Financial Advisors… what’s the deal?

Financial Advisors… what’s the deal?

Over the years I have been asked by many people and business owners about the value of having an FA (Financial Advisor). So that we’re all on the same page, an FA is an investment professional who can assist you in creating and implementing a personalized plan to pursue your financial goals from young adults’ education to retirement and more. An FA has typically undergone special training and licensing that allows them to serve in this capacity.  My advice to all business owners particularly has been to “surround yourself with people who are knowledgeable and experienced in specialized areas such that you have a host of resources to navigate through your business challenges”. This is poignantly defined by Warren Buffet when he said, “If you’re the smartest guy at the conference table, you’re sitting with the wrong people!”

My advice goes further to identify the people with knowledge and resource for managing a business, any business. Examples include a CPA, an Attorney, a trade mentor with experience in your line of work and, of course, a Financial Advisor. A small business owner wears many hats from an operational perspective. Reducing the “mind work” required to navigate the tax, legal and financial pitfalls that inevitably plague the business owner is a plus allowing the business to run more fluidly. Every day a small business owner makes decisions concerning the operational wellness of the company. If you have a business, you know what I’m saying. If you are considering starting your own business, then I suggest you take heed.

It has been my experience that those who own a small business are experts in their field. I’ve met brilliant men and women across this country who are truly experts at their craft. Whether you’re a skilled tradesman, a technician, architect, doctor or engineer, the aspect of the business that you have the greatest level of aptitude is the business itself. Very few, if any, have a true sense of all aspects of the “business of the business”. Managing cash flow, day to day accounting, budgeting, employee interactions and many more issues arise most often when they are least expected and most unfortunate. I’d argue that the business of the business may comprise more than 30% of the time consumption of the average business owner. Keep in mind, these areas previously mentioned are NOT where your expertise lies. Hence, surround yourself with qualified people who have chosen their vocation because of their passion and pursued their education, like you, to provide a professional service.

Let’s look at the list:

The CPA… a must have for tax preparation and advice for your accountant to abide by Generally Accepted Accounting Principals (GAAP). Keep accurate records and you’ve saved yourself countless hours of heartache and headache keeping your money flowing in the right direction – toward profitability.

The Attorney… a need to have to ensure that you’ve set up your legal entities effectively for tax mitigation and partnership protection along with liability protection. C-corp, S-corp, LLC, etc. – what works best for us? He’s the guy that guides and architects your structure along with the legal tools necessary like an Operating Agreement, Corporate Bylaws, Buy/Sell Agreement and similar documents.  Further, you will inevitably find yourself in a lawsuit and need a good attorney at hand to navigate and represent, so that you can remain focused on your business.

An Industry Mentor… It is more than likely that you as a small business owner worked for someone else in the industry before starting out on your own. Or, as an industry expert which invariably you are, have met people who you feel truly exemplify the kind of work that you’d like to see in your own business. Talk to him. He will likely turn out to be the guy you spitball with when you are contemplating business strategy and direction.

A Financial Advisor… the very topic of this discussion. An FA is an advantage to keep aboard to ensure that you and your business starts, stays, and ends on the right path financially with you at the helm. Steven Covey was quoted as saying, “Begin with the end in mind.”  Excellent advice. A small business owner is typically hyper-focused on the day-to-day operations and making sure things are running smoothly day in and day out. All too often I’ve seen the business owner neglect his own personal financial future assuming the business would be enough to support not only itself, but the owner’s family as well. The FA provides guidance and implementation to ensure you have planned for your retirement or exit strategy. Hope is NOT a strategy as many will attest.

Many have asked me about the viability or necessity of having an FA stating that their business IS their retirement plan. If you’ve managed it well enough to be able to be “hands off” at your time of retirement, that’s great! Keep it going and enjoy the mailbox money! Others will say that when it comes time to retire, they’ll just sell it. Not a bad plan unless you’ve managed the business so “hands on” that it has little worth without you which unfortunately is often the case. In my travels around the country visiting with small business owners, I’d say the vast majority who are faced with selling their company to retire are over the age of 60. Makes sense but by this time if you haven’t financially planned for retirement, what is your Plan B? I often discover that they have managed their business to the point where it can support itself, but it doesn’t provide the means to support them for however many years they have left in retirement – even if it IS sold.  Now what?

An FA friend of mine and experienced Financial Advisor explained to me that when you work for a large company, the 401-k, profit sharing plan, pension plans etc. that are offered are there if you so choose to take advantage of them. The small business owner must plan for them, budget for them and coordinate the company’s financial affairs to provide them for employees – and themselves. I would agree that given the number of companies that I have seen that are ineligible for sale because of improper exit strategy planning is proportional to the number of people who have never had a Plan B.

If you are fortunate enough to find an FA that recognizes the nuances of financial planning as an entrepreneur, add him to your board of advisors. Through the planning of compensation structures, profit allocation strategies and tax strategies including but not limited to deferred compensation plans, I am confident that the two of you can architect a retirement model that is possible. It is unwise to wait until your business has been operational for many years to think about such a strategy. Using Covey’s “begin with the end in mind,” look at the possible options available to you using an FA as a guide. However, I will caution you that most if not all “end game” planning starts with running a successfully profitable company. As much as you must keep your eye on the ball in terms of operational efficiency, always keep in mind that the future of the business is tied quite specifically to the possibilities of your fruitful retirement.

1,194