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Five Ways a Financial Advisor can Help Your Small Business

At a certain point, business owners begin losing their grasp of the business when their gut is no longer sufficient for making critical financial decisions. They are too involved in the business and not seeing the overall dynamics. That is when their growth begins to outrun their capacity to manage it, leading to bad outcomes. At this point, they need someone to make sense of the financials – someone who understands their personal financial needs and the economics of the business, and what makes it work.

A good financial advisor has the skills and expertise that allow them to peel back the parts of the onion where you are most likely to discover the gaps in the financial management of your business as well as your personal finances. While they can help you perform dozens of functions in your business, here are five ways a financial advisor can help your small business.

Year-Round Tax Planning

It doesn’t take business owners very long before realizing that tax planning is not a one-time event. While the tax code affords business owners many tax-saving incentives, it is voluminous and complicated. Many of the business and financial decisions you make every day have tax implications, making tax planning a year-round event.

Your financial advisor has a 360-degree view of both your personal and business tax situations, offering the best perspective on how to optimize your business for maximum tax advantages, including

  • Planning equipment expenditures for maximum Section 179 and bonus depreciation deductions
  • Maximizing business deductions
  • Staying current with tax law changes
  • Determining the most tax-efficient business structure

Insurance Planning

Most business owners understand the necessity of insurance as it relates to protecting their assets against liability claims. However, liability and property insurance coverage won’t help you when you lose a key employee due to a disability or premature death. It also won’t help should you, the business owner, is unable to work due to a disability. And, if you’re in business with a partner, your business or your family’s financial security could be threatened should you or your partner die prematurely.

Your financial advisor can help you find the most efficient ways to add critical protections for these and other contingencies, putting in place plans such as

  • Key employee protection plans
  • Disability income and business overhead protection plans
  • Business continuation and buy/sell plans

Creating an Exit Strategy

Eventually, you will leave your business. The question is whether you will be able to do it on your terms, producing the best outcomes for you and your business. Or will the terms be dictated to you based on circumstances you don’t control? Regardless of whether you plan on running your business for a few more years or a few more decades, you need an exit strategy that includes

  • A target date for the exit
  • A plan for maximizing the value of the business
  • A determination of how to exchange the value of the business for cash in the most tax-efficient manner
  • A determination of whether the business is to be transferred internally or externally
  • A plan for ensuring the continuity of the business during the transition to new owners
  • A determination of the role, if any, you will have with the business during the transition and after the transfer
  • A plan for ensuring your and your family’s financially security

As you can see, there are many moving parts in an exit strategy involving professional advisors from the financial, legal, tax, and business planning disciplines. Your exit strategy should revolve around what you want to accomplish financially for you and your family, making your financial advisor the appropriate person to coordinate their efforts.

Transition Planning

Many business owners look upon the eventual sale of their business as the answer to their retirement security. But, if they neglect to do the essential planning to determine the most tax-efficient way to take income from the sale or calculate the optimal spend-down rate of their capital, they may not get the outcome they need or want.

Working with a financial advisor, you will have to consider all aspects of your financial future, including assessing your options for taking cash out of the business (all-out or deferral), including all tax implications. Also, you will have to develop:

  • A post-business capital spend-down plan based on available capital
  • An investment strategy designed to generate sufficient income while growing your assets
  • A risk management plan to protect against risk exposures, such as death, disability, personal liability, life longevity (the possibility of outliving your income and critical illness)
  • An estate plan for preserving and transferring assets with minimal cost to your family

A comprehensive plan of this sort requires a team approach and a collaborative effort among advisors from different disciplines, such as a CPA, estate attorney, risk management specialist, and investment advisor. Your financial advisor is best positioned as the team “quarterback” to coordinate the planning and implementation of all aspects of your plan.

Choosing the Optimal Retirement Plan

Business owners who want to establish a retirement plan for the benefit of themselves and their employees have several options. Which option is best for you and your business depends on several factors, including your age, earnings, retirement time frame, and the number of eligible employees. A financial advisor can help you weigh your plan options based on these factors alongside your personal financial objectives.

Once you’ve selected your plan option, your advisor can help you choose a range of investments that can be made available to you and your employees. You can then have your financial advisor come to your workplace to conduct retirement planning and investing workshops. Working with you and your employees, your advisor can help develop asset allocation strategies based on individual retirement objectives and risk tolerance.

The more significant challenge for business owners is that the business and financial environment is in a constant state of change, which can leave you in a perpetual defensive mode. Instead of reacting to changes after they occur, a good financial advisor can put you on the offensive, proactively preparing you and your business for any contingency


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