This week we’re going to have a conversation with Garrett Gunderson from The Wealth Factory.  Garrett is going to help us think about what you need to do when it comes to creating enough cash to fund your lifestyle, save for retirement, put together a fund for retirement and have money for business growth.  Some of the things we’ll talk about today are:

  • How you want to think about cash in your company.
  • Why managing your cash flow is important.
  • Why you might want to separate your investment manager from your financial advisor.
  • What could be a good definition for your company’s sustainability.

Transcript:

Narrator:         Welcome to the Sustainable Business Radio Show on podcast where you’ll learn not only how to create a sustainable business but you’ll also learn the secrets of creating extraordinary value within your business and your life. The Sustainable Business is all about creating great outcomes.

Here’s your host, certified financial planner, student, entrepreneur and private business expert, Josh Patrick.

Josh:                Hey, how are you today? This is Josh Patrick. Today, we’re going to be talking with Garrett Gunderson from the Wealth Factory. I met Garrett in July 2015 at a conference in Powder Mountain, Utah. As usual, I was eavesdropping on the conversation he was having with another attendee about captive insurance opportunities. I decided to butt in on the conversation. Boy, am I really glad I did. Over the next couple of days, I had some really interesting conversation with Garrett and learned that he’s a writer, a serial entrepreneur and even is in the advice business in an area I think you’re going to be really interested in and he advices how to build a sustainable business. So, let’s spend some time with Garrett and start learning a bit about his journey to where he is now.

Hey, Garrett, thanks for joining today.

Garrett:           Hey Josh, good to be with you. I’m glad you butted in on that conversation as well, for sure.

Josh:                Well, cool. Lets’ talk about your journey to where you started and where you are today.

Garrett:           I started my first official business, that wasn’t babysitting or lawn mowing, when I was 15. It was cleaning cars. My dad was a coal miner. He came from a long line of coal miners from his grandfather, his great grandfather. When the bosses would come into town, they’d have these service vehicles that were really dirty so he would bring them home and clean them. Well, I knew when I turned 16, I was going to get this 1975 Chevy pickup truck that was his. When I started to clean that up, he said, “Well hey, maybe you can start cleaning these mine vehicles and we’ll talk to them about maybe paying you.” Well, my mom worked at a credit union so I said, “Well, I should do the same thing for the repossessed vehicles.” So, I started with a car detailing business that I won $5,000 being the young entrepreneur of the year and I wanted to invest that money. I know, most people, when they’re teenagers they don’t really think that way but I lived in a small town. It’s kind of like your typical story. “I want to get out of this town and live a better life” type of thing.

I wanted to invest that money. But not just like any investment, I wanted to get rich quick, Josh. I wasn’t that mature yet. I still wanted to get rich quick so the more I tried to do that, the more confusing it became. My mom wouldn’t even sign off as a custodian so I didn’t even get to invest until I was 18 years old. My first investment was a $70-a month mistake that in an econometrics course in college, I figured out that this absolutely had no chance of working – when I ran like a MonteCarlo simulation on it and then I started doing a study and couldn’t find relevance at all that would actually work out. And that, somehow, landed me in the financial world. So, I guess it was a lot of questions and knowing that people started saying, “Oh, here, go talk to this person.” And then I got offered an internship which really meant they wanted me to peddle life insurance and mutual fund products. That’s where the journey really began.

Josh:                So, who did you do your internship with?

Garrett:           Park Avenue Securities and The Guardian.

Josh:                Oh, okay. Well, that’s a good insurance company but I had the same experience with Northwestern Mutual. The funny thing is, about insurance companies, they really want you to sell insurance.

Garrett:           Right. I mean, Park Avenue Securities, I remember—while I was 19 years old, I brought them someone who had a substantial net worth and brought him to their Trust Division and they totally screwed it up because it just wasn’t what their focus was. They did. They wanted me to sell life insurance and I was good at it but I felt like, at 19 and 20 years old, my tie wasn’t short enough and my belly wasn’t big enough to be selling life insurance. I was embarrassed about it. I wanted to say I was a financial advisor or a financial planner. So next, I started peddling mutual funds until 2000 came around, the market downturn started to happen and I didn’t like mom and dad, and grandma and grandpa and all the parents of my close friends, “Oh, you’re in it for the long haul?” I actually admitted I didn’t know what the heck I was doing. I was handing the money over to someone else, I’m just getting paid a commission. I’m glad I did. It saved them lot of money. It was only hundreds of thousands of dollars saved. It would have been millions but I was young, I didn’t have a lot of money under management at the time.

