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Thursday, September 24, 2020

Unspent Business Development Money

Unspent Business Development Money

During a recent conversation with a savvy advisor (we’ll call him Greg), it was pointed out to me that 2020 has brought some challenges for advisors that are not immediately obvious to someone whose company designs and sells software solutions. Specifically, he mentioned that many advisors have business development accounts that they will struggle to utilize given the COVID-19 pandemic.

If you have a business development account, you are keenly aware of this problem. For those that are not aware, a business development account deducts pre-tax dollars from an advisors paycheck which then can be spent on qualified business expenses throughout the year. These expenses can range from client dinners and entertainment, office equipment, and employee expenses.

The obvious problem in a year with a raging pandemic putting a severe damper on any client-advisor interactions, is that advisors are building their expense accounts with nothing to spend it on. Many of the planned expenses for 2020 are simply not going to be realized.

Compounding the problem is that, in most cases, advisors set the deductions at the beginning of the year.  And once set, it can’t be stopped – the pre-tax paycheck deductions will continue for the rest of the year. This means many advisors are continuing to contribute pre-tax dollars to their business development accounts even as the likelihood of being able to spend those funds shrinks. These funds will continue to accumulate. And since the pre-tax dollars have to be spent on applicable business expenses by the end of 2020, this can be a potentially costly issue, leaving thousands of dollars unspent.

If you are still reading this post, you likely have this problem too. As recent Advisorhub article makes  clear, you are not alone. So, what can be done?

Well, one win-win solution is to ask your providers if they will offer you a discount to prepay for their services. Obviously, a discount for services you are going to purchase anyway is a great thing. But technology providers in particular may be willing to offer a discount as a way to fuel their product development pipeline and increase revenue stability.  

For our part, RiXtrema will offer discounts to clients that wish to pre-pay for subscription services in 2021 or beyond. If you find yourself with unspent business development money, give us a call, maybe we can help.

 

 

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