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What Does A Business Financial Advisor Do And What Are The Benefits

business financial advisor

A business financial advisor aims to provide expert business finance advice that enables businesses to make good financial decisions.

The key benefits of this service are that businesses have objective assistance in reviewing their finance statements, spotting opportunities for cost savings or investments, preparing financial forecasts and staying informed on regulatory changes that will impact their financing and reporting requirements.

In short, a financial advisor uses their expertise to help businesses make decisions that will support their growth, resilience and prosperity over time.

What Does A Financial Advisor Do?

A business financial advisor primarily provides financial expertise and guidance to companies to help them make decisions that support their growth and prosperity.

More specifically, some of the key things a financial advisor does include:

  • Reviewing and analysing financial statements, cash flow, liabilities, assets, earnings, investments and other financial metrics to assess a company’s overall financial health
  • Making recommendations on budgets, cash flow management, liability reduction, tax optimisation, insurance adequacy, financing options, payroll, investments, and other areas to improve financial operations
  • Forecasting future financial performance under different scenarios to support financial planning
  • Advising on major business transactions like mergers, acquisitions, or issuing stocks/bonds to ensure sound decisions
  • Helping prepare applications and paperwork for securing business loans or investment capital
  • Ensuring legal and regulatory compliance with all financial reporting requirements
  • Identifying financial risks facing the business and making suggestions to mitigate them
  • Presenting financial information and recommendations clearly to senior management to enable financial decision-making

The ultimate goal is providing expertise so businesses can make financially wise choices and efficiently manage their money to facilitate growth and sustainability.

The Benefits Of Financial Advisory Services For Businesses

Here are the primary benefits businesses gain from working with financial advisory services:

  1. Alleviate risk – Experienced advisors forecast future financial scenarios (good and bad) to ensure sound strategies that are resilient to potential changes in the economy. There is less chance of unforeseen risks truly disrupting the business.
  2. Gain specialised expertise – Advisors offer deep experience in areas critical for growth like banking, investing, taxes, insurance, and preparing accurate financial statements. They stay current on complex/frequent regulatory changes. This high-level proficiency supplements any in-house capabilities.
  3. Enable strategic growth – Advisors provide critical analysis of growth opportunities and facilitate funding sources to help ambitious businesses scale to their full potential.
  4. Improve efficiency – By optimising finances for things like taxes, cash flow, and capital investments, advisors help businesses operate more efficiently.
  5. Create accountability – Advisors add an independent perspective, question assumptions, and hold leadership accountable for wise financial decisions and responsible spending.
  6. Identify issues early – Experienced advisors often spot financial issues early and correct course before they become existential threats down the road.

The right business financial advisor serves as a strategic partner invested in an organisation’s prosperity. Generally, businesses that engage in advisory services are associated with enjoying reduced risks, smarter expansion, elongated sustainability, and meeting stakeholder obligations.

Does Every Business Need A Financial Advisor?

Whilst the benefits of hiring a business financial advisor are clear, they are not required for every business. If you’re considering ways to objectively review and grow your business, or are experiencing tough times financially, then you may be weighing up if financial advisory experts could help you.

The best thing to do is to consider the following when deciding if you need this type of support:

  • How far along your business journey are you? Brand new businesses don’t require the services of a financial advisor. The business owner(s) can usually get going and have enough knowledge to sort their financial priorities in the early days of getting the business running.
  • Do you have internal accounting support? Established businesses tend to have their finance team or bookkeeping contact. These people are experts in day-to-day budgeting, expense management, tax payments and general accounting so should be able to take care of most of your business’s financial needs. You may find external advice helpful for major new initiatives though.
  • How is the business growth doing? If a business is experiencing rapid growth and taking on large investments, an external review can be beneficial and help to make complex decisions that could impact the overall strategy of the growth plan.
  • Are finances dropping? In contrast to rapid growth, if you find that the business is losing money rapidly, it could make financial sense to get support in understanding why and the steps needed to correct this. Sometimes a fresh pair of eyes can help to put things into perspective and set achievable management goals to help you weather a financial storm.
  • Is business ownership changing? If the business is due to be sold soon or transfer ownership, financial advisors can guide how to maximise either side’s interests during the transition.

Is A Financial Advisor The Same As An Accountant?

A financial advisor and an accountant are not the same. They both have different areas of expertise despite both working with business finances.

Accountants are largely task-orientated within a compliance-oriented role. They will deal with preparing financial statements, filing taxes, tracking income vs expenses, auditing, payroll and regulatory reporting for companies.

In contrast, a financial advisor would focus on the bigger picture to aid decisions by analysing overall performance and finding ways to improve the current financial position of the company. They would look at future forecasting to help inform the current budget and target setting, opportunities for growth and cost reduction, reducing risk exposure and helping to plan for change of business ownerships.

