The Informed Investor

Why Every Business Owner Needs a Financial Advisor

Randy A. Garcia, CEO

September 16, 2020

As a business owner, you are likely accustomed to directing much of the high-level planning in your operation. Your business probably would not be where it is today without your willingness to put in hard work in a variety of roles.

In some cases, though, doing it all yourself is not a wise strategy. In fact, when it comes to managing your personal finances, it can be downright hazardous to your financial health.

Why? For most business owners, the business usually takes priority. Financial forecasting centers on what is best for the business and all stakeholders, including your employees, customers, and other shareholders. But what about your future, apart from your business?

Lack of Planning for Your Own Financial Future

Studies indicate that 60% of small business owners do not work with a financial advisor or other outside wealth management professional.[i] Some may be trying to manage their own finances, while many are simply too busy with the day-to-day operations of their businesses.

You may think that if your business succeeds, you will automatically become financially secure. But as we have seen with COVID-19, there may be unknowns that are beyond your control.

As careful as you are at managing known business risks, none of us has a crystal ball.  Pandemics, recessions, natural disasters….many different factors can impact a business without warning.  That is why it is critical that you have a personal financial plan, separate from your business. The goal is to get to the point where you are financially independent of the business. Then if something derails your industry or operations, your quality of life and financial security would be less impacted.

Hiring a personal investment management advisor is an effective way to prioritize that planning for your future. This financial advisor should only be concerned with your personal financial health, not that of your business.

Here are some specific ways an investment services advisor can help you achieve your long-term financial objectives, with or without your business.

Managing Risk

As an entrepreneur, risk is not a foreign concept to you. Rather, it is an inherent part of your business life, and you are probably very comfortable with it. The combination of high risk tolerance and entrepreneurial optimism that is so good for starting a business does not always translate well to financial management. You may be far more comfortable “winging it” with your financial planning than the average person.

Case in point:

  • More than 30% of small business owners do not have a retirement plan.
  • Over 40% are not sure they can retire before age 65.[ii]

Business owners may fall into a few other common traps, such as:

  • Assuming financial good times will continue unabated when things are going well (instead of using those times to save for the “rainy day”)
  • Reinvesting all profits into the business, leaving you less diversified
  • Investing in stocks in your industry, making you even more vulnerable in a downturn

Will the Sale of Your Business Fund Your Retirement?

Additionally, many business owners hold off on seriously investing for retirement, assuming they can sell when the time is right to make up any shortfall.

Unfortunately, this can be an even riskier bet:

  • According to one U.S. Chamber of Commerce study, only 1 in 5 small businesses that attempt to sell do so successfully.
  • Other sources show only a 5% success rate for business sales.[iii]

As you can see, there is a lot in your financial future that is completely out of your control.

Fortunately, you can take steps to protect yourself from countless unforseen risks. The key is starting sooner rather than later. And with your busy schedule, this is where the value of a financial advisor comes in, to make sure you stay accountable to the need to prepare for your future.

Professional Experience

Anyone can hop on the internet and attempt to educate themselves about investing and financial planning. But doing it right involves years of education and relevant experience. Between volatile markets, changing tax laws, navigating estate planning, insurance, college planning, and other specialties, the myriad of options and factors can be overwhelming.

Additionally, for most small business owners, time is at a premium.

Think about it this way: you would not want to undergo a medical procedure without the help of a trained professional, so why risk your financial health? Taking advantage of a financial advisor’s education, experience, and training just makes sense. In fact, Vanguard estimates the value of using an advisor at an additional net gain of 3% per year.[iv]

Protect Yourself From Expensive Mistakes

In addition, a quality wealth manager can help you take the emotion out of your financial and investment decisions. The very traits that make entrepreneurs successful — confidence, optimism, and high risk tolerance — may cause business owners to fall into common investment traps. In contrast, a financial advisor offers an objective perspective, so you can avoid costly errors.

The value of working with a financial advisor reaches far beyond just developing an investment strategy. Benefits include:

  • Creating a comprehensive, customized financial plan to move you toward specific financial goals
  • Strategic planning to reduce your tax burden now and in the future
  • Helping you create an estate plan
  • Developing a retirement plan
  • Providing investment guidance and coaching to keep you on track
  • Organizing your financial life to free-up more time for growing your business

It is easy to include financial planning on your list of do-it-yourself tasks. But when it comes to something as critical as securing your financial future, working with a professional simply makes good business sense.

[i] Moskowitz, Dan. “Why Small Business Owners Need Financial Advisors.” Investopedia, 29 Jan. 2020, www.investopedia.com/articles/personal-finance/051915/do-small-business-owners-need-financial-advisors.asp.

[ii] “One-Third of Small Business Owners Lack a Retirement Savings Plan.” PR Newswire: News Distribution, Targeting and Monitoring, 17 Apr. 2019, www.prnewswire.com/news-releases/one-third-of-small-business-owners-lack-a-retirement-savings-plan-300833644.html.

[iii] Leonetti, J. (2008). Exiting your business, protecting your wealth. Hoboken, N.J.: John Wiley & Sons.

[iv] “Putting a Value on Your Value: Quantifying Advisor’s Alpha: Vanguard Advisors.” 16 Aug. 2019, advisors.vanguard.com/insights/article/IWE_ResPuttingAValueOnValue.

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