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How Financial Advisors Help Small Businesses

Learn more about the various ways financial advisors can help you optimize and manage your small business.

While it’s often a rewarding way to build a career, running a small business can be both stressful and time-consuming. Managing a company’s finances is just one item on a long list of tasks owners must tackle on a yearly, monthly, or even daily basis, commonly including staffing, keeping inventory, and mapping out the future. Because of this, it usually makes sense to hire a financial advisor.

In this article, we’ll outline how financial professionals can help with small businesses. This includes a list of specific tasks they perform, as well as how to find one that specializes in small companies.

Ways a Financial Advisor Can Help a Small Business

As your business grows or becomes more complex, it can become continuously more helpful to have a financial advisor alongside you. They can use their knowledge and expertise to clearly explain how to handle a range of tasks and ensure your company maintains a healthy trajectory. Professionals are also able to help in ways you may not have known you needed help, such as identifying losses, managing cash flow, and optimizing taxes.

According to Matt Sampson, CFP, CEPA, Senior Investment Advisor at Arnerich Massena in Portland, Oregon, advisors can answer questions such as “How can I make sure I have adequate cash flow while investing as much as possible back into the business?”, “How should I balance making profit with investing into the business to create value?”, and “What strategies can I use to minimize my tax burden?” They’ll often use questions like these as a springboard to investigate ways to optimize your company and help put your objectives into action.

Below are seven ways financial professionals can help small business owners:

1. Strategic Financial Planning 

An expert can assist with short- and long-term planning for small businesses. This can range from helping determine the viability of a business plan, making major purchases, such as expensive equipment or property, or mapping out benchmarks.

One way they can help in this regard is with risk management. Though this can take many forms, it generally involves diagnosing potential sources of losses and working out methods of solving them. While, in theory, no one knows their business more than the owner, a professional could take time to look at both your company and the industry, and then infer which risks could affect your bottom line.

For example, onboarding new employees can be an expensive and risky investment for small to mid-size businesses, making you question when the best time is to start hiring. In this instance, a financial advisor could help you weigh your current and projected revenue against your need for staff, giving you more clarity on when to seek employees.

2. Tax Planning and Compliance

An advisor can be particularly helpful when it comes to planning taxes. Specifically, they can work with you to ensure you comply with all laws and regulations, as well as withhold the proper amounts from paychecks. They can also come up with strategies to optimize your taxes, including identifying tax breaks.

3. Debt Management

Advisory professionals can also help you navigate debt your business has taken on or plans to, including loans and lines of credit. For example, they may forecast your revenue and provide guidance on how long it may take to pay back a lender, as well as explain the risks and rewards of taking it on in the first place. In many cases, it’s often just beneficial to have them examine the terms of a loan and tell you if there’s anything you need to keep in mind or didn’t notice before.

4. Budgeting and Cash Flow Management

A financial advisor can also help your business manage your cash flow, including building and maintaining a budget. By doing this, you’ll be able to ensure you have enough cash coming in to meet obligations and save for future benchmarks. As part of this, your professional may also help you forecast and set goals for cash flow.

5. Administrative Tasks

One of the more complex parts of operating a small business is creating benefits packages, such as retirement, health insurance, and bonus perks. An advisor will often be well-versed in setting these up and will also be able to tell you what you need to make your company an attractive place to work.

Managing payroll can also end up getting complicated, especially with ample employees. An expert can offer their expertise and help you set it up correctly. Therefore, if you grow and need to onboard more employees, you’ll have the proper administrative structure in place.

6. Succession Planning

Businesses, especially those that are family-owned, need to have succession planning in place so there’s a smooth, drama-free leadership transition. Per Sampson, “Nearly half of business owners don’t engage in transition planning at all, which can result in forced exits due to death disability, divorce, distress, or disagreement.” With succession planning, an advisor can help strategize how to go about it, when it may be a good idea, and potential candidates to hand it off to.

7. Business Valuation

A financial advisor can also weigh in on how to value your business. This is an important function if you’re preparing for an exit, either by putting your company up for sale or merging with another.

While it’s possible to figure out a valuation on your own, Sampson cautions, “When it comes to exit planning, many businesses may be undervalued without assistance.” An advisor may have a broader view of your industry and might offer a more objective assessment of your numbers. Therefore, they may be able to estimate a more favorable and realistic valuation.

“Consulting early with a financial advisor – and even building a team of advisors that could also include a CPA, M&A attorney, and estate planning attorney – can help a business owner understand and plan for options well before an exit is considered,” Sampson recommends.

Finding a Financial Advisor for a Small Business

If you’re an entrepreneur who runs a small company, it’s important to prioritize financial advisors who specialize in working with businesses. These will be able to provide you with the expertise and assistance you need. You’ll also likely need to find an expert or team of them willing to work with you on an ongoing basis. In this way, they’ll be able to help you as your company scales and gets more complicated to run by yourself.

The most high-quality practice with a fiduciary duty. This means they’ll avoid conflicts of interest and typically won’t earn commissions from the products or strategies they recommend. Professionals with designations such as the following are highly qualified in both personal and business finance and must uphold high ethical standards:

  • Certified Financial Planner (CFP)
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Consultant (ChFC)
  • Certified Public Accountant (CPA)
  • Certified Exit Planning Advisor (CEPA)

To begin your search for a professional, we recommend using a matching tool such as this free one. After answering a quick set of questions about you and your circumstances, it’ll connect you with up to three local vetted advisory experts.

Frequently Asked Questions

Should a business have a financial advisor?

Small business owners should strongly consider hiring a financial advisor. It can be hard to wear all hats, especially once managing finances figures into the equation.

An advisory professional can lend their expertise with tax planning, managing cash flow, devising ways to mitigate risk, and valuing your company. They can also help with administrative tasks. For example, if you have several employees, you’ll want to learn how to manage payroll efficiently and accurately or set up retirement and health insurance benefits. These are all things a professional could shed some light on.

Not having the help of an advisor at your disposal can prove to be costly, per Sampson. He says, “Business owners are likely to miss opportunities without the guidance of a financial advisor,” observing that “[many] businesses don’t utilize all of the tax strategies at their disposal” and that they “can end up overpaying financing or loan costs with poor cash flow planning.”

Can business finances overlap with personal financial advice?

It’s not uncommon for business-related advice to combine with personal finance advice. This is often the case if you use the same advisor for both situations. Many of the decisions you make could affect your personal finances, especially if it’s your main source of income.

Does a business have to be a specific size before hiring an advisor?

In general, your business doesn’t have to reach a certain size before you should talk to a financial advisor. Even if you’re just starting, a professional could help you set up a viable structure and help you plan out benchmarks years in advance. Sampson clarifies, however, that before working “with a financial advisor on an ongoing retainer basis, the company needs to have enough cash flow to incorporate the advisor’s fee into their budget.”

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