Historically, owners have always been a smart and self-sufficient group. Wearing all the different hats that are required to run a business is something that no one wants, but every owner eventually works through. As businesses and finances evolve, there will likely come a point where more help is required. Hiring employees, bringing on consultants, and even asking friends can get you decently far. However, I’d argue that it is extremely hard to find someone who can be on your level of understanding and organization. Financial Advisors help fill that role, and here is why.
Key Takeaways:
- A financial advisor offers strategic financial expertise to help owners navigate, organize, and manage their business and personal finances so that owners can focus on growing the business.
- Advisors help assess your cash flow and assets so that you’re allocating the right amount for your salary, emergency fund, retirement savings, and HSA.
- Business owners want to save on taxes, and financial advisors can develop a strategic tax plan to do so.
- Financial advisors offer expertise in retirement and estate planning.
1. Mixing Business and Personal Finance Becomes Overwhelming.
Every so often, I get a call from someone starting a business who wants to know the best strategies to set up the business. Usually, the answer is to simply get started and then let’s figure it out as we go. While that is mainly true for young people starting companies, there are fundamental parts of managing your personal and business finances. Many times, owners work from the other extreme, where everything stays co-mingled, and it is hard to figure out what is what.
A Financial Advisor can help guide you in delineating what is personal and what is business. Sometimes it is as simple as having bank accounts specifically for the business, instead of using your personal account. Other times, when multiple businesses are involved, it can easily start to feel overwhelming. All the insurance policies, regulations, compliance, investments, etc., can pull you away from running the business. If you don’t have someone to help you stay organized and see the bigger picture throughout all this work, you may be missing something.
2. Questions on Cash Flow That Don’t Seem Answered.
How much should I pay myself? How much should I contribute to a retirement account? How much cash should I have on hand as an emergency fund? What about 529s or HSAs? The problem with many of these cash flow questions is the fact that they are subjective. If you ask your accountant, you are likely going to get an objective answer that will attempt to keep you out of trouble with the IRS. There is an answer to how much cash you should keep, but it is completely dependent on your entire situation as well as your risk tolerance.
Financial Advisors are there to help you decide. “What do I need to do to stay out of trouble?” is a great question for an accountant. “What would you do if you were me?” is when the advisor can step in. Advisors are trained to look through your situation and consider not only where the cash flow is, but where the rest of your assets are, as well as your plans for your wealth going forward. Cash flow is such an important aspect of personal and business finance, and the only correct answers are the ones designed for your life.
3. That Feeling of Not Doing Enough Tax Planning.
As a business starts to grow, so do the taxes, significantly. Many times, that leaves business owners with the feeling that they are not doing enough to save on taxes. News will inevitably come from social media, or a friend, or a book, where someone is saving tens of thousands on taxes and paying nothing. Naturally, no one really understands their taxes, so many times it is hard to tell what is shady and/or borderline illegal, and what is not.
Most financial advisors are not accountants. However, most advisors should understand your tax situation and help you with long-term tax planning. Personally, I will not file your tax return for you, but I can help review your return in light of everything else in your financial life to see what decisions are best for you. Advisors (and accountants) generally know which social media trends are real and which are fake. If you do not feel comfortable calling up your accountant for answers, you need an advisor who already knows where you are coming from.
4. A realization that you focus too much on the present compared to the future.
This one is always interesting to me, because I am starting to see a pattern emerge over my time as an advisor. If someone calls me who is around age 48-52 and says they have a few questions for me, I can generally tell them what they are before they speak. It’s usually about retirement and death (covered next). Business owners, especially, often do not put much thought into retirement. Instead, the heuristic that my business today will cover my retirement kicks in. However, once owners mature their business (and their finances) to a point where it is less about them working, the desire to reclaim their time takes hold.
It can be very difficult to quantify what retirement, or simply stepping back for more time, could look like. Financial Advisors spend a lot of time helping people with retirement, specifically because of this. It often feels as though even the word “retirement” is taboo for business owners. But ultimately, it is about time management. Once you can work with someone focused on your future lifestyle, then you can build a plan to make sure you have the financial means to do so. It’s not necessarily complicated, but it is not easy.
5. A sudden worry about what would happen to your financial life if you died.
The other question often revolves around the death of the owner. Will my kids be okay? What will happen to the business? It would probably be a disaster, wouldn’t it? Do I need a Trust? These are the questions that keep people up at night. They are also the hardest to answer. Similarly to the accountant, if you have a direct question, go ask the estate planning attorney. However, a question like “will the business be okay?” is a loaded question that only someone who understands your position would know. Add on top all the complications from business structures, Trusts and estate documents, insurance policies, etc., and it can create worry.
If you haven’t caught on by now, one of the main goals of the Financial Advisor is to look down from 30,000 feet and help you understand your situation. Once people realize there could be a time when they are gone, self-sufficiency quickly fades, and the need for someone to help them surges. Generally, you don’t need to replace yourself (since you are still around), but you need someone to help you pull all the strings and understand why. Then, questions around “life after you” can feel more at ease since you have someone in your corner.
More Personal Than Financial
I know this whole article is biased by the fact that I am an advisor. However, at the end of the day, I believe that money is more personal than financial. People, myself included, care more about “what should I do” than “what is best to do”. Details and tactics will always exist in finances, but they are not the primary reason for hiring an advisor. The main reason is to help you organize and understand all the different aspects of your financial life. Then, when a question arises in one specific area, you have a trusted resource to help you work through it for your specific situation.
TC Falkner 