Josh:                So, how do you get from peddling mutual funds and life insurance to opening up the Wealth Factory which is absolutely the antithesis to what most wealth managers would think as wealth management today?

Garrett:           I think that between March and May 2000 was a very pivotal moment for me. It was really hard to look people in the eye and tell them I didn’t know what I was doing. I said, “You can go with another advisor, put your money in cash until I figure out something better. You decide.” Everyone but one person stayed with me. And then, I just went through this path of doing a timing service and making good money until the rules changed.

I started saying, “Well, what are the things that people aren’t handling that I can help with?” And I just noticed like a lot of people are overpaying on taxes. I wasn’t a CPA but I just started to study that. I was fascinated by it. I started to study credit because I noticed a lot of these business owners we worked with just didn’t have good credit and they were paying higher interest rates than they needed.

And I just had this epiphany where I was like, “What if I became the person that studied and handled everything that no one else in finance really wants to deal with because there’s just not a commission attached to it?” And that was the idea that led me forward. And the second idea though is I walked through in a family services firm in New York and I was like, “Wow, this is how finance should be done. This is awesome. Everybody’s sitting around the table. They’re really analyzing the situation – just high level of service, high level of competency.” And I naively stated, at the time Josh, was that “I’m going to build this for the entrepreneur that’s not worth $50 million but has a good income.” That took about a decade but that was my notion at the time.

Josh:                Well, it’s actually a great notion. You know, it’s really interesting in that the financial services business is slowly morphing over to, at least in some parts, what you’ve been doing for 10 years which I find really interesting. So, when you describe yourself, what do you tell people you are?

Garrett:           Well, my title at the firm is Chief Wealth Architect which is, you know, “What does that mean?” I tell them that we’re not financial planners as much as we’re about getting financial results. So we’re a tuition-based, backed by implementation and results financial program. We don’t manage money as much as we manage cash flow and that it’s been my job to assemble a team of like‑minded professionals that subscribe to a similar philosophy that we vetted so that any area that needs to be implemented, we can bring in a professional that can actually get it done for them instead of just giving them advice and hoping that it gets done.

I’ll even tell you, that was a bit of a journey to get to that point because, at first, I thought I would own those companies. And what I realized is I had no chance of being the best by owning five, six or seven different financial services. Like, I bought a property and casualty insurance company. I owned a mortgage company and I quickly learned I was not putting my clients’ interest at heart. I was putting my bottom line at heart because I couldn’t provide the best services in the world in those areas so that’s when it was “Let’s go out and find those people.”

Josh:                You know, I had a really similar epiphany. I’m going to just take a second to tell the story because I think this will be really valuable for our listeners. I was working with a client probably about six years ago. The agreement I had with them was I would do business advisory work with them about how to improve their business on a fee basis. And when it got time for doing investments, I would handle their investments. So, we were working for about a year or so. And then it was time to start talking about investments, they turned around and said to me and said, “Well, Josh, who are you working for?” And I said, “Well, what do you mean?” He says, “Well, up until now I knew you were working for me. But now, you want to sell me something.” That was a giant epiphany for me, is that, you know, if I’m going to really be independent, I can’t be getting income from anything except the check a client writes to us. Is that sort of your belief also?

Garrett:           Yeah. Otherwise, I’ll be more focused on the commission than I am on the mission, or I’ll be more focused on the commission than I am the plan. So, I had a make sure that all the coaches in my organization were separated from that. I had to give up a lot of income because of that transition. I mean, I had a big renewal book of insurance business when I made that transition. It was not an easy choice but it was the only choice and if I wanted to live congruently.

Josh:                So, what you’re saying here is that if you’re a business owner and you’re working with an advisor, the only way to get independent advice is to actually pay for that advice?

Garrett:           Yeah. When you think about it, it’s like a lot of people – not the more affluent people but just most people, they don’t realize what the fees are costing them when they’re just automatically taken out of their account. You see, when we don’t write a check for things, it’s a little bit harder to create accountability if it’s just automatically deducted. And so, unknowingly, people are losing a lot of money. And 1% may sound like a small amount but as you know that when we look at that over time it’s got a logarithmic or an exponential effect on someone’s account. So, if your advisors are paid for those transactions, it doesn’t mean they’re bad people. It just means that they’re going to be focused where they’re compensated. And that may or may not be in the individual’s best interest but it’s definitely a system that leaves you with a lot of opportunity to do better.

Josh:                I would agree with that. So, I’m going to pivot for a second with us. You brought up something which I think was really interesting which is you talked about cash flow. There’s an argument that seems to be going around with entrepreneurs which is “Do I grow my business really fast? Or do I focus of profits and cash and grow from that?” I would guess I know where you come down but where do you come on that?

