One of the most valuable resources for owners of small businesses is their time, which is one of the reasons why this resource is considered one of the most precious. When an owner of a small business doesn't have enough time to attend to all of their responsibilities, including those in the areas of law, human resources, and business operations, the financial aspects of the company are at risk of being neglected.
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This time crunch presents an opportunity for financial advisors, who have the potential to add significant value for owners of small businesses by offering advice and intelligence on financial matters that are peripheral to the core business operations. When addressing the requirements of business owners of small companies, financial advisors should pay particular attention to the following four areas.
Planning for Insurance Expenses
There is a wide selection of coverage available to meet the requirements of small business owners seeking protection and reduction in risk. Injuries to customers, damage to their property, and legal action brought for libel or slander are typically covered by general liability insurance. If any of your customers are interested in signing a business lease, they should know that they might be required to carry general liability coverage.
The passing away of a company proprietor, business partner, or other significant employee is among the most devastating occurrences that may befall a company. In these kinds of situations, the loss of a business owner due to death or long-term incapacity can result in a number of complications, such as the permanent or temporary cessation of operations, the obligatory buyout of the deceased business owner's heirs, or a significant increase in the amount of tax due upon the sale of the company.
It is possible to reduce the impact of these dangers by purchasing a range of specialized insurance policies, such as key person insurance, disability insurance, and life insurance, with the assistance of a financial counselor. Many partnership agreements additionally require the execution of a buy-sell agreement, which compels the purchase of life insurance policies on all partners in order to buy out their ownership portion in the event that they pass away at a young age.
Because of the nature of certain businesses, financial advisors can assist in determining whether or not it is worthwhile for a small business to invest in error and omissions insurance. These policies protect against legal action brought against the company for negligence as well as damages brought on by work oversights. In addition to this, you can assist your client in determining whether or not they require cyber liability coverage.
Managing the Business' Financial Assets
Small business owners who don't have the time to undertake research on investments frequently allow their capital to pile up in checking accounts and other accounts with poor returns as their sales and earnings increase. As a result, they receive very little interest on their amassed cash. Small business owners that are short on time may benefit from the assistance of financial consultants in allocating their financial assets most effectively.
Determining the future cashflow requirements of a small business is one of the more challenging aspects of managing the revenues of a small firm. A client and their financial advisor should work together to gain an understanding of the client's firm, including what future goals are being planned and what resources will be required for the growth of the company. Although it makes perfect sense to invest unused assets, putting money at risk by placing it in illiquid vehicles or suffering capital losses puts the growth of the company in the future in jeopardy.
Financial advisors can also assist clients in managing the cyclical nature of their operations to guarantee that their clients have adequate cashflow throughout the entire year. Take, for instance, a modest wedding planning company that sees a significant uptick in revenue during the warmer months. Even though the small business is less busy during the winter months, a financial advisor still needs to guarantee that the company has sufficient cash on hand to make it through the slower season and thrive during the busier periods of the year.
Preparing for Exit
Eventually, every small business owner will sell their company. Some eventually sell their properties, while others transfer them to family members. Some businesses close owing to financial difficulties or the demise of the owner.
Selling or transferring ownership can be a complex process that requires expertise and experience with a variety of aspects, such as business valuation, effects on employee benefits, and taxes. Prior to and during a sale or transfer, a financial advisor can synthesize information from experts in each part of the transaction to construct a strategy that results in favorable outcomes for all facets of the owner's exit.
Some businesses just do not generate sufficient revenue. If a small business owner is too emotionally attached to their company, it is up to the owner's financial advisor to map out the financial condition and deliver unwelcome news. A company may have sufficient capital at present, but financial consultants who are more attuned to the cashflow forecast and financial trends of the small business may be able to spot trouble before the owner does.
While insurance coverage options are available to relieve the financial impact of a decedent's passing, the transfer of assets at the time of death is a remarkably complex and hazardous process. Mishandling of estate assets may result in hefty tax assessments, and the legal process is typically plagued with paperwork, deadlines, and prerequisites. Financial advisors can aid in this process for mourning family members who may require support.
Implementing Company Benefits
Numerous businesses provide their employees with 401(k)s and other defined contribution retirement plans. Establishing and implementing a plan in a business typically involves several reporting and management obligations; nevertheless, your client might outsource a significant portion of the administrative work. Financial advisors can supervise the retirement plan, offer advice to all employees of the small business, and collect administration fees.
Establishing retirement programs and other incentives for employees is a wonderful strategy for firms to reduce employee turnover and retain valuable workers. Some small businesses may provide employees with discounted insurance coverage or just provide all employees with the same level of disability insurance. As a small business owner weighs the expense and value of giving such perks, a financial advisor can provide a report detailing the cost to the company.
Managing Portfolio of Post-Business
An ex-owner of a small business that has been sold or transferred may have significant financial assets. At this point in the financial relationship, a financial advisor is likely to handle the more typical roles of managing investments, devising a plan for the former owner's inheritance, and replacing the business's revenue.
Some small business owners decide to retire and leave their company. In this instance, a financial advisor is responsible for guaranteeing the security and stability of portfolio assets. This may also involve succession planning, wealth transfer preparation, and Social Security withdrawal strategy.
If a small business owner quits but is not yet ready to retire, he or she may want significantly more support from a financial counselor. A competent financial advisor will first determine the client's financial objectives and how the proceeds from the sale of the small business can be used to attain those objectives. The sale earnings from their small business can be shifted into tax-advantaged vehicles such as IRAs or leveraged into riskier, growth-generating investments.
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