Small business owners may have complex financial needs regarding personal and business finances, which require specific knowledge a general financial planner may not have.
Specialized financial advisors can help business owners navigate complex financial decisions, from developing tax strategies to business succession, ensuring long-term success.
Benefits from Working With Specialized Financial Advisors
Small businesses often face unique financial issues, including enough cash flow management, a need for business growth strategies, and retirement planning. A specialized financial advisor for business owners understands these complexities and is equipped to provide tailored solutions to help the company’s owners build personal wealth and manage exit planning.
Let’s take a look at three crucial categories for small business owners:
- Cash flow
- Growth and risk management
- Retirement and tax planning
In this article, we’ll take a look at these three factors in detail. At the end of this article, we’ll provide a checklist for business owners to use to evaluate the financial advisors they are considering.
1. Cash Flow Management
Do you have problems managing your business’s cash? This may be your number one frustration as it can be very challenging, even for a financial planner. In fact, a major contributor to business failure is due to lack of sufficient cash on hand.
Managing cash is a challenge many small business owners face. A business may be making sales, experiencing increased value, expanding its customer base, and meeting all its key performance metrics. Yet, often still struggle with dealing with cash-on-hand.
Here is an example given by financial advisors. Suppose it’s Friday and a payday. Everyone is looking forward to the weekend, except one person in the company – the small business owner who is worrying about making the payroll this week.
Unfortunately, without enough cash, a small business can run into serious problems.
Considerations about cash flow
The following are considerations about cash businesses need to think about, along with various types of solutions experienced financial advisors can help with when establishing a business plan.
- Analyzing Patterns
- Historical cash patterns for business operations can be analyzed by financial advisors to identify patterns, such as seasonal sales, that can be managed to produce enough cash for operations.
- Creating a Cash Forecast/Establishing Cash Reserves
- Financial advisors can create a forecast to help predict cash needs and identify potential shortfalls. Advisors can often recommend ways to establish a cash reserve or emergency savings to protect against sudden, unexpected events.
- Negotiate Favorable Payment Terms with Suppliers
- Suppliers want their best customers to succeed and can be very supportive by offering more manageable payment terms.
- Invoice Promptly and Follow Up on Payments
- Financial advisors advise managing past due invoices and collecting accounts receivable promptly to increase the business’s cashflow.
- Offering discounts for early payments can also help improve cash balances. Another possibility is to simply be careful and very selective when extending credit to customers.
- Lease Instead of Purchasing Assets
- Financial advisors often recommend leasing when possible. Leasing gives businesses access to equipment without spending as much cash. There may also be tax advantages for leasing instead of investing capital to make purchases of large assets.
- Reduce Unnecessary Expenses
- Advisors often suggest businesses be diligent in budgeting and working to cut out wasteful expenditures. Additionally, introducing automation can enhance productivity and increase efficiency to save money and cut out waste.
- Secure a Line of Credit
- Depending on a company’s situation, a line of credit can effectively be used to increase inventory turnover, widen profit margins, manage cash better, and improve the company’s finances.
- Monitor and Adjust Pricing Strategies
- Businesses can modify pricing based on covering their fixed costs first and then bolster sales by offering steep discounts that do not contribute to paying for overhead.
- Conduct Regular Financial Reviews
- With the help of your expert business financial advisor, conduct regular financial audits and annual reviews.
As you get your cash management under control, you should strongly consider working closely with a good financial advisor who has expertise in growing small businesses.
Do cash flow problems cause problems for your small business? Working with a small business financial advisor can be a helpful solution. Not sure where to start? Find a financial advisor today!
2. Growth and Risk Management
A small business typically needs to continue to experience growth to survive. Stagnation brings a high potential to face a downfall. Working with a qualified financial expert can help your company develop business planning that is inclusive of growth strategies to achieve these goals. Along with growth, you will need to protect your business and manage risk. Good financial advisors can help in this area too.
In this section, we’ll look at growth strategies and ways to mitigate risk.
1. Managing Cash Flow for Growth Opportunities
To achieve this goal, you’ll want to manage cash flow effectively by ensuring the business is well-capitalized while balancing investment in growth. An advisor assists in making investment decisions to help businesses secure short-term liquidity and long-term growth.
The concept of free cash flow is helpful to understand. This is money not needed to sustain current operations and is available to invest in other areas, including long-term growth or the business owner’s retirement plans. The goal for any business should be to create free cash flow and then wisely invest the money with the help of a trusted financial advisor.
2. Conducting Market Research
You cannot get to where you want to be without knowing what opportunities exist and the obstacles you may face. Conduct market research as part of your business planning. Here are some insights about growth strategies.
- Diversify Product or Service Offerings
- Growth may come from diversifying your product line or by offering additional services. Expansion to new markets or locations to widen your consumer base can launch new growth opportunities.
