Financial Advisors Should Cater to Small Business Needs

Due to the demands of running a business, one of the most precious commodities for small business owners is time, which can result in the neglect of a wide range of financial matters related to the business. The lack of time presents an opportunity for financial advisors, who can add substantial value for small business owners by providing advice and intelligence on financial matters outside the core business operations.

The following are five areas financial advisors should focus on when catering to the needs of small business owners.

Key Takeaways

  • Working with small business owners can be far more complex than financial relationships focused only on individuals'' money management.
  • However, for advisors willing to develop comprehensive knowledge and understanding of their clients’ businesses and their long-term objectives, there are significant benefits.
  • These include multiple new sources for fees, the potential to gain employees as direct clients, and financial relationships that can last for decades.

Insurance Planning

While insuring a business against property losses is essential, one of the most traumatic events for a business is the death of the owner, partner, or other key employee. In these instances, a death or long-term disability can cause a range of problems including business closure, a temporary shutdown of operations, a mandatory buyout of a part-owner’s heirs or a large bill for taxes if the business is sold.

With the help of a financial advisor, the events posing the highest degree of risk to a business can be assessed and specific policies, such as life, disability and key person insurance can be put in place to provide coverage and mitigate financial shortfalls. Many partnership agreements call for the implementation of a buy-sell agreement, which mandates life insurance policies purchased on all partners to buy out their ownership stake in the event of an early death. Financial advisors who can navigate this piece of continuity planning can find it a lucrative pursuit.

Managing the Financial Assets of the Business

As sales and profits grow, small business owners who don’t have the time for investment research often allow capital to build up in checking and low-returning accounts, earning little on their accumulated cash. Instead, financial advisors can assist time-constrained small business owners in the efficient allocation of financial assets, including interest-bearing instruments, stock market investments and retirement accounts. These actions can play a key role in achieving the long-term financial objectives for small business owners.

Planning the Exit

All small business owners will eventually exit their businesses, either by selling, transferring ownership to family members or at the time of death. While insurance can play a key role in facilitating an exit in the event of a death, selling or transferring ownership can prove to be a complex process requiring knowledge and experience with a wide range of factors including valuation of the business, effects of the sale on employee benefits, and taxes.

Prior to and during a sale or transfer, a financial advisor can distill advice from experts in each facet of the transaction to develop a strategy that yields positive outcomes across all aspects of the owner’s exit.

Managing Retirement

After selling or transferring a small business, an ex-owner may have significant financial assets, but not the experience or knowledge to manage investments for retirement. At this point in the financial relationship, an advisor is likely to assume the more traditional role of managing investments, developing a plan for the ex-owner’s estate and replacing income that was generated by the business.

accounts.Many companies offer their clients 401(k) or similar defined-contribution retirement plans for their employees to participate in. Establishing and installing a plan in a company can generate ongoing cash flows for you, especially as the company grows and retirement plan assets bloom. Not only do retirement plans generate fees for you as an advisor and attract and retain employees for the business, business owners can off receive a tax break from corporate taxes by having a qualified retirement plan in place.

Establishing employee retirement plans, as well as other benefits, is a great way for businesses to minimize turnover and retain valuable employees. Due to the scope, time requirements and complexity of these plans, small business owners generally rely on financial advisors to set up and maintain these accounts. After retirement plans are established at a small business by a financial advisor, employees may also become direct clients for managing assets outside their retirement