valuations. These include things like adoption of technology and the use of robust processes and workflows. Most valuations consider EBITDA or EBOC calculations, but in my opinion, consideration of revenue and enterprise strength factors supports using the value of projected future cash flow as the best way to value a business. You miss something if you exclude the intrinsic value of a company being lean, demonstrating a track record for scaling, and supporting all that with good, robust business processes.
What would you advise to a founder who initially went through years of successive growth, but has now reached a standstill. From your experience do you have any general advice about how to boost growth and “restart their engines”?
I lived this in my business. We became more of a lifestyle practice. We served our clients well, and while we were still growing, we were growing much more slowly than we had in past years. It took me almost three years to re-develop and launch my plan. I spent hours working on re-evaluating goals and objectives, codifying my vision, values, guiding principles, and our targets. I set a “Big, Hairy, Audacious Goal” (BHAG) and then backed into what we would need to do each year to reach it. We worked on redefining our client, creating our inbound marketing strategy, developing new HR processes, and implementing a succession plan that brought in two partners. We left no stone unturned. Talk about restarting my engine? I had a blast focusing on this and working with my team while also running the business. Simply, I’d suggest that to boost growth and restart engines, you have to find the fun again.
What are the most common finance mistakes you have seen other businesses make? What should one keep in mind to avoid that?
One mistake I see small businesses make is buying “off the shelf” employee benefits packages. I get it — when you’re stressed out and overworked, it’s easy to be tempted by the “instant” solutions offered by payroll and insurance companies. But those solutions aren’t always the most efficient. I think it’s better to work with a financial adviser who can help you choose the best solution. Don’t forget: if you are choosing benefits packages for your employees, you owe a fiduciary duty to them. In addition, entrepreneurs owe it to themselves to take a long-term view of their wealth by designing a plan that will help them shelter more income from high levels of taxation. This is a complex area, so it’s worth it to find the right adviser who can help.
Ok, here is the main question of our discussion. Based on your experience and success, what are the five most important things one should know in order to succeed in the modern finance industry? Please share a story or an example for each.
The five most important areas to be familiar with are investment consulting, wealth enhancement, wealth transfer, wealth protection and charitable gifting.
In the area of investment consulting, entrepreneurs should be looking for advisers who tightly integrate their investment process to minimize taxes. I had a client who was a tool-and-die manufacturer with a mid-sized company who came to me just to have his tax return prepared. Unfortunately, I had to break the news to him that he owed $130,000 in federal taxes. This was because his adviser had been very active in buying and selling tech stocks. While on the surface, it looked like this client was making significant gains in his portfolio, the truth is, they were all short-term capital gains, which were taxed as ordinary income. If the client had been able to hold on to his gains for more than a year, he would have been taxed at a lower rate. Meanwhile, I’m sure his adviser was making plenty in commissions for all of the stocks he had been buying and selling!
Wealth enhancement is something that’s more complex than having just an investment strategy. For example, many entrepreneurs tend to separate their work life from their personal life when it comes to creating wealth. But what if you thought about it more broadly? Instead of compartmentalizing your finances, what if you could invest through a pretax retirement plan to shelter that money and leverage it now, while you’re in a higher tax bracket? Then you could take it out in the future at a lower tax rate. Successful wealth enhancement is about being proactive, and giving increased consideration to federal, state and payroll taxes all the time instead of just at the end of the quarter or the end of the year. It’s also about knowing how to use retirement accounts in relationship to what you earn.
Wealth transfer involves managing your wealth so you can transfer those assets to an heir or your favorite charity when you die or become incapacitated. I had two clients, for example, who died of cancer some years back. One, Gary, owned a small frozen food business. After he was diagnosed with colon cancer at 52, he passed away within a year. He had no life or disability insurance, and had used the majority of his retirement account to start his business. So when he died, his wife had to sell their house to pay off debt — but the worst part was that the home was only in Gary’s name, so his wife had to go through probate, which was an expensive hassle for her. Now, let me tell you about David, who was also diagnosed with colon cancer around the same time as Gary. This story has a much happier ending, because David had created a solid wealth transfer plan. He owned a business, a home, and several rental properties. In addition, he had a large 401(k), IRAs and other investment accounts, as well as a trust, a disability policy and life insurance. Before David died, he also put his family farm into a sub-trust for his family, so they were able to use the income from the farm right away after David passed away. Which situation would you rather be in?
Wealth protection is having the right kind of insurance to protect what’s yours. Now, I see a lot of entrepreneurs who buy insurance products that are also investment products, such as variable universal life insurance. I personally believe insurance products are too expensive to be used as investment products, because they have additive costs and a legal contract. A better way, in my opinion, would be to purchase insurance specifically for asset protection and risk reduction as it relates to long-term care, disability or life circumstances, such as a succession plan. Before you buy a policy, be sure to consider whether there’s a less costly solution that would provide the same coverage.
Finally, if you want to make a difference in your community, one way to accomplish that is through charitable gifting. Charitable gifting is more than just giving money to a good cause, however. I’ll give you an example. I had a husband and wife client who owned their own company and wound up merging their business with a publicly held company. After the merger, they received $400,000 in combined wages plus $1 million in stock options. Both of those would have been taxed as ordinary income at a time when the couple was in the highest federal and state tax brackets. We created a plan for them to gift 7,119 shares of stock with a transferred cost basis of $1 per share (anything above the basis would be taxed at capital gains rates). This generated $420,000 in charitable deductions which offset the income that the stock options generated. By doing that and some additional planning, we were able to save that couple more than $145,000 in taxes.
Which tips would you recommend to your colleagues in your industry to help them to thrive and not “burn out”?
One way entrepreneurs can help alleviate the stress they might feel around their finances is to address it head-on. A first step is to clearly identify where you are financially. In this process, you may be tempted to gloss over the difficult parts, but I encourage you to get it all out in a realistic way. The next step is to think about where you could be financially if you decided to challenge the status quo. One way to do that is to seek out a financial adviser who can objectively point out your blind spots. Entrepreneurs tend to like to go with their gut feelings, because they’re mold breakers. But if you work with an adviser who can challenge your assumptions, you have an opportunity to get feedback and evidence for those intuitive decisions you make. Studies have shown that people who work with a financial adviser tend to feel more confident and optimistic about their finances. Nothing feels better than having a plan and a course of action.
You are a person of great influence. If you could start a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
Ever since the Tax Cuts and Jobs Act went into effect at the start of 2018, charitable giving by individuals has declined. That’s because the standard deduction doubled and people didn’t feel the need to donate money to charities to offset their taxes anymore. If I could start a movement, it would be to see more people embrace the idea of creating a substantial impact in their communities by planning for, and making, significant gifts. As we saw in my previous example on charitable gifting, sometimes creating a tax shelter can free up funds that can be donated to charities. All it takes is working with an adviser who can help you develop a long-term strategy that creates a win-win for both you and the charity.
How can our readers follow you online?
They can follow me on LinkedIn (search for Wayne B. Titus III) or on Twitter at @wbtiii. AMDG Financial is also on Facebook, LinkedIn and Instagram.
This was very inspiring. Thank you so much for joining us!