4 Reasons Why a Financial Advisor Can Help Your Business

Article last updated on 8/25/21

Most people wouldn’t embark on a long journey without a plan. It’s unusual to start something potentially costly and time-consuming without seeking some advice and taking the appropriate instruction beforehand. Still, many small business owners neglect to talk to a financial advisor or are reluctant to do so when they are starting a new business.

According to the American College, 60% of business owners who responded in their study said that they had not met with a personal financial advisor. Few of them had developed a plan that would address future changes that might affect the business.

What does a business financial advisor do and how can they help me?

A financial advisor has the experience and expertise to help you make the most of your initial capital investment into the business. He or she can help you assess the viability of your business model and outline strategies and timelines for your path to profitability. Here are some of the ways a financial advisor can ensure, accelerate, and improve your business success.

1. Business owners need a personal financial advisor. Whatever product or service your new business provides, a financial advisor can ask the right questions and find the right answers to make your life easier. They will also be able to make your business more efficient and more profitable by focusing on the actions that will get results.

   As a small business owner, you will be expected to perform many roles. At times, you will be acting as the virtual head of many departments, from marketing to product development to IT support. You might also find yourself responsible for packaging, deliveries, direct customer service, and property maintenance. In some circumstances, such as managing and planning your business finances, it’s best to hire professional help. Your finances are not to be taken lightly. Many things can go wrong in a business from a financial perspective. Mismanaging money, cash flow problems, delayed or over paid vendor accounts cause many new businesses to close. You can consult a financial advisor to make sure that your business is not one of them.

   A financial advisor can offer many benefits to helping you run your business. They can quickly provide accurate projections that will help you establish and then grow your business. The objective, professional observations of a financial advisor is invaluable at every stage of business growth, but perhaps never more so than in the early months. An advisor can provide you with timely insights regarding such factors as your exposure to risk, where you can economize, and investment opportunities. By pointing out opportunities, a financial advisor can help you develop and improve your business plan. He or she will have the know-how to help you make the most of circumstances that you don’t yet have the experience to spot.

   Money is the lifeblood of any business. It flows in and it flows out. It’s crucial to think about your business processes and money in advance to maximize your business success. Who better to discuss money matters and the success of your business with than your financial advisor?

2. Financial advisors lead business owners to cost savings and guide the path to profitability. One of the best things about taking the help of a financial advisor, is that it allows you to take control of your business’s path. Unless you are already a financial expert, hiring a financial advisor will save you time and money. When you spend time performing functions that are not among your core abilities, you deny your business this expertise.

   By working with a financial advisor, however, you can receive expert help with your business’s finances. Complex tasks can be taken care of quickly and you can make important financial decisions from a position of strength. For example, a financial advisor can use his or her experience to establish internal accounting processes for monitoring expenses. Learning through experience can be one of the best ways to learn a lesson. Not every small business owner needs to go through bankruptcy, however, to learn the best ways to handle their finances. A financial advisor can help you avoid costly mistakes, saving you the pain of going through painful and unnecessary rites of passage.

3. Financial advisors prepare businesses for future developments and different stages of business growth. When thinking about the future of your business, it’s easy to be affected by emotion. You might be excited, afraid or overwhelmed. A financial advisor, however, can provide you with the cool perspective that is required for dealing with matters of money. A financial advisor can provide you with some much-needed clarity, focusing your vision and helping you to take your business in the right direction for stability and growth. To grow, a business requires an objective, a plan to get there, and tactics to make it happen. Your financial advisor comes with a variety of tools that he or she can put to work for your business’s future.

   There are several things you can do if your business isn’t doing well? A financial advisor may help you and your team to face facts and assess the true likelihood of you achieving your goals on schedule. Your advisor might help you navigate the problem of a congested marketplace by exploiting or developing a niche market. You need not only good ideas to run a business, but the ability to back them up in financial terms. Too few business owners consider future changes to markets, technology, and other circumstances when planning and projecting the future of a business.

   For example, the American College discovered that many small business owners fail to make provisions for how to transfer a business to someone else when they retire. This oversight in business succession planning is costly for many businesses and yours needn’t be among them when you benefit from the proper advice. The opinion of an experienced financial advisor can help a business, and the business owner(s), weather market disruptions, such as new competition or tighter regulatory requirements. If you are wondering whether or not to diversify your product or service, your financial advisor can help you to decide if and when this is a wise idea.

4. Financial advisors help you plan your personal finances in coordination with your business finances. Many business owners are motivated to start and build their businesses for the potential future personal financial gains it may afford and plan for business financial viability. Due to the consuming nature of starting a business, it is not uncommon for an owner to solely focus on their business finances and neglect their own personal finances.

   A seasoned financial advisor can help you ensure that your personal finances will be in good order along with your business finances. The two need to be coordinated for cash flow, investment and tax purposes. Your financial advisor will also often act as a quarterback between your other professional advisors such as your accountant, business attorney, bookkeeper, insurance broker and estate attorney. These professionals play an important role in your business and personal life and ensuring proper communication and coordination will be critical to your long-term success.

