Small Business Brief

Financial Services

6 Important Reasons to Hire a Small Business Financial Advisor

Are you debating whether to hire a financial advisor for your small business?

First, thumbs up for considering it. At a time when the vast majority of small businesses are running on tight budgets, not many owners are willing to spend money on advisory or consulting services. In fact, 81 percent of small enterprise owners handle their business’ finances themselves.

If you’re among these business owners, the time has come to hire a small business financial advisor. Keep reading to learn 6 crucial reasons why it’s necessary to make this hire.

1. Prevent Business Failure

As a small business owner, you probably already know the odds of finding success are stacked against you. About 50 percent of all new businesses close shop by the fourth year.

There are several reasons behind the failure, but cash flow is a major one. A recent study examined failed businesses and established that at least 82 percent of the time, poor cash flow management or inept understanding of business finances was the cause of failure.

A savvy entrepreneur like you learns from the mistake of others. Hiring an advisor or consultant leaves you with fewer mistakes to make and enhances your small business’ chances of survival.

2. Raise Business Capital the Right Way

The goal of every entrepreneur is to grow their small businesses into large businesses. For this to happen, you’re going to need expansion capital.

Let’s face it: raising startup capital is already hard enough. How are you going to hack expansion money?

This is where a financial advisor comes in.

This professional has an in-depth understanding of the capital market and will help you find the right funding source, as well as establish the right amount of money needed for the expansion.

On your own, it’s easy to make financial mistakes that could expose you to a range of risks. For example, you could take out a big business loan to fund the expansion. This is a risky move because if the expansion doesn’t yield the expected results, you might not be able to service the loan.

3. Separate Personal Finances from Business Finances

About 23 percent of small business owners still mix business finances with their personal money, and it’s easy to see why.

Doesn’t it just save you time and money (in terms of transactional charges) to use one bank account for your business and personal income? After all, it’s your business!

Well, if you are mixing up personal and business finances, you’re violating a fundamental business principle while setting up your business for failure.

One, you won’t be able to make small business tax deductions. When you’re using your personal account for business, the Internal Revenue Service won’t be able to tell your business expenses from your personal expenses. This means you’ll likely pay more taxes that you had to.

Two, banks will reject your business loan applications. Without a business account, your business probably doesn’t have a credit score, meaning banks and other lenders cannot be able to evaluate your business’ creditworthiness.

We can go on and on, but it’s clear you need to have a separate account for your business.

The challenge is how do you entangle the mixed up finances? From your current account balance, do you even know how much belongs to the business and how much is your personal money?

This is another reason to bring in a small business financial advisor. They’ll review your business records and identify what belongs to the business. Once that’s done, the advisor can help you pick the best small business bank account for you.

4. Save Money

When you’re running a business on a shoestring budget, you’ve to cut down as many costs as possible.

However, this isn’t always possible, especially when you’re wearing multiple hats. From developing your products to staying on top of customer care, it’s hardly possible to effectively control your expenses.

Why not drop the financial hat and bring in a consultant to take care of that department? Keep in mind, financial advisors know the art of saving money. They will audit every little function and find clever ways to help you cut costs.

If you’re doing everything in-house, for example, a financial advisor can recommend that you outsource some tasks, such as digital marketing. Outsourcing is a big cost saver and puts some of your business functions in the hands of experienced experts.

5. Business Succession Planning

As much as you love your business, at some point, you’ll have to exit the stage. Perhaps you’ll retire or health issues can force you to step down. Plus, face it, death can strike at any time.

In the event of any of these scenarios, what would you like to happen to your business? If you’re like most passionate entrepreneurs, your business is your legacy. You want it to outlast you.

Without proper succession planning, however, it’s unlikely that your business will last that long. The best bit is succession planning is in the wheelhouse of small business financial advisors. Learn more about how an advisor can help safeguard your entrepreneurship legacy.

6. Gain a Competitive Edge

Quick trivia:

Take two startups Y and Z. Y has the owner managing its finances and Z has a CFO.

Which has a competitive edge?

Even without digging deeper into the nature of the two startups, you can easily tell Z has an edge. Hiring a CFO means the startup is taking finances seriously.

A financial advisor has the same effect on your business. Compared to other small businesses without a financial advisor, yours will be several steps ahead. You’ll get your expansion strategy right and it’s even easier to attract external investors.

You Have Every Reason to Hire a Small Business Financial Advisor

Granted, hiring a small business financial advisor will cost you money. But as we’ve demonstrated, your business stands to benefit in multiple ways. Unnecessary expenses will become a thing of the past, you’ll give your business a real shot at success, and the business will live on even in your absence.

Best wishes and keep tabs on our blog for more business advice.