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Why Small Business Owners Need A Financial Advisor


A decent-sized business may have a financial advisor, an accountant, an accounting staff, or even a CFO.  Small business owners don’t always see the need for a financial advisor right away, but they certainly see the need for money right away.  Here’s the connection:


The Role of Financing in Small Business – Research shown by the Small Business Administration in July 2009 draws the following conclusions about small business financing:


1.   9 out of 10 small businesses are using credit.


2.   Almost half of this credit is coming from bank loans.


3.   Small businesses are very difficult for banks to evaluate in terms of creditworthiness because of a lack of financial information.


What this all means is that for most small business owners, a bank loan is going to be part of their business plan at some point.  In order to get that loan, the more organized and detailed (and of course, positive) their financial information is, the better.


A small business owner’s number one focus in the beginning is their product or service…rarely the data of the business itself.  After a very short period of success, its easy to get behind on the paperwork and record keeping, which wasn’t the most exciting part of the business to begin with.  A good financial advisor can help get the accounting procedures of the business started, and provide auditing and compiling services on a regular basis to determine what the numbers mean.  But that’s just the start.


A financial advisor can help to flesh out the business plan.   Most small businesses start out with a very informal business plan that gives the owner a basic idea of where they want to go.  Here’s how that works out, according to the SBA:


More than half of all sole-proprietorships (the most common type of small business; 20 million of them compared to 26 million small businesses overall in 2005) generated less than $10,000 in receipts yearly.


Even supposing that some income is going (gasp!) undeclared, that’s a huge gap between these numbers and what an adult or worse, a family needs to survive on.  The connection here is simple:  

Fail to plan = Plan to fail.


A well done business plan can help to secure ongoing profits and invite new investment by banks or others.   While a business owner can create a basic plan on their own, the best recommendation is to hire a professional, and a good financial advisor can either do this for you or point you in the right direction.  Once the business plan and initial record keeping procedures are in place, is there still a need for ongoing financial advice?  Of course!  Just as in our personal lives, businesses can veer off track financially very easily.  A continuous relationship with a financial advisor can be used to examine upcoming capital expenditures, whether or not to add/reduce employees, planning and executing an effective advertising budget, negotiating for office space, and many more items that will continue to come up. 


Even the best financial advisors will have limitations, but they should point a small business owner in the right direction if they see a need that they can’t satisfy.  A good financial advisor will most likely have a network of people they can connect to the business owner for their needs.  For example, there may be a legal or tax concern that the advisor is aware of, but one that actually needs an attorney or CPA to correctly circumnavigate.  They can encourage a small business owner to create a website or discuss ways their existing site could be tweaked, and perhaps they can suggest a competent web designer as well.  As a small business owner, learning to network is key; and a financial advisor should be an asset, helping those networks expand.


Finally, a good financial advisor brings a level of objectivity to the business that the owner cannot.  They can suggest directions that may sometimes be initially uncomfortable, but in the long run will provide stability and security. 


Financial advisors are not just useful to small businesses; they are a critical factor to success. 


P.S.  There are, unfortunately, a large number of people out there calling themselves Financial Advisors, or Financial Consultants, or Financial Planners, who primarily align themselves with selling Mutual Funds and Insurance.  When I speak about Financial Advisors, I am talking about fee-based professionals who make it their goal to help those around them succeed financially with whatever tools are most appropriate…that may include mutual funds and insurance, but it’s certainly not limited to these.

Written by Benjamin J. Miller, Copyright 2010.  All Rights Reserved.  www.ithinkaboutmoney.com

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