When you start searching for financial advisors, you likely heard the terms, fee-based, fee-only and commission based. These are the three ways financial professionals are paid. What does each of these terms mean? Today I’m clearing up the confusion! Forms of Payment for Financial Advisors First, let’s look at fee-only. Basically, you pay the advisor and not someone else. Perhaps you pay them to perform a service, like developing a financial plan for you. You could pay them hourly. If they manage assets for you, their pay is a percentage of those assets. Or maybe you just simply pay them a retainer fee. Fee-based advisors get their money directly from you the client. Next, you have fee-based advisors. That’s a little more tricky. Sometimes their pay is fee-only and sometimes their pay is directly from a company. So when they sell a product, they receive a commission from the product. For example, if they sell a stock, they get a commission from that stock. Perhaps they sell you a variable life or annuity to you then they get a commission from the company. A fee-based person is in the middle, either fee-based or receiving a commission. Finally, there are the […]
If you’re a business owner, you’ve likely heard the term EBITDA tossed around before. EBITDA is an acronym which stands for Earnings Before Interest Taxes Depreciation and Amortization. Recently, a client approached me wanting to know what their EBITDA was and how should it be used for valuation purposes? So let’s break that down a little more. Recasting Financial Statements So, when we talk about EBITDA, it’s important to realize that your profit and loss (P&L) statement may or may not be out of whack. In order to find the accurate valuation of your business you need a normalized EBITDA. That’s where recasting financial statements come in. It is figuring out the true benefit a business owner receives from the business. It is used in calculating the value your business and is often referred to as recasting or normalizing the financial statements. In the past, I have seen business owners pulling hundreds of thousands of dollars out of their business in the form of various perks. They’ve worked hard to reach ‘success’ and feel their efforts are finally starting to pay off. I’m not here to debate whether it is wise for theP&L statement to reflect large personal benefits for […]
One of my all-time favorite quotes is the one about compound interest that’s attributed to Albert Einstien. “Compound interest is the eighth wonder of the world. He who understands it earns it. He who doesn’t pays it.” You will probably see that quote a million more times on my blog because it is one of the truest concepts ever! Sadly too many fail to understand and grasp it. Here’s an example to help you recognize the importance of compound interest if you don’t.