Garrett:           You know, we don’t really work with the tech entrepreneurs. They’re not worried about cash flow. They’re just trying to have a big exit right from the beginning. That’s not our expertise. We’re looking for sustainable life-long kind of wealth that someone can create because they’re in something that matters to them, that they enjoy, that they want to make an impact on the people that they serve. And it’s not just about the exit. It’s fine if there is an exit that’s involved. But in that situation, we’re going to look at cash flow.

And even cash flow, the first step is we want to see people have liquidity because in the financial world, it seems to be that it’s underemphasized to have liquidity and a foundation and kind of that safety and stability because it’s not very sexy and it’s not necessarily exciting but it is sustainable. It is increasingly important to handle the different things that inevitably happen as we have financial surprises in life, as businesses ebb and flow, as issues that are unpredictable as far as the timing can happen. I want to make sure people have a war chest. They have an amount of money that can even be looked at as an opportunity fund and not try to invest every extra dollar. I want them to build the right people, processes and procedures in their business first. And in addition to that, have this liquidity so that they can handle and weather those storms. So, cash flow, cash flow, cash flow with liquidity in mind first and foremost.

Josh:                So, how would you go about helping a business owner build cash?

Garrett:           (1) We want to shift their thinking to not just be about the balance sheet. So, they’re not just looking at their net worth but really start to focus on the income statement. And what we begin with is “Look, there’s plenty of financial pundits that get on TV and preach this “Hey, you’ve got to live within your means” which is typically code word for cut back on expenses. Well, if the business owner cuts back on the wrong expense it might be deathly to that business. Or it just sounds like a pretty miserable existence that you just never spend any money so that one day, some day, maybe you’ll have a big pot of gold at the end of the rainbow. I’m not too happy with that. Instead, we think that there’s two other ways, (1) is to be more efficient within your means. So, we look at the expenses and we start to categorize them into which expenses are productive? Which lead to more money? We might want to increase those and not decrease those. We want to manage the lifestyle expenses which are just what allow people to enjoy and kind of live life but not borrow to have lifestyle. And then, really make sure they have the right protection, or risk management, or war chest which is actually categorizing that as an expense that they might need to address before they go deploy money into long-term retirement plans. And then obviously there’s destructive expenses they just need to eliminate because it’s harming them. It’s creating debt in their life.

So, we look at the expenses and say, “Wee are they overpaying on something? Where are their inefficiencies?” So we’re looking for money that they can put back in their pocket that Uncle Sam’s taking or that Wall Street’s taking with hidden fees or commission or the insurance companies because of improper structure, duplicate coverages or unnecessary cost. We want to find that money, detect it, and put it back in their life first because that’s going to be bottom line cash flow.

And then second, get them to think about expanding their means. What things are going to help them to produce a higher income or earn more money that leads to more profitability and get them in that mindset, and then really analyze that income statement, and then use the cash flow to drive the balance sheet instead of using the balance sheet to drive the cash flow. A lot of retirement planning is – save for 30 years and then one day this will turn into income. Well, what kind of income is it going to be? How risky will it be to turn that into income? Will it have to be in really low interest rates to provide that? I think we’re asking questions that you would probably ask but most financial people neglect to ask.

Josh:                I was watching your videos today which I found really interesting. It’s something you and I both share which is a dislike for personal budgets. Can you talk about that a bit?

Garrett:           I am in the middle of editing my book right now Budgeting Sucks, Isn’t It?

Josh:                I love that. That’s great.

Garrett:           Well, I believe in mindful cash management. I believe in having a cash flow plan but I don’t believe in a constraining mindset that budgeting can bring because no one shrinks their way to wealth. Wealth is a function of exchange and value creation. Investing is when we deploy capital to lead to increased profitability or cash flow.

Taking that money by cutting things out has kind of this rubber band effect. People that are a train wreck should probably listen to Dave Ramsey say, “Hey, you need to start saving money.” or Suze Orman, or David Bach. That’s perfect for the train wreck. But if you want to grow, budgeting is going to hold you back because budgeting facilitates a scarcity mindset. The scarcity mindset is a feeling of lack. It’s a feeling of constraint.