   Many business owners avoid hiring a financial advisor in an attempt to reduce costs. This is a very clear false economy. Hiring a financial advisor to help with specific tasks can not only save you time and money, but it can change the course of your business, avoiding risks that are not worthwhile and making the most of otherwise hidden opportunities. When exploring new territory, it’s good to have an experienced traveler on board. The right financial advisor will not only help you navigate unknown territory, but they will allow you freedom and confidence to focus on the core aspects of your business.

How do business owners work with an advisory team?

Mismanagement is often the reason for new business failure. Therefore, a wise business owner surrounds himself or herself with the talented and experienced people it takes to make a business survive, grow, and prosper.

To run a business properly, you need to have expertise in a number of areas–financial planning, accounting, law, taxation, insurance, and investment management, to name a few. Because it is often impossible for a professional in one of these areas to be an expert in all of the other areas as well, it is often desirable for business owners to work with a team of advisors. 

Naturally, however, you’ll need a quarterback to direct and coordinate the advisory team. Typically, this person is your financial planner. What is the first thing a new president of the United States does after being sworn in to office? He builds his cabinet, selecting the most qualified persons to advise him on matters in which he himself is not qualified. The secretary of defense counsels the president on military matters, the secretary of state counsels him on worldwide political matters, and the secretary of the interior counsels him on the environment. Thus, the president generally makes no decision until he is fully apprised by the experts. That’s what you need to do. You need to build your own cabinet or team of professional advisors who can help develop and implement your business plans most effectively.

Banks are more likely to lend money to a business that is managed by people with extensive experience in the type of business you own. An advisory team that provides management assistance on a regular basis may help you get money more easily.

How do you build a good team?

Choosing your professional advisors can be one of your most critical business decisions. How much advice you need, want, and can afford are some of the issues you should consider when forming a team. Only you can decide the best mix of advisors for your team. You may also want to follow these steps:

First, define your needs and the roles of the advisors.

Break down your particular needs into component parts. Do you need a highly specialized sales force? How about a marketing department? Do you need legal advice? How about a financial and tax expert? Determining what you need will make it easier to conduct your search. You need to define each advisor’s role and communicate this information to all parties involved. Specify the conditions when one professional should defer to the judgment of another. You may want to appoint your quarterback–one advisor who coordinates the overall efforts of all parties to ensure that the “big picture” is kept in mind. Typically, the coordinator will be a financial planner with a strong tax background, or perhaps an accountant with a financial planning credential. This person is likely to be the one you’ll be dealing with most frequently.

Next, find the key players.

Now that you understand the roles of the potential players on your team, it’s time to find the players. Credentials, experience, reputation, expertise, and cost are the most important factors in selecting an advisor. When composing a team, however, there are some additional considerations. A qualified player is one who is ready and able to join the team. Ability can only be determined by asking probing questions.

Once you’ve found your key players, research and verify their credentials.

• Education: Be sure the candidate has the proper degree
• Training: Be sure the candidate has an appropriate number of years of recent experience and the appropriate professional designations
• Licenses: Be sure the candidate has all necessary licenses
• References: Ask for and follow up on at least three business references
• Proven track record: Ask for client or customer lists, if appropriate

Make sure to check these traits too.

• Willingness to work with other financial specialists–To get different specialists to function as one unit, you need team players. Although your attorney is the expert on legal matters, he or she should be willing to discuss the legal ramifications of a decision with other professionals. This remains true even if another advisor prefers a different approach. Be up-front about the team approach; make sure that each advisor is aware of the names, business addresses, and telephone numbers of the other advisors. In fact, one way to build a successful team is to let one advisor refer you to other professionals with whom he or she has dealt in the past.
• Ability to communicate ideas to you clearly and simply–It is also vital for you to understand your advisors. Make sure that he or she can explain complex topics in simple language and is willing to provide such explanations until you feel comfortable with a particular decision. Set any ground rules before you hire an advisor; make sure that he or she knows just what you expect.
• Personal accessibility– If your accountant is too busy to take your phone calls or pay attention to the other advisors, he or she is probably not the best choice for your team. In terms of personality, you’ll want to deal with people with whom you feel comfortable.
• Your own “gut feelings”–Your own instincts also play a part in your decision. Do you like the candidate? Will the candidate be a good fit? These questions can really only be answered by your gut.

Now your team is assembled, what’s your plan?

Now that the team is assembled, the game plan should be fully understood by each player. Make sure your goals and any ground rules are clear. You should have occasional group meetings to review progress toward your financial goals and to discuss major events that have impacted your overall plan.

What’s the downside?

Know that fees due to professional advisors may be relatively high.

Commissions paid to business brokers, merger and acquisition specialists, investment bankers, and other experts can be high. However, the old adage remains true: You get what you pay for.

Is it ever advisable to retain only one advisor?

Cash flow is often a problem for start-up businesses. For these businesses, the only affordable option may be to hire one experienced business financial planner to provide a wide range of advice, and plan to employ an attorney and an accountant only when they are absolutely necessary. For growing businesses and liquid start-ups, the wisest course is to work with a team of advisors, with each advisor serving as an expert in his or her own area. In this way, you can be sure of receiving the most up-to-date strategies and the most legally accurate methods. Furthermore, by employing the team approach, financial decisions will be made with the “big picture” or overview in mind. In other words, advice will be coordinated among the professionals to ensure that only the best business decisions are made.