Q: Why do small business owners need a financial advisor?
A: A financial advisor helps lift the weight off your shoulders by crafting tailored financial strategies. They seek to ensure that you’re making money and accumulating wealth.
For many successful small business owners, managing business finances and working toward personal finance goals is a lot to handle alone. In addition, the more complex your finances become, the greater the opportunity for a financial professional to optimize your investments and do tax planning that saves you money.
An experienced financial advisor can provide strategic advice on tax strategies, investment opportunities, and retirement planning. Meanwhile, a business financial advisor can help you make better, more informed decisions. This guidance is crucial for safeguarding your personal and business finances, especially in uncertain times or when you’re growing your business quickly and have no room for errors.
Ultimately, a financial advisor serves as an experienced partner in navigating the financial complexities of running a business and moving toward retirement, the possible sale of the business and financial freedom.
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Do You Need a Financial Advisor for Your Personal or Business Finances?
As a small business owner, you might ask yourself, "Do I really need a financial advisor?"
If you’ve been doing it independently up until now, you may be reluctant to seek professional guidance.
But, working with a financial advisor can provide many long-term benefits that contribute to your business’s growth and stability, making it a worthwhile consideration. In this post, we'll cover the basics so you can be more informed as you seek out the guidance of a financial planner or advisor.
If you'd like to speak with a fiduciary financial advisor who can help you with your personal and business financial planning, schedule a call with a 360 Financial fiduciary advisor.
What Is a Business Financial Advisor and What Do They Do?
A business financial advisor is your strategic partner in finance.
They typically offer a comprehensive suite of services. These may include cash flow management, risk assessment, tax planning, and retirement savings strategies. By analyzing your business's financial health, they create a roadmap for your business to preserve and accumulate wealth.
Their expertise also extends to investment advice, helping you diversify your assets and future income streams. In essence, a financial advisor provides the insights and strategies needed to make sound financial decisions as you work to ensure the long-term success of your business.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Choosing the Right Business Financial Advisor
Selecting the right financial advisor is important because this person should become a long-term partner.
Look for credentials like Certified Financial Planner (CFP®), Certified Private Wealth Advisor (CPWA®), or Chartered Financial Analyst (CFA®), which signify a high level of expertise. Ask for referrals from fellow business owners and check the advisor's track record with small businesses. Do a Google search for fiduciary financial advisors that specialize in helping business owners like you.
Consider their approach to financial planning—do they offer personalized strategies or a one-size-fits-all model?
Also, clarify their fee structure to avoid hidden costs. A good financial advisor should act as a transparent, proactive partner who prioritizes your business's unique needs and goals, seeking a partnership built on trust and mutual success.
5 Ways Financial Advisors Can Help Small Businesses
Financial advisors offer more than just investment advice.
Advisors can assist with budgeting and cash flow management. They can also provide strategies to reduce debt, improve profitability and help with risk management by identifying and mitigating financial risks.
1. Comprehensive Financial Planning
A comprehensive financial plan is a roadmap for success.
It includes detailed budgeting, cash flow analysis, and profit projections. Advisors can also assess insurance needs to protect against unexpected events. They can create retirement savings strategies tailored to the owner's goals and the business's cash flow. Estate planning is another crucial component, ensuring that the business and personal assets are managed and transferred according to the owner’s wishes.
2. Strategic Tax Planning
Tax planning is crucial for maximizing business profitability.
Financial advisors can develop strategies to minimize tax liabilities, such as leveraging deductions and credits.
3. Asset Allocation
Advisors can also guide asset allocation, seeking to ensure investments are diversified to minimize risk.
By strategically managing taxes and investments, advisors may be able to help businesses retain more earnings for reinvestment or growth.
4. Implementing Company Benefits and Retirement Plans
Employee benefits can attract and retain top talent.
Financial advisors can assist in designing and implementing benefit packages, including health insurance and retirement plans like 401(k)s. They can also help small businesses navigate regulatory requirements and choose cost-effective options.
Advisors can also educate employees about their benefits, promoting financial wellness within the company. This support enhances employee satisfaction and positions the business as a competitive employer in the market.
At 360 Financial, we have experience helping businesses create benefit packages and navigate retirement planning.
5. Succession and Exit Planning Support
Planning for the future is vital for business continuity.
Financial advisors can help small business owners develop succession and exit strategies, ensuring a smooth transition when it's time to step back. They are able to evaluate the business’s value and explore options like selling, merging, or passing it on to family members. This type of planning seeks to protect the owner’s legacy and secure the business’s future while maximizing the financial benefits of the exit.
How to Evaluate the Cost of Hiring a Financial Advisor
"Is it worth it?"
