Opinion: A Financial Formula for Small Business Owners

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Small business owner. Photo courtesy Small Business Administration

By Matt Hansen

Small business owners face myriad challenges in building their businesses in today’s economy. And in addition to managing their businesses, they must manage their financial lives for themselves and their families.

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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.

Matt Hansen

Delving Into The Challenges

Small business owners—particularly of family-owned business—face a unique set of financial challenges. To understand fully their specific challenges, I conducted in-depth interviews with a number individuals, including small business owners and related professionals.

I selected each for his or her ability to provide insights into the financial issues—both in their businesses and in their personal lives—faced by small business owners today.

These are the key challenges I heard in my conversations:

  • Financial barriers to growth. Many small business owners cited financial issues that were preventing them from growing their businesses as quickly as they would have liked. In particular, some were unable to access credit and others faced cash flow issues.
  • Heavy dependence on a few people. I frequently found that the product or service expertise, customer contacts and operational knowledge were all held with just a handful of people and in some cases, just one person. Although this could leave these businesses potentially vulnerable, many of the business owners I spoke with revealed that they may not have adequate insurance coverage.
  • Focus on business to detriment of personal finances. Many small business owners reported a disproportionate share of their net worth is tied up in their businesses. While many were eager to reinvest their profits back into their businesses, they also recognized the risk to their long-term financial pictures in not diversifying their investments.
  • Lack of succession planning. With many small business owners intensely focused on the day-to-day activities of running and growing their businesses, I found that some had given little thought to their exit strategy. In family-owned businesses where ownership was planned to go to children, there often was no documentation of the planned transfer.

Taking a Systematic Approach

While these issues can pose significant challenges for some small business owners, they can be systematically addressed to help increase the likelihood of achieving their goals.

Given their complex and varied financial needs, small business 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 small business owners’ abilities to address their most important goals.

However, my interviews revealed that many small business 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 third element of wealth management, relationship management (RM). To fully understand their clients’ most important goals, values and challenges—both now and long into the future—wealth managers must cultivate trusting, long-term consultative relationships with those clients.

Taken together, these three elements comprise a systematic approach that can help small business owners to make 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 small business owners’ probabilities of achieving their most important goals.


Matt Hansen of Hansen Wealth Management is a certified financial planner and first vice president of wealth management at UBS, a global financial services company.

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