Financial Advice You Can Use
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It's no secret how much entrepreneurs like being the boss. Flexibility, tax breaks, more time with family and oft-bigger incomes are just a few of the bennies homebased business owners enjoy. But like any entrepreneurial endeavor, there are one or two flies in the ointment when it comes to going it alone.
Perhaps the most imposing challenge for business owners--after finding customers, that is--is handling your personal finances. Once you leave the icy grip of your corporate cubicle behind, you also walk away from a fistful of corporate perks and benefits, including company-administered retirement plans, insurance packages, and pension or stock option programs.
Now that you're the boss, you're responsible for handling all your financial affairs. The good news is that you don't have to go it alone. Indeed, it's highly advisable that you don't. Hiring a financial advisor can save you the hassle of administering your own financial affairs, and it's not as expensive as you might think.
Who Should I Hire?
Like flavors of ice cream, financial advisors come in a variety of options, including certified public accountants (CPA), certified financial planners (CFP), tax lawyers, stockbrokers and investment managers. But rather than choose a la carte--a stockbroker here, a tax specialist there--small-business owners should go with a CFP who's trained in all financial management specialties. If challenges arise in an area your advisor isn't familiar with, chances are he or she can bring in, say, an insurance or estate planning specialist.
Any financial advisor worth his or her salt should be able to simplify your life. They can put you on the right financial track as cheaply and simply as possible. That goes both for your business and personal financial needs.
In general, financial advisors can help you with your cash, risk and investment management, as well as tax, retirement and estate planning. Often that encompasses reviewing employee benefits, analyzing business agreements, reducing business taxes and making sure you have adequate property or liability insurance coverage.
On the lifestyle side, a financial advisor can help you save and invest to achieve financial goals--like college for the kids, a bigger house and the retirement cottage on the beach. Advisors also work to slice estate taxes. They can point your business in the right direction to help meet personal goals. Maybe you want to keep the business in the family, for example, or use the business to create a retirement income. An astute advisor can even recommend ideas to make your business more profitable.
How Do You Choose A Financial Advisor?
In a word: carefully. Start with references from friends and other professionals, like your lawyer or accountant. Another method is to talk to the branch manager of a financial services firm about your investment needs and then ask for a recommendation. You may want to interview at least two or three advisors before you make your choice. Briefly, your decision should take into account several factors, including education, experience, credentials, areas of specialization and, perhaps most important, personal rapport. One more thing: Make sure you ask a lot of questions. If an advisor talks up a tax break or a mutual fund, ask why. Don't take anything at face value.
How You Pay An Advisor
When you work with a financial advisor you should expect to pay for his or her time and expertise just as you would a doctor, lawyer, accountant, computer consultant or other professional--in other words, how you get paid from your clients. At the same time, you should expect your advisor to explain exactly how he or she should be getting paid. Normally, financial advisors charge a flat fee--anywhere from several hundred to several thousands dollars per year, depending on the size of your business and the breadth of your financial portfolio. Others take a percentage--usually about one to two percent--of your financial portfolio's value. When invoicing you for his or her services, your financial advisor might ask you to account for other costs, including:
- The value of the time you might otherwise have to spend on investment research and decision-making
- The cost of mistakes you might otherwise make, such as not planning the tax impact of investments properly
- The "lost opportunity cost" that might otherwise occur when assets sit idle
Naturally, in the long run, if the investment returns meet your expectations, your advisor's services will have been well worth the cost. You should always feel free to discuss with your advisor whether you're getting your money's worth.
While it's always tough on a tight budget to cough up $1,000 or so for a financial advisor's services, consider it an insurance policy that protects you from unwelcome surprises with your finances. Chances are, you'll consider it money well spent.
Brian O'Connell is a Framingham, Massachusetts-based freelance business writer. His most recent book, B2B.com (Bob Adams Media), is available this September. His earlier books, Generation E: How Young Entrepreneurs are Changing the Corporate Landscape (Entrepreneur Press) and The 401(k) Millionaire (Random House/Villard), are available in bookstores. A frequent contributor to many national business magazines, he can be reached at Bwrite111@aol.com.