Knowing how to maintain and grow income is an important question given that profit margin is one of the top concerns for entrepreneurs. Even so, should an entrepreneur manage his or her own finances and investments or hire a professional? Merrill Edge Vice President Whitney Trimble answers top-of-mind questions about whether or not to seek outside financial advice.
Q: What are the benefits of having a financial advisor?
There are many benefits of having a meeting with a financial advisor, but I think the primary value for an entrepreneur or business-owner is support for pursuing the quality of life your family and you want. Goals-based investing, which is measuring success as progress toward well-defined, documented goals in life is a process financial advisors are able to help investors with.
Not unlike a relationship between an athlete and his or her coach, a good financial advisor may help an investor visualize his or her life goals (i.e., fully funding a college education, planning for retirement, saving for a second home), create an actionable financial plan and instill discipline so investors can pursue their goals efficiently.
Q: Can a financial advisor help my business grow?
Broadly speaking, a financial advisor may be able to help provide clarity and context for a business-owner, which, in turn, could lead to better decisions about his or her business. No matter what your goals as a business owner are—whether you want to grow your business, save for retirement, or invest in a new space for your business—a financial advisor may be able to help you create a plan designed to pursue these goals.
A financial advisor also can counsel a business-owner around the unique needs and circumstances of a business: choosing an appropriate retirement plan for current and projected employees, planning relative to variable income, managing tax liability and choosing an appropriate corporate operating structure.
Q: Should business-owners be concerned about saving for retirement or should they focus on improving the value of their businesses?
Neither of these imperatives should be a binary choice; they’re both important. However, saving for the future and long-term financial goals is something business-owners should consider prioritizing. In fact, according to a past Merrill Edge survey, almost one in five respondents cited the need to win the lottery to reach their financial goals, suggesting that the prospect of retirement is intimidating for many. The question of retirement may be far more relevant for business-owners than others. First, a common practice of business-owners is to plow earnings back into the business for growth instead of, at least partially, to a retirement savings account. Second, some business-owners believe the proceeds from an eventual sale of their business will be their retirement account. In both of these choices, the business-owner is deferring saving indefinitely or assuming that a sale will happen at a desired purchase price which will support his or her retirement lifestyle. But neither of these choices is the basis for sound retirement planning.
I remind my clients that retirement saving is less daunting than one would imagine. In fact, there are many retirement plan choices available to business-owners that address specific operating needs including SEP IRAs, SIMPLE IRAs, Self-Employed 401(k) plans and traditional 401(k) plans. Choosing the right plan depends on many circumstances (e.g., whether a small-business owner has common law employees, wants employees to contribute their own money and/or favors maximum contributions or simple administration) and should be done in consultation with a tax expert.
Q: What should I look for when choosing a financial advisor?
Experience, credentials and cost are all important considerations in choosing an advisor. An investor should also take the time to conduct research and have conversations with a prospective advisor to make the right decision. One of the most important and under-appreciated factors when evaluating an advisor is whether he or she takes the time to understand you, your circumstances, and your goals. The time you, as a client, invest in determining the best fit should be a two-way street; a good advisor will take the time to get to know you and your family, your business and its nuances, your aspirations and fears and what you want your wealth to achieve in life.
Q: Can an advisor help with deciding whether to sell a business or keep it within the family?
Yes, providing the advisor has estate planning experience and has helped clients through past liquidity events. For most business owners, their businesses are simultaneously their most valuable and illiquid asset. An advisor can play a role in the creation of a succession plan to ensure the right people are in the right seats even before a liquidity event is contemplated. A good advisor also can work closely with an estate planning attorney to maintain business continuity through successors in the family, reduce tax liabilities and assess charitable trusts or life insurance policies to assist with the transfer of a business.
Whitney Trimble is a Financial Solutions Advisor and Vice President at Merrill Edge. She can be reached at [email protected].