That's the question most people ask when thinking about working with a financial advisor. There's a hesitancy to seek professional guidance, particularly if you've been managing your investments for years.
However, at a certain point, most people find their financial situation too complex to manage alone. As a business owner, you're probably busy growing your business. You'd probably rather focus on doing what you love rather than pouring over financial planning spreadsheets and building a diversified portfolio.
If you have $1M or more in investable assets, working with a boutique wealth management firm operating within a fiduciary environment will likely be worth the cost.
It's not uncommon for a good advisor to save you money through tax planning and working to ensure you're not invested in costly investment products like high-priced mutual funds.
Advisors typically charge a percentage of assets under management. Often, the more assets your advisory firm is managing on your behalf, the lower the percentage.
When deciding whether to work with an advisor, you can evaluate their fee structure and compare it with the potential benefits they offer. Ask yourself if you will be able to fully optimize your personal and business finances on your own.
Consider the return on investment—if an advisor can save you more in taxes, improve your business's profitability, and ensure your personal wealth is optimized toward your goals and dreams, the cost will most likely be justified.
The Importance of Ongoing Financial Monitoring and Adjustments
Financial planning is not a one-time event.
Having a new financial plan once every few years just doesn't cut it.
Business conditions, market trends, and personal goals change, so your financial plan needs regular reviews and adjustments. Continuous monitoring allows you to stay on track, make proactive decisions, and adapt to new opportunities or challenges.
Financial advisors provide ongoing support, offering insights to tweak your strategies as needed.
How Financial Advisors Assist in Risk Management and Insurance Planning
Risk is an inherent part of running a business.
Financial advisors can identify potential risks, from market volatility to liability issues, and recommend strategies to mitigate them. They can help assess your insurance needs, seeking to ensure that you have adequate coverage for property, liability, and business interruption.
By implementing a comprehensive risk management plan, advisors can help preserve your business assets so you're not worrying about the future.
Common Questions
Why do business owners need a financial advisor?
A financial advisor helps business owners make informed decisions, manage cash flow, reduce tax liabilities, mitigate risk and plan for future growth. They offer professional guidance on investments, risk management, and retirement planning, ensuring the business remains financially healthy and aligned with the owner's long-term goals.
Is it worth paying for a financial advisor?
Yes, if the advisor can provide valuable insights that save you money, increase profitability, or help you achieve financial goals. The cost is often outweighed by the benefits, which include improved financial strategies, reduced taxes, and confidence from professional guidance.
What is the purpose of having a financial advisor?
The purpose is to provide experienced financial guidance tailored to your unique needs. Advisors help with budgeting, investing, tax planning, and risk management. They create a strategic plan to grow your wealth, safeguard your assets, and work to ensure a secure financial future for both personal and business finances.
At what net worth should I get a financial advisor?
There's no set net worth for hiring an advisor; it depends on your financial complexity and goals. However, as your assets grow, typically around $250,000 or more, a financial advisor can provide significant value in managing investments, planning for retirement, and optimizing your financial strategy. If you have $1M or more in investable assets, then it’s definitely worth considering working with a wealth management team.
Can working with an advisor support business succession planning?
An advisor can help develop a succession plan by evaluating the business’s value and exploring exit strategies like selling, merging, or transferring ownership. They will aim to ensure a seamless transition that safeguards the business’s continuity and maximizes its value.
Can an advisor align personal financial goals with a business strategy?
An advisor seeks to align personal financial goals, such as retirement savings and estate planning, that are integrated with your business strategy. They provide a cohesive plan that balances investments, cash flow, and risk management, focusing on both personal and business prosperity while preparing for long-term financial stability.
What is a small business financial advisor?
A small business financial advisor specializes in managing the financial aspects of small businesses. They provide guidance on budgeting, cash flow management, tax planning, and investment strategies, helping business owners optimize their finances, grow their businesses, and achieve long-term financial stability.
Can a small business financial advisor also help me with my personal finances?
Yes, many small business financial advisors offer personal financial planning services. They can assist with managing personal investments, retirement planning, and integrating personal and business financial goals, working to see both areas are aligned for overall financial success.
Do most small business owners work with a personal financial advisor?
Not all small business owners work with a personal financial advisor, but many find it beneficial. As a business owner, you may wish to have a clearer understanding of how to balance personal and business finances, plan for retirement, and build personal wealth. A financial advisor can help you with this.
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About 360 Financial
360 Financial is an independent wealth management firm with a team of specialized financial advisors and financial planners. As fiduciaries, 360 Financial’s advisors provide services to business owners, entrepreneurs, and professionals. We help investors with sudden wealth, retirement planning, tax planning, estate planning, and business financial planning.
Headquartered in Minnesota, we serve investors across the US with online and in-person wealth management and financial planning services.