- Develop a Scalable Business Model
- Consider going from current operational levels to 2x, 5x, or 10x. What must you overcome to scale up?
- Invest in Marketing and Branding
- Marketing and branding are long-term investments that continue to pay off for the life of a company.
- Strengthen Customer Retention Strategies
- It costs far more to attract new customers than it does to retain current ones
- Form Strategic Partnerships/Alliances
- Businesses can make strategic alliances that benefit both companies. For instance, they can work on payment terms with suppliers to improve cash management.
- Invest in Technology and Automation
- Technology is an important tool because it drives productivity and efficiency. Keep a pulse on new and emerging technologies to try to stay ahead of the competition.
- Hire and Retain Key Talent
- The hiring and retention of terrific employees are key to empowering companies to experience favorable growth. Offer significant employee benefits to help keep your best employees happy.
Need to find an advisor to help you develop your business’s growth strategies? Use our free advisor match tool
3. Focusing on Improving Operational Efficiency
Every business is transforming or should be. For example, artificial intelligence is a fundamental megatrend that can significantly improve operational efficiency if used strategically. Look for opportunities that will enable you to boost efficiency and put more money back into your budget.
4. Exploring Mergers or Acquisitions
Buying growth through a merger or acquisition (M&A) is sometimes easier than creating growth internally. A qualified advisor is a must-have when dealing with M&A issues.
5. Identifying Risk Management Issues
Risk tolerance and management is an important task no business should ignore. Various factors can lead to threats that disrupt business continuity or completely devastate a business. Events, including but not limited to market volatility, legal liabilities, and unexpected downturns can also have an adverse impact on the business’s financial situation.
It is wise to have a financial advisor’s help to mitigate these and other risks. It is comforting for business owners to have a qualified financial advisor when facing challenges because they can:
- Answer questions about the business owner’s financial planning
- Help evaluate risk exposure
- Provide plans to protect the business
- Offer personal wealth management through insurance (including key person insurance)
- Establish contingency plans
Business owners tend to do better when investing time and money in developing close relationships with trusted financial advisors who provide support when needed, along with financial planning to help provide a roadmap to a strong financial future.
6. Implementing a Robust Risk Management Plan
Risk management is vital to the ongoing success of a small business owner. Categories for managing risk include market trends, operations, financial issues, compliance, reputational defense, cybersecurity, supply chain, legal, environmental, strategic, political, competitors, talent retention, technological, and excessive customer concentration.
If you have these issues (cash, growth, and risk) managed properly, you are doing fine. If your business has good cash flow, risks are managed, and is growing well, this suggests your business is going in a positive direction.
Ready to speak with a qualified and certified financial planner? Find financial advisors using our matching tool.
3. Retirement and Tax Planning
The next big issue to tackle is your retirement planning and tax strategies. After all your hard work, you’ll want your financial advisors to help you save on taxes, wisely invest your income, and put aside plenty of funds to enjoy retirement.
Your certified financial planner can help you to:
- Develop a personal financial plan to protect your future
- Manage investments to help meet personal financial goals
- Offer tax planning strategies for small businesses
- Provide strategies for debt management
- Handle investment management (aligning with risk tolerance for wealth management)
- Create a business succession plan or another exit strategy
Your advisor can work closely with you on these and all other aspects of your financial planning.
How a Financial Advisor for Small Business Owners Can Help with Tax Strategies
A financial advisor helps create tax-efficient strategies for small business owners, particularly concerning business assets, deductions, credits, and retirement planning. Specialized tax planning can significantly reduce a business owner’s tax liability while ensuring compliance with tax laws.
The following are some areas where a professional can assist a business owner. When appropriate, also consult a CPA or tax attorney.
- Maximizing Deductions and Credits
- The tax codes are constantly changing. Small business owners typically do not have the time to keep up with all the regulatory changes. A tax professional focuses on these issues, especially industry-specific taxes, deductions, credits, and incentives.
- Entity Registration and Domicile
- A tax-efficient business structure based on the business’s operations might be an LLC, S-Corp, or C-Corp. The entity type and where it is headquartered (its domicile) may help minimize taxes.
- Income Deferral
- With the help of small business financial advisors, retirement contributions and the timing of expenses and revenue recognition may shift income to periods with lower tax rates.
- Depreciation
- Many financial advisors recommend utilizing accelerated depreciation methods, such as Section 179 or bonus depreciation, to write off large capital expenditures sooner, reducing taxable income.
- Tax-efficient investments
- The business owner’s investments are structured in a retirement plan to take advantage of tax breaks.
- International Tax Strategies and Planning
- Businesses with global operations need to manage foreign tax credits, transfer pricing, and repatriation strategies to reduce global tax liabilities.
