Entrepreneurs are no strangers to challenges, and certainly not to financial challenges. Many have stories of great sacrifice on the way to success, and even the smoother-sailing businesses bring financial difficulties. Almost 80% of small businesses are self-funded, which makes managing cash flow, investing in growth, and navigating setbacks or emergencies challenging. A good financial plan can help, though.
You need to balance personal and business finances, manage cash flow, and navigate complex tax regulations. All of this often comes with the stress of knowing your — and possibly employees’ — incomes depend on success.
A financial advisor isn’t always the first mentor that new entrepreneurs turn to, but they’re a mentor that certainly can be helpful. A qualified financial advisor could give you customized advice on how to manage near-term budgets, capital for business growth, long-term investments, and other finances.
Consulting a financial advisor lets you focus on your core competencies. They’ll guide you through the financial challenges that come with small businesses, so you can spend more time growing your business.
6 Ways a Financial Advisor Can Help Your Business
A financial advisor can offer expert advice tailored to the unique needs of their small businesses. With professional financial guidance from them, you’ll be able to make informed decisions for your business and yourself. Here are five ways they can help you with your business.
1. Building a Comprehensive Financial Plan
For entrepreneurs, effectively managing finances requires attending to both business and personal finances. While it’s a best practice to keep budgets and bank accounts separate, the business and personal must be evaluated together.
A financial advisor can help you create a comprehensive financial plan, one that does take into account your business finances and your personal finances. This could include:
- Cash Flow Projections: Making and analyzing short- and mid-term cash flow projections, to evaluate the solvency of your business. Projecting whether cash flow will be positive next year can help you determine if additional investment, whether from yourself, a partner, a loan or an outside source, needs to be secured this year.
- Financial Targets: Establishing realistic financial targets for your business to reach, giving you something to aim for as you grow the business. An advisor can take into account economic factors, industry trends, and other details, so you can accurately forecast how quickly your business might grow.
- Business Opportunities: Evaluating specific business opportunities, and how they might impact your business’s balance sheets. For example, determining whether to lease a new space requires assessing the upfront capital costs, ongoing expenses, and what the new location could mean for sales.
- Retirement Savings: Advising you on how and where to save for retirement, including suggesting a SEP IRA or SIMPLE IRA if you qualify. These are retirement plan options specifically for the self-employed and small business owners, and could provide major tax benefits come retirement age.
- Other Savings: Creating savings plans for other major financial goals, such as kids’ college or a future dream home. Understanding how much you need to save can help you determine what could be reinvested in the business.
- Investments: Recommending investments that increase diversification, so you have savings and assets outside of your business. Stocks, bonds, precious metals, real estate, and cash can all give you some financial resources other than your business, just in case the worst happens with the business.
Because so much of your financial situation is tied to your business, it’s important to specifically work with a financial advisor who understands small business finances. Use our online financial advisor finder to get matched with someone who knows both business and personal finances.
2. Strategic Investment Management
A wise investing strategy will likely focus on growing your business, while not leaving you reliant solely on it. Your business is probably your best path toward income and wealth. No business is guaranteed, though, so you generally should have savings outside of the business too.
A financial advisor can help you with both business investments and personal investments. On the business front, this could mean managing business assets, analyzing potential opportunities, or directing excess cash. On the personal front, this could be choosing an IRA type, building an investment portfolio in accordance with your risk tolerance, and developing long-term savings goals.
3. Minimizing Liabilities and Maximizing Tax Benefits
Minimizing tax liabilities is particularly important when you face both business and personal taxes. It’s also often quite complex when you’re dealing with business taxes.
A knowledgeable financial advisor will be able to help you navigate the complex tax details that come with running a business. They’ll help you identify potential tax deductions, develop effective strategies for minimizing tax liabilities, and recommend investments based on potential after-tax returns.
You’ll probably want to use a Certified Public Accountant (CPA) when actually preparing and filing your business and personal tax forms. CPAs specialize in knowing the minutia of tax regulations, and representing clients in interactions with the IRS.
A financial advisor may provide tax guidance with a more holistic understanding of your business’s finances and personal financial situation. They can recommend specific investments based on potential returns, your risk tolerance, and any tax implications.
Together, a financial advisor and a CPA can be excellent resources who complement each other. You might also want a bookkeeper for the day-to-day. For the advisor, you can find a qualified financial advisor with our online matching tool.
4. Risk Management and Ensuring Business Continuity
Almost every business owner faces adversity at some point, and it’s important to plan for the “what if?” scenarios that could negatively impact your business. There are several ways an advisor can assist you with this:
- Risk Assessment: Conducting a thorough risk assessment, to identify potential areas of vulnerability where your business is exposed. Taking stock of potential vulnerabilities is the first step in protecting your business from them.
