Making the Connections: Managing Risk in Your Business while Planning for Your Future

According to a recent survey by Nationwide Retirement Institute, two-thirds of the owners of small- and medium-sized businesses in the US expect a recession within the next six months. And of that two-thirds, a strong majority expect such a recession to be as severe as the Great Recession of 2007–09. Not surprisingly, many of the owners surveyed indicated that they were actively looking for ways to operate on a leaner budget while minimizing or managing for risk.

Certainly, in business—as in investing—risk is a part of life. In every meaningful undertaking, a certain amount of risk is involved. The key, of course, is effectively managing risk, taking steps to mitigate it, and utilizing available means to spread it in order to protect the financial wellbeing of the business and the owner.

And this is where a professional financial advisor can be of tremendous benefit to a business owner. Trained to view a client’s finances in a holistic way, a fiduciary advisor can help the owner better see and understand areas of risk, both in the business and in the owner’s personal finances, and take steps to manage risk efficiently in both spheres. This can not only benefit the business, but can also help the owner build a foundation for the day when it’s time to retire and enjoy the fruits of building and running a successful enterprise.

Let’s take a look at a few ways a financial advisor can serve as “quarterback” for an owner’s risk management and financial planning efforts.

  1. Dealing with inflation. Since the end of 2021, rising inflation has been a major theme in the American economy. And businesses across the country are feeling the pinch as cost of inventory steadily rises and purchaser resistance to higher prices increases. A professional financial advisor can work with an owner to create a cash management strategy that mitigates the damage caused by the “silent thief” and allocates resources for the more efficient operation of the business.
  1. Employee benefits. Smart owners know that when the business environment is at its most challenging, you need the best and brightest people on your team. One way owners can attract and retain the best people is by offering a competitive, well managed benefits package. A fiduciary financial advisor can work with you to analyze your business structure, your employee population, and your resources to help you build a package that offers your employees incentives to remain loyal and focused.
  1. Tax planning. Both in the business and in the owner’s personal financial picture, a professional financial advisor can provide guidance on tax-efficient investment management and also areas where the business can utilize strategies to reduce tax exposure.
  1. Insulating the owner’s future from the business’s future. It is common for small business owners to assume, “the business is my retirement plan.” But this attitude often leads to little or no succession planning and typically results in an over-exposure of the owner’s personal financial wellbeing to the fortunes of the business. A professional financial planner can work with the owner to strategically transfer value from the business in a way that builds and secures the owner’s financial future, especially in the years leading up to retirement. This is also the time when the owner may wish to focus on succession planning, if the intention is to retire from the business and leave it as a going concern. A fiduciary advisor and planner has the ability to view the totality of the owner’s financial “ecosystem” and provide guidance that benefits the whole.

At The Planning Center, our goal is to see our client’s financial picture in its entirety, so that we can help them build a comprehensive financial plan that takes into full account their most important goals and priorities. To learn more, visit our website to read our recent article, “Want to Sleep Better at Night? Maybe You Need a Financial Plan.”