Personal Portfolio

In the coming year, this 32-year-old company founder wants to buy a house, start estate planning, set up a succession plan, buy disability insurance, and start saving more systematically. Can you top that?

Why is it so easy for entrepreneurs to set goals for their companies but often so difficult for them to set personal financial goals?

Part of the problem, undoubtedly, is delayed gratification. Given how voracious most companies are--for their owners' time and money--and their unpredictable growth patterns, it can seem unrealistic to the founder of a young business to even think about attempting personal financial planning. Nonetheless, Krista Conley Lincoln, the 32-year-old founder and owner of Cambridge Translation Resources, a four-year-old Boston-based translation service and publishing company, has decided to take the plunge.

In 1992, at the age of 28, Lincoln borrowed $6,000 from her father to start her business in a ramshackle 1,000-square-foot loft. That first year, supplementing her own fluency in Chinese with the skills of a small network of freelancers who were, among them, fluent in 30 languages, Lincoln brought in about $80,000. The next year, with sales at nearly $200,000, she managed to pay off the loan to her father but plowed every other spare dime back into the company. It took Lincoln nearly three years to get to the point where she paid herself a tiny bonus to buy her first car--a Nissan with 90,000 miles on it. But now, with sales at $2 million and most of her company's major corporate expenditures (for computer equipment, expanded office space, and new hires) behind her, the CEO is at a crossroads: the point where her company can start working for her.

Lincoln's set of 1997 personal financial resolutions are these: Buy a house. Make some diversified investments. Put together a comprehensive insurance package to cover personal as well as corporate risks. Investigate a 401(k) plan. Start estate planning and succession planning.

What a way to begin the new year!

Before popping the champagne, though, let's face reality. As every New Year's dieter knows, resolutions are the easy part. And when it comes to financial planning, even setting the resolutions can be complicated. There may be no better evidence of that than a harried drive Lincoln took this past fall with her husband of one year, Benjamin, an artist.

They were driving to a conference with an investment adviser that Lincoln's accountant had recommended. "The adviser had given us one of those long financial-profile questionnaires to fill out, to help all of us understand what our goals were," she recalls. While Benjamin drove to the meeting, Krista leaned on the dashboard, scrambling to fill in the form. "I guess I'd postponed answering the questions because I was afraid it would be incredibly hard and time-consuming...or maybe upsetting. In fact, it was unbelievably easy because we had to leave most of the pages blank," she says, laughing. "We don't own anything. We don't have any children. The only page that was full was the page on my company's value." Of course, that value looked good, with sales for 1997 projected at $3 million to $4 million, a pool of 2,000 freelancers, and a blue-chip list of corporate clients.

But even from that simple starting point, there was room for debate. One question asked the pair to define their tolerance for investment risk, using a scale of 1 through 5. "I was ready to just check off the number 3, but my husband said, 'Hey, we're young. We can handle higher risk,' and he wanted to choose 4 or 5. Now that may be because he's six years younger than me. But my feeling is," Lincoln says, pausing, "it's taken me all this time to get to the point where I finally can feel some stability in my business. I'm not ready to tackle the kind of investments where everything can go up in flames."

Her orientation toward safety may be why last year Lincoln spent her first real bonus to buy a tax-sheltered variable annuity, along with some other small investments. She also paid off a credit-card balance that had perennially bounced between $2,500 and $4,000. This year she wants to broaden her fledgling investment portfolio. Still, the difficulty of finding the right investment and settling on the right investment course has stymied that pursuit for the moment.

"When you're working at your company 70 hours a week, it's tough--even when you're as motivated as I am to tackle those issues--to come home at 9 p.m. and start talking about money all over again," she says. To solve that problem, Lincoln is borrowing some planning techniques from her business: by setting priorities and, where possible, delegating responsibilities.

Although purchasing a home (and with it, acquiring some valuable mortgage tax deductions) is Lincoln's top goal for 1997, she's turned over the task of meeting with real estate brokers and investigating house prospects to her husband.

Planning for a down payment could have become a distraction because Lincoln and her husband haven't yet set aside any savings for it. But she has made a fundamental decision: "It makes sense for me to leave my money in the company for as long as possible. That's where it's got the biggest chance of producing a payoff. So rather than giving myself a big raise and then making monthly payments to an investment that would become our down payment, I'm hoping to wait until we find the house we want. If the company's cash flow and profitability continue to be as strong as they've been since the end of '94, I won't have trouble paying myself a bonus that would cover a down payment."

Lincoln's second goal is to purchase some insurance protection, at least a personal life-insurance policy and a disability policy. Until now, the only insurance she's signed up for has been medical and dental coverage for herself and her 12 full-time employees.

The CEO is the first to admit that so far she's made little headway on that goal. "Insurance is an unbelievable headache," she says. "Where's the rule book that will give me a clear sense of what it is I really need, how I'm going to find an insurance broker that I can trust, and what's the clearest, best path for me to take? How do you set a value on your own life when you're building a business and starting a family?" Despite the uncertainties, she's set herself the goal of comparing brokers, prices, and other issues--and finalizing a purchase--by the end of this year's second quarter.

Meanwhile, Lincoln has assigned looking into a 401(k) plan (along with profit-sharing and key-executive retention plans) to her second-in-command. "If I had to do it," says Lincoln, "it would take three years, minimum. This is the way we're going to get it all done this year."