It makes me think of this doctor that was in our program, Jessica Marsh. I mean, we met her and she says, “Every dollar has to have a name.” She was driving a jalopy vehicle. They were living in a home that they didn’t enjoy. She really wanted to kind of buy some land where she could—I mean, she had a horse that she had to store at a friend’s place because she didn’t have the land for it. She wanted eventually to have cows so they could raise their own meat. Her husband wanted to be a beekeeper. They wanted to grow their own food. And what we found was, by looking, they were missing some tax efficiency. Because of her practice, they weren’t doing something called cost segregation on her building. They didn’t have the best negotiated interest rates or even loan structures. They hadn’t really even formed a corporation in the name of saving money, so we started having her set up a corporation and pay herself more efficiently to avoid some self-employment tax. All of a sudden, we found $2750 a month while we were able to then take some of her cash flow that was underperforming and pay off a car. Now, we were up to like $3200 a month. We were able to get her that home that she really wanted and still have over $1000 a month left over to start saving and building and creating wealth. So, budgeting would never allow for that. It would have only been about what could be eliminated, not what could be created. So, that’s why I have a disdain or a distaste for budgeting.

Josh:                You and I are speaking from the same pew on that one. So, to do the work that you do with clients, my guess is it requires them to step outside of their business and stop being tactical and start thinking strategically about what they do. Can you talk about that a bit?

Garrett:           I remember, in my own life, people saying “You should work on your business and not in your business.” This is at a time where I had an assistant and that was about it. I was probably Chief Authowasher, janitor, customer service, marketing, fulfillment – everything. And it was hard to wrap my head around that because I just didn’t really know how to do anything about it – but when I started to look at my businesses and investment instead of just throwing all my money into the stock market, for example. Because I think business owners really have a unique advantage that way, that you could build this asset and you can see immediate results. You can course correct. And you have some degree of influence and a degree of control over that.

Well, then I really started to even hire mentors or I went through a program Strategic Coach. I started to outsource a few things before I hired people full-time. I started to get a group of other financial people that could do certain things in the organization and get paid by performance. And all of a sudden, I started to be the facilitator of vision. I started to facilitate what the direction were that we were headed and the “what” and the “why”. I now had other people handling the “how” and the “when”. And for me, the “how” and the “when” is exhausting. It’s not what I’m built for. The “what” and the “why” invigorates me.

And for the first time, it was when we were having a technology breakdown and I was complaining to one of my mentors I was coaching with one-on-one. He goes, “Do you think when Warren Buffet shows up to his business, do they go Warren, man, the phone lines are down. What are we going to do?” I was like, “No.” He goes, “Well, I thought you own this business. It sound like your business owned you.” And for the first time, it made sense. What that was versus working on the business. And so, I made a couple of basic rules, (1) I don’t answer any questions in my businesses, someone else can handle or answer. I just point people in the right direction. (2) I strategically introduce people, and empower people, and elevate people so that I don’t have to be the one that is the cog that everything flows through.

So, it really became about “What did I want life to be like?” And for me, the game I’m playing right now is, “How do I live in Italy for six months and still have a profitable business?” Talk about working on the business instead of in the business and talk about strategy versus being tactical. That is even helping me to take it to another depth and another level of what we’re doing. I mean, when I was working in the business, we were just a business. When I started working on the business and thinking of it that way, we became an INC 500 business. So, it’s really leverage applied when that happens.

Josh:                Well this is really interesting stuff. Unfortunately, we’re just about out of time. So, Garrett, you guys do some really interesting stuff and I want to make sure our listeners have a chance to contact you if they’re interested. So, how would they go about doing that?

Garrett:           Well, I think, if they go to WealthFactory.com – they can even just click the green box in the upper right corner that says recover cash flow or it might say “generate cash flow.” They can just access our free cash flow guide. There are seven different areas to improve and generate cash flow that’s discussed in that guide and that’ll give them a pretty good sense of what we do. Go and navigate around on there. We have a thing called the investor scorecard. It’s a gift. It’s the 10-questions to know if an investment‘s right for you, based on how aligned it is and not based upon risk profiles. It’s a completely different way of looking at things. And there’s also some videos on three tips to increase cash in your life right away. So, I think navigating that site and some of those resources are probably the best way.

Josh:                Just for those listening, the address of the site is www.wealthfactory.com.

Garrett, thanks so much for your time today. It was really a pleasure speaking with you. I think there’s a lot more for us to talk about and we might have to do this again some other time.

Garrett:           I welcome that and really appreciate you.

Josh:                Thanks a lot, Garrett.

You’ve been listening to the Sustainable Business Podcast where we talk about what you need to do with your business if it was to be here 100 years from now. If you like what you heard and want more information, please contact me at 802‑846‑1264 ext 2 or visit us on our website at www.stage2solution.com or you can send me an e-mail at jpatrick@stage2solution.com.

This is Josh Patrick and thanks for listening. I hope to see you soon for another edition of The Sustainable Business.

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