How a Financial Advisor can help Business Owners
Running a small business is hard work, with owners managing legal, HR, and daily tasks simultaneously. Amidst these challenges, the financial well-being of the business sometimes gets overlooked. Financial advisors can help small businesses succeed by providing important support and making a significant impact on their success.
Relationship Between Financial Advisors and Business Owners
While some may perceive financial advisors as primarily catering to personal finances or investment management, they also offer invaluable assistance to business owners. Establishing a solid, collaborative bond between financial advisors and small businesses can significantly enhance the company's ongoing prosperity. Financial advisors help entrepreneurs by understanding their businesses and creating customized solutions for their specific needs and goals.
Financial advisors assist with planning exit strategies for businesses during succession or retirement, ensuring a smooth transition and continuity. This could entail preparing the business for sale, transferring ownership within the family, or exploring merger and acquisition prospects.
Financial advisors help create and put in place employee benefits like retirement savings and health insurance. This helps keep employees loyal and makes the company financially stronger.
Financial advisors help small business owners make smart decisions for long-term financial health and growth. This advice helps the owner's finances and supports the success of the business, its employees, and stakeholders.
Financial advisors and owners can adjust their relationship as the business evolves. This allows them to tackle new challenges and seize opportunities. It helps create a partnership that is flexible and responsive.
Insurance Planning
For small business owners seeking protection and risk management, a range of policy options is available. General liability insurance typically covers injuries, customer property damage, or legal claims like libel and slander. Notably, when entering commercial leases, clients may find general liability coverage to be a prerequisite.
If the owner, partner, or key staff can no longer work, it can greatly disrupt business operations. The business could be closed, or activities could be temporarily stopped. If an owner passes away, their share may need to be bought out. When selling the business, there may be significant tax consequences.
A financial advisor can help you manage risks by getting personalized insurance policies for life, disability, and key person. Many partnership agreements incorporate buy-sell provisions necessitating life insurance policies on partners to facilitate smooth ownership transitions in the event of premature death.
Financial advisors help businesses decide if they need E&O insurance to protect against negligence claims or service mistakes. Additionally, advisors can assist in assessing the need for cyber liability coverage, considering the increasing risks associated with cyber threats.
Managing Financial Assets
Small business owners are too busy to focus on finding better ways to invest their excess money. As a result, they often leave their extra funds in low-interest accounts. This is because they are preoccupied with increasing sales and profits. Financial advisors offer a lifeline, aiding time-strapped entrepreneurs in deploying their financial resources effectively.
Navigating the complexities of managing a small business's earnings entails anticipating future cash flow needs. Financial advisors help clients by understanding their company's goals and aligning investments with growth plans. They also protect against potential risks.
Advisors work closely with clients to ensure their financial strategies are in line with their objectives. This involves a deep understanding of the client's business and financial situation. By working together, advisors and clients can create a solid financial plan for the future.
Moreover, financial advisors play a pivotal role in smoothing out the cyclical nature of business operations. Take, for instance, a wedding planning business with seasonal fluctuations. An advisor can assist owners in planning for financial stability during slow periods and capitalizing on busy periods. This helps owners achieve long-term success.
Exit Planning
Small business owners have to make a decision about what to do with their business. They can either sell it, pass it on to family, or deal with financial difficulties or death.
Selling or transferring ownership involves intricate considerations—from business valuation to the impact on employee benefits and tax implications. Engaging a financial advisor prior to and during this process is crucial.
They seek advice to develop a comprehensive plan that enhances the owner's results during the transition. This plan covers all aspects of the transition and aims to improve outcomes for the owner.
They provide guidance on different areas to ensure a successful transition for the owner. A financial advisor's advice can help create a good plan that can benefit the owner during the transition process.
In cases where businesses struggle financially, owners often grapple with emotional ties. Here, the role of the financial advisor becomes paramount. They objectively assess the financial landscape, offering candid insights that may be hard to swallow. By staying attuned to cash flow projections and market trends, advisors can anticipate trouble spots before they escalate.
Also, passing on assets when someone dies can be complicated and risky, with taxes and legal issues to consider. Financial advisors help grieving family members manage estates, easing burdens and ensuring legal compliance. They provide support and guidance through the complex process.
Implementing Company Benefits
Many companies extend 401(k) or analogous defined-contribution retirement plans to their workforce. While setting up such plans entails administrative complexities, clients can alleviate much of the burden by outsourcing. Financial advisors help small businesses with retirement plans, advising all employees and charging management fees for their services.
Beyond retirement plans, offering employee benefits is pivotal for minimizing turnover and retaining talent. Whether it's subsidized insurance coverage or disability benefits, small businesses can enhance their appeal as employers. Financial advisors help business owners understand the costs and benefits of employee benefits, helping them make informed decisions.
Financial advisors help find extra benefits for employees like flexible schedules, stock ownership plans, tuition reimbursement, and health programs. Advisors help small business owners create a competitive benefits package by giving advice on costs, taxes, and potential returns. This helps bring in great employees and creates a loyal, engaged culture, making the work environment better for everyone.
Mangine Post Business Portfolio
Upon selling or transferring a small business, former owners often find themselves with substantial financial assets. At this point, financial advisors usually focus on managing investments, creating estate plans, and replacing lost income from business.
For those exiting their businesses to retire, financial advisors prioritize the stability and preservation of portfolio assets. This involves not only investment management but also comprehensive succession planning, wealth transfer strategies, and optimizing Social Security benefits.
If a business owner leaves but isn't ready to retire, they can get a lot of help from an advisor. A good financial advisor begins by understanding the client's financial goals. They then create a plan to use the money from selling a business to achieve those goals. This may involve allocating funds into tax-advantaged vehicles like IRAs or exploring opportunities for growth through diversified investments.
Bottom Line
Launching and running a small business involves myriad responsibilities. Small business owners can receive assistance from financial advisors. They can help with managing assets, setting up insurance and benefits, and planning for the future of the business. Financial advisors can also provide guidance on how to prepare for when the owner decides to leave the business.
With a financial advisor by your side, you're not navigating this journey alone. They provide assistance in managing crucial aspects of the business. This allows you to concentrate on daily tasks and urgent matters.
Sources:
How Financial Advisors Can Help Small Business (investopedia.com)
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
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These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.