Every business owner needs to be a good CFO and monitor the firm’s expenses. But one adviser’s cost-effective investment may be seen by another as too expensive. How you view a particular investment has a lot to do with three factors. Once you determine how these three dynamics influence your firm, you are ready to use what I call a selection grid to prioritize and make decisions.

Before you can create the grid that works for you, however, start by considering each of these elements:

· Your firm’s vision and clientele served
· Your own value system
· Where the firm is in its business life cycle and where you are in your personal life cycle

Your vision and clientele
Who are the clients you wish to attract and keep over the long term? Investments in your firm should be geared to these clients. This is particularly relevant when it comes to your office environment—including office location, the setup (renovated house, rented office suite, condo, metropolitan skyscraper), and your investment in the interior space.

Just as the blue-collar mass affluent may not be impressed with an over-the-top office setting, the ultra-wealthy may expect it. That’s a stereotype, of course, but when you’ve carefully selected your niche, your clients’ values and expectations should influence decisions about your office.

Read more: Does your office space matter?

Things aren’t so obvious when your clientele morphs over time. Consider the niche of blue-collar union employees. As those clients pass away, their spouses are likely to emerge as your new clientele. Especially if they haven’t been actively involved in review meetings or making financial decisions, spouses may have different expectations. It’s not uncommon for widows to seek out a new financial adviser. It makes sense to step back occasionally and assess if the office environment appeals to your emerging clientele.

Your values: staff compensation and training

Whether you’re budgeting for staff compensation, marketing events, technology, or another investment, the quality (or perceived quality) impacts what you choose to pay. In your personal life, do you choose a Maserati, Ford or BMW? The same thing applies to firm expenditures.

Let’s take staff compensation and training. Do you pay staff at the most attractive or least attractive competitive rates for your geographical area? Many small business owners seek to build a loyal, long-term family culture, and a generous compensation package is part of that. Other advisers choose employees with an eye to minimizing costs and are willing to take greater risk with newer, less experienced employees. Say a firm needs a registered staff member to assume some responsibilities and free up the adviser. One practice will pay more for an already registered candidate while another will take a chance that a candidate will be able to pass the Series 7.


Slideshow
Comp 2016: RIA Pay
Who’s making what? FA Insight breaks down advisor compensation.


Beyond employees’ compensation, advisers are often penny wise and pound foolish when it comes to investments in ongoing staff training and development. Sending staff members to a conference to learn new technology, for instance, might yield an attractive ROI for the adviser and the firm.

Adviser and business life cycles
Another factor that influences expenditures is where the business owner is in his or her career and where the business is in its lifecycle. If a business owner is no longer interested in growth, over time, the business itself moves into a stage of decline. These advisers typically ride out their careers avoiding investments in the firm’s infrastructure.

When the business owner is a solo adviser, his or her personal life cycle and the businesses lifecycle are typically in sync. Today, though, more firms have multiple advisers from different generations, who may have very different ideas about what constitutes money well spent. The tenured adviser may not be particularly receptive to making investments in social media, websites, or search engine optimization, whereas the next-gen adviser may perceive them as critical to future growth. In the end, what’s best for the tenured adviser may not be best for the long-term vitality of a growing organization.

Using a selection grid to streamline your firm’s decision-making
As you make decisions about where to allocate resources, one tool that can help you objectively analyze options is the selection grid. Start by listing the criteria for making your decision on the vertical axis of the grid. Then list all the options you’re considering on the horizontal axis. Finally, rate each option based on the criteria.

Example: Say you’re trying to decide whether to invest $10,000 to upgrade your firm’s website or use that $10K to present a series of investment seminars throughout the year. The decision criteria might include:

· Confidence that the investment will pay for itself in the next two years
· Ease of implementation given existing staff and expertise
· Probability of enhancing relationships with existing clients
· Likelihood of generating new revenue from new clients

By assigning a High, Medium or Low ranking for each criterion, you can easily see how the options stack up.


Based on this hypothetical example, the seminars present a better option given the selected criteria. Keep in mind that the criteria will change based on the situation and that each decision maker in the firm should complete the grid.

It’s always easier to assess the wisdom of a decision in retrospect. Only time will tell if a business investment was cheap, cost-effective, or wasteful. But using a tool like the selection grid can help you don the CFO hat and approach the decision-making process more objectively. In any case, remember that there’s one surefire way to drive a business into decline: never make investments in the firm.