5 Reasons Why Business Owners Need a Financial Advisor

Entrepreneurs have the knowledge, the focus, and the drive to succeed in their respective fields, but they often become paralyzed when faced with the many financial considerations surrounding their business. How can a business owner navigate these financial decisions with the confidence they approach the rest of their business?

For a holistic view of your financial situation and to minimize financial downside, it’s imperative that you seek outside advice when faced with the following five financial situations.

1. FINANCING AND LOAN DUE DILIGENCE

Deciding when and how to raise capital is one of the most crucial decisions a business owner will make. The advisor’s role is to analyze the short-and long-term financial impact on your business, encompassing expenses, revenue, debt management and tax strategies, helping to ensure the financing agreement meets your financial needs.

Still, the advisor’s role doesn’t end here. Instead, the advisor will review your financing options holistically, encompassing both your business and retirement financial parameters and personal goals. An experienced financial advisor can objectively walk you through the various options.

2. CASH FLOW & TAX IMPLICATIONS

WATCH OUT FOR ROBS – If you’re in need of capital, watch out for companies promoting Rollovers as Business Start-Ups (ROBS), specifically, businesses recommending that you roll over your 401(k) or IRA to fund your business.

According to an IRS compliance project¹, “Preliminary results from the ROBS Project indicate that, although there were a few success stories, most ROBS businesses either failed or were on the road to failure with high rates of bankruptcy (business and personal), liens (business and personal), and corporate dissolutions by individual Secretaries of State. Some of the individuals who started ROBS plans lost not only the retirement assets they accumulated over many years, but also their business. Much of the retirement savings invested in their unsuccessful ROBS plan was depleted or ‘lost,’ in many cases even before they had begun to offer their product or service to the public.”

For many business owners, large cash investments are needed to start their businesses. And as the business itself evolves, your cash flow needs can repeatedly fluctuate well beyond launch.
For example: For franchisees, a franchisor can mandate your involvement in a new advertising campaign, or require you to freshen your store’s look, necessitating upgrades worth thousands of dollars. A financial advisor can help you determine effective cash flow strategies, including matching your financial needs with appropriate investment vehicles.

3. BUSINESS TRANSITIONING

The key to a successful transition is to plan ahead and involve a financial advisor early in the process. An advisor can provide transaction advice, analyze valuations, and help create a business succession plan that encompasses the needs of all parties including business owner, successor, and other stakeholders.

Some financial advisors even specialize in advising multigenerational businesses and have advanced training in family values and goal setting. They can help isolate roles and responsibilities among generations and bridge generational expectations during the transitioning of family-owned businesses. Also, if you want to transition the business to your children and one child isn’t interested in business operations, an advisor can help you design a plan that creates financial equity among your children.

4. ASSET PROTECTION AND ESTATE PLANNING

To mitigate adverse financial impact, it’s essential to maintain business insurance(s), such as Business Interruption, Data Breach, General and Professional Liability, Property, and Workers’ Compensation.

What’s more, if you or others are considered critical to the operations of your business, i.e., the business will drastically suffer if you or an associate die, then it’s likely you’ll also want business life insurance, a.k.a. key person insurance. A financial advisor can guide you through the myriad of insurance types and amounts needed to help protect your business from monetary loss.

An advisor can also advise you regarding estate planning strategies, including using financial trusts for both business and personal purposes, helping to minimize taxes and avoid probate in the event of your death.

5. RETIREMENT PLANNING

For business owners, retirement planning is complex since you need a plan for yourself and, in order to attract quality talent, a retirement planning vehicle for employees. Your personal retirement plan will likely consist of proceeds from the sale of your business and a mix of other investment vehicles, such as an individual IRA or perhaps a spouse’s 401(k).

For employees, you’ll want to select an effective retirement vehicle for your unique business situation and ensure you’re fulfilling your fiduciary obligations.

Financial advisors are trained in helping business owners maximize financial strategies, including saving, investing and ultimately drawing upon savings in a tax-efficient way during retirement. They can also help you facilitate an employee retirement plan, such as a Simplified Employee Pension (SEP) plan, as well as provide employee retirement planning education and fiduciary oversight, ultimately simplifying your life.

IN CLOSING

As an entrepreneur, it’s likely you’re driven and passionate about growing revenue and optimizing operations while contemplating your next business move. Independent financial advisors share your passion. However, an advisor’s professional fulfillment comes from helping someone like you reach and sustain financial independence. Therefore, it stands to reason that you’ll want one on your team.

Help your future self out. Contact a financial advisor today.