As an entrepreneur, you undoubtedly understand the importance of proper financial planning. It’s essential in business, where there are investments, loans, cash flows, tax obligations, and opportunities to manage. It’s certainly important for personal finances as well.
The right financial advisor can help you with both personal finance and business finance matters. They’ll be familiar with college savings, retirement planning and estate planning. As a specialized financial advisor for entrepreneurs, they’ll also know how to analyze a profit and loss (P&L) statement, create cash flow forecasts, and evaluate the tax implications of business decisions.
If you’re a business owner looking for help with financial matters, here are six key qualities to look for in a financial advisor.
Quality 1: Entrepreneurial Experience or Expertise
One of the most critical qualities to look for in a financial advisor is entrepreneurial experience or expertise. They’ll ideally have personal experience as a small business owner, and will at least have worked with multiple business owners.
Someone who has firsthand knowledge of what running a business is like will be sympathetic to the challenges that you face. More importantly, they’ll be better able to help you analyze challenges and potential solutions. For example, an advisor who’s been a business owner will likely be familiar with the:
- Cash flow management challenges small businesses can face
- Benefits that reinvesting profits into a business can bring
- Need to earn an income from your business
- Growth trajectory of small businesses
It’s best if you can find a financial advisor who’s specifically familiar with your industry. They might not have personal experience in your industry, but maybe they’ve helped other business owners in the same sector.
A financial advisor with industry knowledge will be familiar with typical cash flows, growth rates, and tax strategies used in your industry. They also might know how others overcame the same types of challenges that you’re likely to face.
This type of experience often goes beyond the standard credentials that financial advisors can attain. It’s important to confirm that a financial advisor has a certification, like being a Certified Public Accountant (CPA), certified financial planner (CFP), chartered financial consultant (ChFC), registered investment advisor (RIA), or some similar qualification.
You’ll want to go beyond such credentials, though, and ask about their small business experience and knowledge. Here are a few questions that might help when interviewing an advisor:
- Have you ever owned your own small business, and was it successful if you did?
- How many business owners do you provide financial advisor services for?
- Do you work with small businesses that are similar in size to mine?
- Do you work with small businesses in my industry or a similar one?
- Are you familiar with any regulatory requirements that my business must follow?
- Can you tell me about clients who have successfully grown or exited their businesses?
- Do you assist with securing capital or financing for businesses?
We have a large and diverse group of financial advisors in the Invested Better network. Complete a quick survey, and we’ll find a financial advisor who knows business finances for you. There’s a good chance we can pair you with someone well-qualified to assist you.
Quality 2: Holistic Approach to Personal and Business Finances
It’s not enough to know just business finances, but a good financial advisor should know personal finances too. Decisions about business finances often affect a small business owner’s personal finances, and the reverse can be true too.
For example, consider a business growth opportunity that you have. A good financial advisor should be able to help you evaluate the opportunity on its own merits. They also should be able to help you assess how this particular investment would fit with your overall financial plan, including your long-term savings strategies for retirement and other major future expenses.
It’s important to actually keep business finances and personal finances separate. Separate bank accounts, separate credit cards, and separate budgets are generally recommended — a financial advisor who knows personal and business finances can provide further guidance on this.
Decisions, however, must be made wholistically with consideration for both your personal and business finances. An advisor can assist with this as well.
Quality 3: Risk Management Expertise
Many financial advisors are familiar with risk management in personal finance contexts. Using risk management strategies like diversification, dollar-cost averaging and asset allocation is often prudent when investing personal funds.
For entrepreneurs, though, risk management also includes protecting against business risks. Insurance coverages, contingency plans, diversifying revenue streams and cash reserves are some strategies that might be helpful in a business context.
You’ll want a financial advisor who’s familiar with personal investing risk management strategies. Make sure you ask about a financial advisor’s business risk management expertise too. Some specific questions to ask include:
- Can help business owners with insurance coverage like business income coverage and keyman (or key person) coverage?
- Do you help business owners draft contingency plans for their businesses, in case something happens?
- What’s your general approach to business loans, and how do you evaluate their suitability for a business?
- How would you mitigate business risks to better protect my personal finances?
As you listen to their answers, pay attention to how much they reference your own risk tolerance. They should be able to use their risk management expertise to develop strategies that are in line with your own risk tolerance and situation.
