Importance of Financial Advisory for Small Businesses
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Financial Advisor Relationships with Small Business Owners
A common misconception is that financial advisors are only useful in managing an individual’s investment portfolio or building up personal or family wealth, savings, and financial plans. However, this is far from the case as business owners can also benefit from the knowledge and expertise of a trusted financial advisor. A strong collaborative relationship between a small business and a financial advisor is often formed and can be extremely helpful for the assistance and ongoing success of the company. Often in many cases, a trusted financial advisor works closely with business owners to understand and take apart their businesses’ unique features, such as strengths, weaknesses, challenges, and opportunities to interpret how to help the business and provide a customized and specialized solution to address any financial concerns or problems.
An example of this can be seen with a financial plan or insurance plan. With both of these plans in place, the financial advisor is able to provide the business owner with peace of mind but is also able to implement essential protections for the business and its assets. Injury or death of a business owner or key employee can severely cripple a business, so it is crucial to mitigate that risk and protect the business owner. A financial advisor can also help guide a small business owner through the complex process of developing an exit strategy. They are trained and knowledgeable in ensuring a smooth leadership transition and continuation of the business when it is time to retire or move on from the company. This process may involve preparing the business for sale, transitioning or transferring ownership among family members, or exploring potential merger and acquisition opportunities.
In addition, multifaceted financial advisors can also help small business owners with the implementation and design of an employee benefits program, including retirement savings packages and plans, health insurance, and other perks. These special employee offerings not only attract and retain top talent and key employees but can also contribute to the overall financial health and stability of the employees and the company.
By leveraging knowledge learned from past scenarios and experience, as well as their overall expertise, financial advisors can help small business owners take on informed decisions that promote the long-term financial health, stability, and growth of the company. This not only supports the small business owner’s personal financial health and well-being but also contributes to the overall success and sustainability of the employees, business, and potential stakeholders. Further, the relationship between the small business owner and financial advisor can change and evolve over time as the business grows and matures. This allows for a dynamic and responsive partnership and relationship that spans beyond the business.
Helping you achieve your evolving financial objectives
Insurance Planning
A variety of policy options exist for small business owners looking for security protection or risk mitigation related to insurance. General liability insurance is a popular choice that includes general injury, customer property damage, or libel and slander in its coverage. One of the most damaging events that can happen to a business is the death or injury of a business owner, partner, or key employee. These events can cause a variety of problems, including business closure, temporary shutdown of operations, and even a mandatory buyout of an ownership stake in the company. With the help of a financial advisor, these risks are mitigated through insurance planning and policies such as life, disability, and key person insurance. Many business agreements also call for the implementation of a buy-sell agreement mandating life insurance policy purchases on all partners to buy out their ownership stakes in the event of an early death, disability, or injury.
Managing the Financial Assets of the Business
As revenue increases for the business, small business owners often do not have the time or opportunity to invest cash or savings, letting them build up in low-interest-bearing business savings accounts with little returns on their money. Financial advisors are specialized to assist time-constrained business owners in the efficient allocation and diversification of their investments and can take the guessing game of which investments to choose out of the business owner’s hands.
Part of the difficulty in determining which investments to choose and managing the earnings of the small business is calculating and estimating the future cash flow needs of the business. A financial advisor can work with small business owners to understand their company, business needs, available company resources, and planned future aspirations to determine potential financial growth opportunities for the business. Different investment strategies may work for different businesses, so a financial advisor can help craft a unique, personalized strategy that works for one’s business. Financial advisors can also help manage the cyclicality of financial operations to ensure the business owner has sufficient cash flow funds to last them year-round.
Planning an Exit
Most small business owners eventually plan to sell or exit their businesses. Some sell their business, while others transfer their ownership to family members. A financial advisor can help with this complex process that often involves a wide range of knowledge and experience to complete. In order to sell or transfer ownership, various factors must be considered, including the valuation of the business, the effects of the sale or transfer on employee benefits, and taxes. A financial advisor can distill advisement to help facilitate the planning of an exit and ensure a strategy is in place to yield positive returns and outcomes on all aspects of the owner’s sale.
If a business owner is emotionally tied to the business, a financial advisor can help map out their financial situation and deliver hard-to-hear information that may sway the opinion of the owner in a proper direction and show them opportunities and options that they never knew about or considered before. Financial advisors have the experience of seeing many exit situations and scenarios play out and are more in tune with the business cash flow forecast and financial trends to understand what the best options are for the small business. They can also detect future problems for the business related to their finances or operations that the business owners may not be aware of.
While many insurance coverage options are available for small business owners to alleviate some of the financial pressure and burden from the passing of an owner, the transfer and sale of assets at the time of death can be an incredibly complex and risky process that is hard to undertake alone. Financial advisors can help assess and take on complex taxes, such as fixing the mistreatment of estate assets and large tax assessments that require complex legal processes and paperwork fraught with deadlines and requirements.
- https://www.annuity.org/financial-advisors/small-business/
- https://www.usbank.com/wealth-management/financial-perspectives/financial-planning/insurance-financial-plan.html
- https://missionwealth.com/why-financial-advisors-help-your-business/
- https://getvaluescout.com/blog/all/exit-planning/the-advisors-role-in-exit-strategy/
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