The following article was originally printed in the March issue of Axiom's newsletter. To view the newsletter in its original format visit the Axiom web site.

We talk about goals with every new client, but just as important we talk about what kinds of measures we will use to mark our progress toward achieving those goals. Often the same goal will result in entirely different measures for two different clients. Let me give you an example.

I recently met with two new clients on the same day who each expressed their long term goal as financial independence. However, one of them was willing to put everything else in life aside for a period of 24 months in order to jump start a new business. If successful the business will sell for enough money to provide a modest retirement at age 40. Once that is accomplished my client will have the freedom to go back to school and train for an entirely different career in which she has always had an interest.

The other client is purchasing a series of business investments that will yield supplemental income and provide modest capital gains. This client will continue a successful professional career while trying to diversify his earnings stream to the point where his financial future will not entirely depend on selling his professional practice.

In the first case all of our efforts will be focused on achieving a maximum valuation of the business for eventual sale. In the second case our due diligence in vetting potential investment opportunities will focus on not jeopardizing the current professional practice and guaranteeing at least a minimal amount of income yield. The metrics we will use to measure success in each case are vastly different.

Like so much of what we do this seems like common sense, but over and over again we hear clients taken aback by our approach. The bottom line is that focusing on profitability, or free cash flow, or net assets or any other measure can be misguided depending on what the client wants to accomplish. A focus on short term profitability could erode the liquidity and eventual sales price of a business looking for an exit strategy. A focus on capital appreciation could result in a short term cash crunch that puts pressure on an existing professional career.

So the point is this: when you talk about goals with your CPA make sure you also talk about how you will measure your progress toward achieving those goals. The measures you choose will direct daily decisions and your ultimate success depends on what you do today.

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