The ABCs of Choosing a Small Business Financial Advisor

November 29, 2016 · Written By Thomas Alvaré, CPA/PFS

The ABCs of Choosing a Small Business Financial AdvisorHave you saved enough for retirement? How do you know? According to research cited by American Express Open Forum, 60 percent of small business owners surveyed have not consulted with a financial advisor. Consequently, 75 percent lack a formal plan for transitioning their business, while 30 percent still haven’t calculated how big of a nest egg they’ll require in retirement.

Do you recognize yourself in any of these statistics? If so, the following post explains why you need a small business financial advisor in your corner. I’ve spelled out a few key terms that highlight when, where, and how skilled advisors can round out your SMB team. Put them to memory today…

A – Advocacy

A small business financial advisor is an advocate for you, the business owner. As the company CEO, you may have mixed interests, but your advisor should be completely biased in your favor—helping you maximize the value of your business and leverage it as a primary source of wealth. Part of your advisor’s work may include dealing with your partners’ mixed interests, as well.  When advisors put you first, all of their advice is geared toward your success.

In this way, financial advisors help you represent your interests in business planning conversations and decisions. They contextualize personal gain versus company cost—particularly in areas like insurance planning, healthcare, and retirement benefits. An advisor can outline what kind of goals the company needs to achieve in order to align with your personal goals. Ultimately, those personal goals should define company targets.

B – Balance

As you well know, being a business owner is a risky proposition. It’s also fraught with emotion. From the inside, many owners have trouble maintaining their objectivity and not over-investing in their own passion project.

A good financial advisor understands the interplay of all the different assets you hold; your business is just one of them. He or she will perform the delicate balancing act of assessing business risks, diversifying your investments, and building wealth strategically. Because once you’re able to view your business in perspective, you’ll be better prepared to dispose of it in the right way.

C – Centers of Influence

Finding a highly-qualified business financial advisor is rarely as simple as an online search. You need to get validation from someone you trust. Professionals in close proximity are a great starting point: find a CPA in your state, contact your attorney, your insurance agent, or anyone who works with other business owners and can recognize your situation. Sometimes even your competitors are good people to tap for financial advisor referrals.

D – Delayed Planning

Why do so many business owners put off succession planning—or getting personal financial planning help for that matter? According to a 2015 U.S. Trust survey, the reasons break down as follows:

  • 54% have no intention of retiring in the near future
  • 23% haven’t made any conclusive succession plan decisions
  • 15% think it’s enough that family and colleagues are aware of their plans

If your plan is to keep working until fate determines you can’t, you may be severely limiting your options—including the ability to develop succession from within.

The longer the timeline, the more options you have. From a customer retention perspective, it’s much riskier to merge or sell. So if your objective is to keep the company intact and thriving, you’ll want to allow yourself time to groom a successor. Even if you plan to sell, ample lead time is a huge asset. Without it, you may lose negotiating leverage. You could be forced to accept a less suitable partner or a lower price.

E – Experience

Finding an advisor with experience in your industry is certainly helpful.  You want someone with proven business acumen and personal wealth management expertise. But knowing the specific line of business is not necessarily as important as understanding the customer relationships involved. Good advisors also understand professionals serving people—accountants, lawyers, engineers, etc. In forming a succession plan, they have very different challenges than a manufacturing company, for example.

F – Fifty

What’s so significant about turning 50? If you’re a business owner, it’s a good benchmark for when to start enacting your succession plan. That’s because it typically takes five to ten years to replace talent and assets, and essentially to make yourself obsolete. Your first choice for successor may not work out. You need roughly a decade to know if you have the right person, then a transition period of five years or more to bow out gracefully. And yet according to a 2015 survey from U.S. Trust, 60 percent of affluent business owners—over the age of 50—do not have a succession plan in place.

G – Growth

In an ideal world business owners would get financial planning help from the very beginning, during the capitalization process, to understand the benefits and drawbacks of self-funding versus equity or debt financing. All too often this doesn’t happen, leaving business owners to work for free and continue investing huge amounts of sweat equity.

If your business got off the ground via bootstrapping, you’re overdue to bring in a small business financial advisor, someone who can help you plan for the next organizational milestone. An experienced professional can advise you on when it makes sense to carve out a salary for yourself, hire for key roles, grow more aggressively, and most important: on how to make the most of your business as an asset in retirement.

Learn more about our wealth management for individuals and families and the history of our team today. Because when it comes to owning a business and planning for retirement, the old adage has never been truer: time is money…