Do you need a specialized financial advisor to help with tax planning? Invested Better helps business owners find the right financial advisor for their specific needs.
- Succession Planning and Exit Strategies for Small Business Owners
- Business owners get the help they need through personal financial planning and making a retirement plan by developing an exit strategy or business succession plan. Early and thoughtful planning is needed for a successful transition, whether selling the business or passing it on to family members. In this section, we’ll list some factors related to succession planning with the help of a good business financial advisor.
- Business Valuation
- The company valuation may require an expert appraisal by a business financial advisor, especially for private or closely held companies.
- Successor Identification
- Owners may plan to leave the business to a family member(s) or a key employee(s). To establish a reasonable plan for succession, a business owner must identify the person(s) who will take over. Business owners should not make the mistake of assuming their children want to run the business. This is a conversation to have sooner than later.
- Exit Goals and Timeline
- Deciding how to exit the business and when to do so is a complex process covered in succession and exit planning. This will include determining continuity of leadership to ensure the business will continue to run smoothly even after the business owner passes the responsibility to another person(s). Financial advisors can suggest various options for transferring business ownership.
- Training and Development of Successors
- Assuming there are cooperative candidates for successors, a wise strategy is to get successors deeply involved in the business and train them as much as possible to run it properly.
- Communication Plan with Stakeholders
- To minimize problems with various stakeholders, the planning for business owners working with small business financial advisors includes a communication plan that keeps stakeholders informed and respects the business owner’s wishes.
- Financing Options for Buyers
- If the business will be sold, it may help to offer some form of owner financing based on financial projections if the company’s finances permit.
- Employee Retention and Incentives
- Keeping key employees when a business changes owners due to succession or sale of the company may be challenging. Offering employee incentives like health insurance and employee benefits to stay on and work with the new owner may help the transition go more smoothly.
- Tax Implications and Planning
- Transferring the ownership of a business has considerable tax implications that an experienced advisor or a certified financial planner can help manage.
- Legal Considerations and Agreements
- Using an attorney with expertise in estate planning to draw up the necessary agreements is part of the succession process.
- Buy-Sell Agreements
- These agreements allow for an automatic transfer or sale of a business owner’s rights in the business if its owner dies or becomes legally incapacitated. The buy-sell agreement is frequently used in partnerships to allow one partner to buy out the other partner’s interest in the company.
Small business financial advisors can help determine the best way to construct retirement plans and/or dispose of business assets.
Checklist: Criteria for Choosing a Financial Advisor for the Small Business Owner
Invest time in getting professional guidance and conducting due diligence on any advisors you are thinking about hiring. Here is a checklist of what to look for in a financial advisor for business owners:
- Passes a background check
- Offers significant industry experience, especially cash flow management
- Possesses certifications and credentials.
- Demonstrates a proven history of fiduciary responsibility for business finances
- Has a track record of success in financial planning
- Has positive client referrals and reviews
- Provides excellent and timely communication skills
- Possesses an in-depth understanding of business taxes and tax strategies
- Expert experience in succession planning and long-term financial planning
- Knows technology and tools, including automation tools and AI.
Use the Invested Better™ tool to get matched with a financial advisor.
Helps Seek External Funding or Investment
The best time to look for investment capital is before a company needs it. A seasoned financial advisor with valuable contacts can help with a capital raise. Don’t try to do this without expert help, use our matching service to find a financial advisor with experience raising capital.
How to Evaluate Services and Fees of Business Financial Advisors
You’ll find there are many types of financial advisors, so it is important to identify financial advisors with the proper expertise.
As a business owner, you should evaluate the financial health of both your business and your personal finances. Then, as part of your business plan, assess the value of your own business of financial advice.
Compare the fee structures of a potential small business financial advisor. Each good business financial advisor may have different fee structures to consider (e.g., fee-only vs. commission-based).
Depending on the financial situation, it is common for small business owners to hire more than one financial advisor for wealth management and unique financial planning challenges. For example, there may be an advisor for investment management and a specialist financial planner for retirement plans.
Fee Structures of Business Financial Advisors
A financial advisor may charge fees based on hours worked, assets under management, flat fees, or commissions. Discuss the fees in detail with any financial advisor being considered. Select financial advisors who align with your financial planning goals and budget.
Small Business Owner Needs to Find the Right Business Financial Advisor
Small business owners need to work with a specialized financial planner who understands the challenges, along with the intricacies associated with the issues businesses must manage.
Ideally, as a business owner, you should take action without delay to find a business financial advisor to help manage investments to build financial success.
Armed with the right small business financial advisor who can establish financial planning to improve your business’s financial health. This, along with being able to provide significant small business financial benefits, such as improved cash flow, strategic investments, and retirement savings, will help position your business and personal finances for success.
Ready to get started? Get matched with a financial advisor today!