Quality 4: Tax Planning Proficiency
Tax planning is a major area where entrepreneurs can significantly benefit from professional guidance. Tax deductions, tax credits, and special tax incentives can significantly affect your business’s net profits.
For example, you might time a major purchase so that the deduction can be structured a certain way. It could be advantageous to collect receivables or pay billables in a particular year. Sometimes using an accrual accounting method is better than using the more common cash method.
Even foundational decisions about your business can have large tax implications. Sole proprietorships, limited liability companies (LLCs), C Corporations and S Corporations are each subject to their own tax requirements. In the case of an LLC, you could choose to use either a sole proprietor or corporation tax option.
The financial advisor that you choose to work with should be well-versed in these types of tax matters. They might be a CPA themselves, or they may work with a CPA who knows your state’s laws.
If you don’t have a Certified Public Accountant to work with, use our financial advisor matching tool to get paired with a CPA who has specific tax expertise.
Quality 5: Investment Strategies Tailored for Entrepreneurs
Entrepreneurs often face challenges when it comes to managing investments and saving for retirement due to irregular income and cash flow. It’s not easy to save for retirement when you don’t know what next month’s personal income will be. You also don’t want all of your personal assets tied up in the business.
A knowledgeable financial advisor will be able to recommend strategies that address these solutions. They can guide you through the process of building business cash reserves, a personal emergency fund, and other savings. They can help you invest outside of the business for long-term goals. They can show you diversification options in stocks, mutual funds, bonds, real estate, and other asset classes.
In short, a good financial advisor will have broader knowledge that can give you a well-reasoned foundation for your finances.
Quality 6: Exit Planning and Succession Expertise
No entrepreneur is a business owner forever. You’ll one day need to close your business, sell the business, or pass it on. It’s not too soon to start thinking about how you’ll leave your business, regardless of how many years off that might be.
Choose a financial advisor who will be able to help you with an exit strategy or succession plan. They should be able to help you decide whether to sell the business, pass it on to a family member, or simply close it. Any succession planning should be done part-in-parcel with retirement planning and estate planning.
They also should be able to help with the actual execution of whichever option you choose. Look for someone who can value businesses, suggest ways to minimize tax liabilities, and hopefully assist with navigating relationships if you’re passing the business on to a family member.
How to Find the Right Financial Advisor for Entrepreneurs
Finding the right financial advisor for entrepreneurs can require interviewing a few different advisors. Don’t be afraid to meet with several advisors, either in-person or virtually, and ask each a range of questions. You’ll probably want to ask about:
- Certifications: Your advisor should have at least one recognized certification. This could be a CPA, CFP, RIA, ChFC or similar certification.
- Expertise: Expertise in small business finances is probably the most important qualification that a financial advisor for entrepreneurs can have. Make sure they’ve at least worked with businesses in a similar stage as yours (e.g. startup, established, exiting), and preferably in an industry similar to yours.
- Business Plans: An advisor should have detailed knowledge of different ways to structure a small business plan, how to structure exits, and how to evaluate opportunities.
- Fiduciary: Most of the financial advisors you meet with will be fiduciaries, but it’s good to confirm that they indeed are. A fiduciary is legally obligated to act in your best interest regardless of any conflicts they might have. You can ask about potential conflicts of interest as well.
- Fees: if you’re hiring a financial advisor for their small business expertise, you’ll probably have to pay fees beyond what’s charged for standard personal finance planning. Request a disclosure of all fees that will be charged, and make sure you understand how they’re calculated. Expect to pay a combination of flat fees, hourly fees and percentage-based fees, depending on exactly what services they’re providing.
- Communication: Find out how often you can expect to meet with them, and also how frequently other communications will be sent back and forth. Hopefully, they’ll provide monthly or quarterly updates on both business financials and personal investments. They should also be able to promptly respond if you have questions, particularly urgent business ones.
Find a Financial Advisor Who Understands Small Businesses
At Invested Better, we understand that people rely on financial advisors for different reasons. That’s why we’ve developed a broad network of advisors who have expertise in diverse areas — including in small business finances.
Chances are that one of our financial advisors for entrepreneurs can provide the help you’re looking for. To see who that might be, answer a few brief questions about yourself and your business. We can then suggest a financial advisor who’s probably a great match for you.