- Insurance Coverages: Purchasing insurance policies is one of the most effective ways to mitigate various risks. A commercial insurance agent can assist with standard coverages like commercial building and commercial auto. A financial advisor can help you decide whether other coverages, such as business income insurance and key person (key man) insurance, would be useful.
- Business Continuity Planning: How will your business resume operations as quickly as possible after a major disaster? A financial advisor can work with you, to develop a business continuity plan that you can turn to should something happen.
5. Navigating Economic Uncertainties
Many economic factors that affect your business are outside of your control. A financial advisor can help you navigate economic uncertainties, so you can be proactive when things change.
Moreover, an advisor can assist with navigating an economic downturn in multiple ways. They might help you:
- Offload assets that might go down in value
- Minimize labor cost increases
- Minimize other increases in operating expenses
- Manage a cash reserve for unforeseen emergencies
- Adjust personal investments for market conditions
6. Succession Planning and Exit Strategy
Ultimately, you’ll need a path for leaving your business. Even if you’re just starting a new business, it’s not too early to consider how you’ll leave (eventually you’ll want to).
There are two preferable ways to leave a business — passing it on, or selling your share. Simply shuttering a business is less desirable, because you don’t see much return on your years of hard work. Whether you intend to pass on the business or sell your share, a financial advisor can provide important guidance.
If the expectation is for family to continue the business, a financial advisor can work through the succession planning with you. How to manage the transition period, how business shares affect heirs’ inheritances, and whether you retain any interest in the business are just some of the matters that an advisor can talk over with you.
If you hope to sell the business, a financial advisor can use several models to value your business. An advisor may provide an asset-based valuation, income-based valuation, market-based valuation, or combination thereof. They can also calculate value based on Price to Earnings (P/E), Price to Sales, earnings before interest, taxes, depreciation and amortization (EBITDA), or discounted cash flow (DCF). They’ll know which of these methods is most appropriate.
They also can recommend ways to make the business more attractive to potential buyers. When the time comes, an advisor can review the financials of a negotiation or agreement.
An Investment in Your Finances
Depending on what you hire a financial advisor for, you might pay a one-time consulting fee and/or an ongoing fee. You also could pay separate fees for retirement planning, business valuation, and other services.
Always check a financial advisor’s fees before hiring them, but don’t think of the fee as simply an expense. It’s an investment in your financial future, and you certainly understand the importance of making wise investments if you’re a small business owner
Finding Your Perfect Financial Advisor Partner
Running a business requires experience and expertise, and so does advising someone who’s a business owner. You’ll want a financial advisor who’s worked with other small business owners.
As you look for a financial advisor who can assist with your business, there are several qualifications to seek out:
- Certifications: Your financial advisor should have at least one well-known certification. They could be a Certified Public Accountant (CPA), certified financial planner (CFP), registered investment advisor (RIA), chartered financial consultant (ChFC.), or have another credential. The exact credential is less important than their experience, so long as they’ve attained at least one recognized certification.
- Experience: Perhaps the most important criterion is that they have experience working with other business owners. Ideally, a financial advisor would’ve helped other businesses that are in your industry or a similar one. They should at least have helped businesses at similar stages (e.g. starting out, exiting, etc.).
- Fiduciary: Most financial advisors you talk with will probably be fiduciaries, which means they have a legal obligation to act in your best interest. Confirm that anyone you consider hiring is a fiduciary, though.
In addition to these litmus tests, you should also get to know an advisor on a more conversational basis. Make sure they listen to you, take time to understand your situation, and appreciate your professional and personal goals. Also, see whether you like their communication style.
Most importantly, ask yourself whether you trust them. There should be mutual respect and trust between you and your financial advisor — that’s how you can foster a truly collaborative approach to best help your business.
Questions to Ask a Financial Advisor
For further help finding a good financial advisor who understands businesses, you can use these questions:
- What certifications do you have?
- How many business valuations in my industry have you done?
- Do you have any potential conflicts of interest with other clients?
- Are you a fiduciary?
- What fees do you charge?
- How often will we meet?
You should expect to meet with your financial advisor regularly, but the frequency will depend on your situation. In most cases, they’ll probably recommend talking quarterly. Meeting more often could be necessary during times of change or challenge
Connect With a Financial Advisor Who’ll Help You
As a business owner, you undoubtedly understand that it’s near-impossible to do everything. What you might not have considered is relying on a financial advisor to help with your business’s finances (and your personal ones too).
Working with a financial advisor can be a strategic investment in your business’s success. Few others are as qualified to evaluate a small business’s finances, in conjunction with the business owner’s personal finances.
To find a financial advisor who’s well-matched for your needs, use our financial advisor tool. Answer a few quick questions, and we at Invested Better will put you in touch with a qualified advisor who’ll understand your business.