The one piece of her personal financial plan that Lincoln has already begun to take action on is estate planning. "It may be that I've just gotten to the point that I'm so happy about my company and my husband and our plans to start a family that I've begun to worry, What will happen if I step in front of a bus?"

Lincoln's first step was meeting with a partner and his associate counsel at a law firm recommended by a close friend. "That first meeting, which lasted about three hours, was incredible," she recalls. "It wasn't intimidating or confusing. In fact, they asked me a lot of questions that helped me clarify my goals for the company and where I wanted my money to go."

During that preliminary session, Lincoln explained that she wanted to pass along what she'd built in her company to her husband--and also to set in place a mechanism that would help him learn to understand the business and the responsibilities of managing its profits. "I want to make sure that he doesn't just get all this dumped in his lap before he can learn what to do with it," she says. "That means, in part, choosing someone I can trust to help him make financial decisions."

She doesn't know who that person is yet--nor is she at all certain what type of management-succession mechanism makes the best sense for Cambridge Translation Resources and for her husband. But she's determined to answer those questions during the course of the coming year. In the meantime, she adds, "I've got a first draft of a will. I consider that quite an accomplishment already!"

Your Personal Financial Calendar

January: Set overall goals for the coming year. Consider starting a (small) automatic monthly investment plan.

February: Now's a good time to make some mutual-fund investments (since the funds will have completed their year-end taxable-income distributions).

March: There's still time (until April 15) to make deposits to an IRA.

April: Tax time. Plan how you'll handle your tax refund--or tax bill. Or, file for an extension if you're strapped for time.

May: Schedule a meeting with your CPA to plan this year's tax strategy. Try to negotiate a lower fee, since it's the slow season.

June: Time for a half-year personal finance checkup. Are you on target with savings, investments, and other goals?

July: If your summer vacation proved too costly, consider setting aside a small monthly savings account for next year's treats.

August: Is your personal cash flow healthy? If you aren't putting the maximum into your company's 401(k) plan, consider boosting your contributions.

September: Make your last mutual-fund investments for the year--before funds start distributing taxable income.

October: Trick or treat. If your personal financial picture is a horror show, there's still time to meet with a financial planner and act before year's end.

November: Start planning your own bonus early--while there's time to coordinate corporate and personal goals.

December: Last-minute financial strategies could include boosting charitable donations or buying and selling investments to balance out capital gains and losses.

The Experts Review the Resolutions

Do Lincoln's 1997 personal financial resolutions make the best sense for her, given her company's stage of development, as well as her personal needs?

Jeffrey S. Levine, a certified public accountant with Alkon & Levine, PC, an accounting firm in Newton, Mass.

This is the right time for Lincoln to step back and take a full-fledged, comprehensive approach to goal setting--and she's covering all the obvious bases.

Last year's investment decision has more of a feel of a quick fix, as if she felt she needed to do something. Buying a tax-sheltered annuity when she doesn't own a house--that doesn't make sense.

This owner might want to investigate other alternatives to a 401(k) plan, such as SEP-IRAs, profit-sharing plans, or money-purchase pension accounts. The advantage of those over 401(k)s is that you can exclude certain employees if you want to or permit larger corporate contributions for the owner. They're sometimes less costly and easier to administer than 401(k)s.

Instead of setting up a trustee to help her husband during a succession transition, I think it would make more sense to start some cross training of her husband now, so that he might be in a better position to step in if he had to. And also, to set up a well-qualified board of directors who could help him during the transition if that became necessary.

Steve Enright, a fee-only financial planner based in River Vale, N.J.

This entrepreneur has set some very good and very ambitious goals. The question is, Will her company be able to give her the wherewithal to accomplish all of them within a single year? If not, she'll have to prioritize.

I'd argue that what matters most is retirement planning and insurance planning. Disability insurance, key-man insurance, and life insurance are good ideas; I think she should also investigate office-overhead insurance, which would help her pay rent and staff salaries in the event of a catastrophe. The best way to get started with insurance is to contact an independent, fee-only insurance adviser who will help her work her way through the whole process.

I think she'll be making a mistake if she decides to leave the money for her house payment in the company until she actually needs it. The big downside: What if her company experiences a cash crunch and the money isn't there for her when she wants it? It's a much safer course to remove the money from the company at a steady, gradual pace, so she can be sure it will be there for a purchase as important as a home.

Mary Malgoire, a fee-only financial planner with the Bethesda, Md., firm of Malgoire Drucker

For this year's priorities, I'd make buying disability insurance number one. This CEO should shop for a plan with a "purchase-option rider," so she can increase her coverage as her salary rises.

If she wants to start a comprehensive investment plan--once her purchase of a house is behind her--she needs to do some personal cash-flow projections, going forward a few years. By doing the best job she can of projecting her future family expenses and salary, she can target a monthly investment level and set up some kind of automatic deposit system. I'd recommend doing that through a full-service discount brokerage. Then it would be simple to invest in stocks, bonds, or mutual funds. She also needs a family-emergency account, maybe with $30,000 or so in it.

Here's something worth considering: if this entrepreneur really wants financial security, she should start planning for the sale of her business, especially if she can keep it doubling in sales for a couple more years. If she can walk away with $3 million or so, she'll have all kinds of options for her family's future.

Jill Andresky Fraser is Inc. 's finance editor. Her Personal Portfolio column appears regularly in the magazine.