The owners of mid-size businesses find themselves in a situation unique among businessowners. Many mid-size businesses are less agile than small businesses, yet they frequently do not have the resources of a large business. In addition, many owners of mid-size businesses may have a disproportionate share of their wealth tied up in their companies, directly linking the value of their businesses to the financial futures of their families.
The good news is that there are benefits to taking a thoughtful, systematic approach to addressing your financial challenges while continuing to grow your business.
Delving into the challenges
To understand the specific financial challenges of today’s mid-size businesses owners fully, I conducted in-depth interviews with 12 individuals, including mid-size businessowners and related professionals in the greater New England area. I selected each for his or her ability to provide insights into the financial issues faced by mid-size business owners today.
These are the key challenges I heard in my conversations:
Current business environment. Many of my interviewees cited issues such as health care reform, increased competition, globalization, and the regulatory environment as important concerns as they endeavored to further grow their businesses. Optimizing retirement savings. Several businessowners I spoke with were concerned about helping both themselves and their employees to maximize their retirement savings through a defined contribution plan. Given the many options and sometimes-complex, they expressed uncertainty that their companies were offering a competitive plan.
Refining succession planning.
While many businessowners reported giving little or no thought to succession planning when their businesses were smaller, it is now on the minds of many. While many had not yet developed detailed succession plans, they were aware of the importance of doing so. Those who were part of family-owned businesses where ownership was to be transferred to family were particularly sensitive to the need for astute succession planning. Philanthropic concerns. Many of the businessowners I spoke with are beginning to consider their legacies and an effective way to fulfil their charitable goals. With much of their net worth in their businesses, they understand that fulfilling these goals may be highly dependent on a profitable succession.
Taking a systematic approach
While these issues can pose significant challenges for some business owners, they can be systematically addressed to help increase the likelihood of achieving their goals.
Given their complex and varied financial needs, many business owners can consider using a wealth management approach. To define wealth management, I use this formula:
WM = IM + AP + RM
The first element of wealth management (WM) is investment management (IM). As I mentioned, this is the major focus of many financial advisors, and certainly astute investment management can be the foundation of business owners’ ability to address their most important goals.
However, my interviews revealed that many owners need more than just assistance in managing their investments. This is why I have the second element of wealth management, advanced planning (AP). Advanced planning addresses these four major areas of financial concern beyond investments:
• Wealth enhancement: mitigating tax burdens
• Wealth transfer: helping ensure that heirs are taken care of
• Wealth preservation: helping to protect loved ones and preserve assets
• Charitable giving: maximizing the impact of one’s charitable gifts
Since no one person can be an expert in each of these complex areas, wealth managers work closely with other professional advisors, such as CPAs, attorneys and insurance specialists, to address these issues. Depending on the preference of their clients, they may do this in conjunction with the clients’ current professional advisors.
This brings us to the thirdelement of wealth management, relationship management (RM). To fully understandtheir clients’ most important goals, values and challenges—both now and longinto the future—wealth managers must cultivate trusting, long-term consultativerelationships with those clients.
Taken together, these threeelements comprise a systematic approach that can help many businessowners tomake informed financial decisions for themselves and their families.
Not everyone wants to work with a financial advisor. If you do choose to work with a professional, consider one who uses the wealth management approach.
A systematic approach—one that addresses their entire financial lives—can help to increase many businessowners’ probabilities of achieving their most important goals.
Together, we can work to keep you on-track towards your financial goals.
Request a consultation with me to learn more.
Read more articles by James William Buzgo