Business Owners: What Can a Financial Advisor Do For You?

financial advisors for business owners pasadena ca

What can a financial advisor for business owners do for you?  Quite a bit.

As a business owner, you’ve got the heart of an entrepreneur. That usually means you’re comfortable taking risk.

You’re also probably naturally optimistic, since building a business from the ground up requires that outlook. On top of all that, you’re also likely to be a do-it-yourselfer. Normally, all these traits are huge benefits and probably the reasons for your success. However, when it comes to your own personal finances, that same combination of traits can be a recipe for disaster. Here’s why:

  • You may put most of your profits back into the business rather than putting a portion aside for your retirement, leaving you without substantial resources outside your business.
  • You may assume your business will continuously do well, meaning you’re less inclined to “save for a rainy day.”
  • You could also be more likely to put your personal money into investments in your own industry, because after all, you have expertise there. But if something unexpected causes a downturn in your industry, you may be far more exposed.

Are these things likely to happen? We hope not, of course. But hope is not enough to plan your future on. You’ve probably met people who have had to downsize their lifestyles due to business failures, legal problems, divorces, etc. Many people were caught off guard by the global financial crisis in 2008, and they ended up having to make sacrifices when their business dropped dramatically. But if they were prepared financially ahead of time, they would have fared better.


Overconfidence Can Hurt You

As an entrepreneur, you naturally feel confident you can control most things in your business and your life. But the reality is that no matter how cautious or proactive you are, there are always going to be things that are completely beyond your control.

Even if you’re lucky enough to not have any unexpected events happen, like lawsuits or a divorce, you’ll still need money set aside for your future. This should be invested separately from your business, or else your lifestyle is always at risk if there’s a problem with your business or industry.

Now, you may think retirement is a long way off. You’re not alone. A 2016 survey by BMO Wealth Management of 400 small-business owners shows just how unprepared many people are. Here are some frightening statistics:

  • 75% of entrepreneurs in the 18-to-64 age bracket have less than $100,000 saved for retirement.
  • Those aged 45 to 64 are only slightly more prepared: only 32% have more than $100,000 in their retirement accounts.
  • Less than 11% of those surveyed had $500,000 or more in retirement accounts.

According to this survey, most business owners seem to assume that their current business will be enough to fund their entire retirement. But the fact is your lifestyle in retirement is at risk if your business fails or you can’t sell it when you want to.

Due to your natural optimism, you might be assuming the fate of your business, succeed or fail, is in your hands. But don’t forget there are things that are completely out of your control:

  • Lawsuits (whether with or without merit, the expense can have a devastating effect on your business)
  • New legislation impacting your field
  • Recessions or economic crises
  • Natural disasters

Or even a divorce can change the financial picture dramatically, if you’re not prepared in advance.


Will a Willing Buyer Appear?

Even if you stay married and your business is a success, it’s not always easy or even possible to find a buyer when you’re ready. Many specialized small businesses are simply difficult to sell because there’s no structure for an outsider to step in and run the business. And many business owners are naturally unrealistic about the true value of their business. While there are financial measures that help you gauge the average amount businesses like yours sell for, there’s no guarantee that you’ll find an interested buyer willing to pay what you want when the time comes.

This is why planning ahead is essential for business owners. And part of that plan is finding a qualified financial advisor to help you avoid falling into these common traps.


Benefits of a Financial Advisor for Business Owners

By hiring a financial advisor for business owners, you will get a partner who can provide objective advice to help you secure your future.  A professional who gets to know your financial status, and that of your business, can help you save for the future while helping you save on taxes today. They’re the ideal person to help you get where you want to be: able to live comfortably and enjoy the lifestyle you do now and in the future, even if your business were to experience any difficulty.

In addition, a full-service financial advisor can help you:

  • Build a financial roadmap to achieve your real goals in life, whatever they are.
  • Stay on track and accountable to your financial goals.
  • Diversify your investments so your personal finances are not overly concentrated in your company or industry.
  • Maximize your tax savings while helping you put money aside for the future
  • Structure your financial life so your personal assets are protected from legal issues with your business.
  • Keep your personal finances organized, saving you time and distractions.

The right advisor will also be able to listen and make suggestions to those unique issues business owners face, from expanding your business to considering entering into joint ventures or partnerships. These are usually difficult decisions, and having a second opinion from a trained finance person can be valuable.


How to Choose the Right Financial Advisor

So, how do you go about choosing your financial advisor? Because as with any profession, not all are created equal. Here are some guidelines to finding a top-quality advisor:

  • Only consider advisors who are willing to act as your fiduciary. That means that he or she is legally required to always put your interests first. This is a big differentiator, as “brokers” don’t have that legal requirement. Instead, brokers act as a product salesperson, and the law only requires them to give you ‘suitable’ advice, even if that means recommending products that pay them a higher commission.
  • It is usually recommended to stick with fee-only advisors, instead of others who are paid on commission. This way, since they only get paid by you, their loyalty is to you, not to third parties. Without commission, there is no incentive to push products.
  • Look for financial advisors who comply with GIPS® standards, which is an internationally recognized best practice for investment reporting. By considering only GIPS®-compliant firms, you have the ability to compare apples to apples when evaluating a firm’s investment performance. Since investing is an important component of a financial advisor’s service to you, this allows you to evaluate each firm and their abilities. (Learn more about GIPS® standards.)
  • Always check the regulatory record for advisors you consider. Fortunately, it’s quick and easy: Just go to and enter their name. This official website shows you an advisor’s history, certifications, licenses, and any violations or complaints on record. Needless to say, it’s best to steer clear of any advisor with issues on their record. Since they will be dealing with your money, it’s just not worth the risk.
  • Be sure to interview each contender and ask a lot of questions. The best financial advisors welcome involved clients. If the advisor isn’t easy to communicate with and willing to explain things to you in non-technical language, that’s a red flag.

You can start out by emailing each contender a list of standard questions. This saves you time, and also gives you a written record of their responses. If there’s ever any question, having the information in writing will protect you.

Once you find and hire an advisor, you still need to stay very involved. Be sure to review your statements as soon as they come in, and always review everything in detail. It’s your money, so it’s crucial you stay on top of it.


Avoid the Trap

If you’re a business owner, one of your primary goals should be securing your own future, since no one else is going to do that for you. When you do, that means you will always have choices: should you sell your business and retire, ease into retirement slowly, or start another business? The key factor is that due to taking the right steps financially, you will have a choice. Isn’t that what an entrepreneurial life is all about?


John Odell, CFP® is CEO of Arroyo Investment Group, LLC, a fee-only financial planning and investment management firm based in Pasadena, California. As a GIPS®-compliant firm, we bring institutional quality, high performance investment management and comprehensive financial planning to individuals and families.  Together with Capital Research + Consulting, our sister firm, we collectively manage over $4 billion of assets for individuals and retirement plans.  Visit us at