In summary, accountants handle day-to-day financial compliance whilst an advisor helps to plot favourable strategic business courses based on financial insights.

How Are Financial Advisors Paid?

Financial Advisors tend to be hired into companies rather than being members of staff within them. As such, they can work for several companies at once and will attract a fee for their work. This can be paid in several ways.

Common ways that financial advisors are paid include: 

  • Hourly Fees: One of the most straightforward methods is for a business to pay their financial advisor hourly for time spent providing analysis, recommendations and other advisory services. Hourly rates can range quite a bit based on the advisor’s experience and specialisation.
  • Fixed or Retainer Fees: Some advisors charge a fixed monthly or quarterly retainer fee for making themselves continuously available for a set amount of time per month or year for ongoing analysis, questions and planning support. Retainers ensure the advisor prioritises serving the client.
  • Asset-Based Percentages: Another approach sometimes used is asset-based fees, where an advisor charges a small percentage (often 1% or less) of the assets they oversee or manage for the business. As the assets grow, so does their compensation.
  • Performance-Based Fees: Rather than base fees solely on time or assets, some advisors earn bonuses by structuring fees based on specific performance metrics or financial targets achieved.
  • Project Fees: For one-time projects like merger deals, capital raises or liquidity events, an advisor may charge a flat project fee or percentage of the transaction amount upon successful completion.

The fee structure reflects the scope and complexity of advisory services as well as business arrangements between specific clients and advisors. Costs are usually tax deductible as ordinary business expenses and businesses instructing the expertise of an advisor should ensure that all costs/fees and payment structures are agreed in writing in advance of any work being done.

Where Can I Find A Good Financial Advisor?

Just like any good business support, finding a good financial advisor is key! It’s best to ask other businesses in a similar field to yours if they have any recommendations initially. This is a great place to start forming your shortlist. Then you can whittle down your potential advisors by:

  • Contact Professional Associations: Contact the local chapter of professional associations such as the Financial Planning Association to get a referral to qualified members. Looking via trusting local business networks in your area is also a great way to get introductions to reliable professionals.
  • Check your Network: Talk to your business lawyer, accountant, or banker to see if they have financial advisors with they routinely work in tandem. Having an existing rapport helps and you may be able to get a reduced fee from a referral.
  • Utilise Online Directories: Whilst this approach is akin to going in blind, many public listings for professional services like this will display customer reviews and testimonials giving you a basis to start.
  • Interview Candidates: Once you have a list of prospects, take the time to thoroughly interview several of them to evaluate their experience, qualifications, communication abilities and overall fit for your business.

As with all business decisions, finding the right advisor for your business is key. You will want to hire someone who understands your business industry and is interested in the business itself. It’s a good idea to find someone who you get on with but isn’t afraid to challenge your ideas.

Evaluating Financial Advisors

A financial advisor has the potential to make a huge impact on your business and will be given access to a lot of sensitive information so it’s important to find the right one. If you’ve got a shortlist of advisors to choose from, it’s important to evaluate if they’re the right fit. You can do this by checking their specialisms, and understanding their experience in their field. Asking for references, and meeting them face to face.

Here are some tips for evaluating potential advisors:

  • Ask About Their Specialisations – Advisors may focus on specific industries, business sizes, organisational life cycles, financing options, or have other niches that make them more or less suitable. Ensure their expertise aligns with your situation.
  • Discuss Communication Plans – How will the advisor keep you updated on their analyses and recommendations? Do they follow structured processes for regular check-ins and meetings? Clarify how available they will be to your questions.
  • Learn About Their Analytical Process – There are many methods an advisor may use to assess your finances and opportunities. Understand these techniques and determine if they seem rigorous and complete enough to suit your needs.
  • Request Case Studies/Past Client References – Vetted examples of past client work and conversations with former clients offer practical insight into partnering with the advisor. If none are available, be wary.
  • Compare Cost Structures – Understand exactly what services are included with set fees before committing and get fee estimates from multiple advisors to gauge value. Less expensive does not necessarily equate to higher quality assistance, however.
  • Meet Your Potential Advisor First – No final hiring decision should occur before sitting down in person with a prospective advisor to evaluate communication abilities, personality fit and general vision alignment.

Taking time upfront to carefully screen candidates leads to more satisfactory business relationships with the financial advisors you ultimately choose. An extra month spent now can save years of frustration down the road.

When Is The Right Time To Hire A Financial Advisor For Your Business?

If your business is coming up to a major business milestone, looking for external financing, entering new markets or facing cash flow challenges, it could be a good time to hire a financial advisor. Some businesses like to keep their advisors on for a set period of time on a retained contract so that they can be on hand to ask questions when things come up. This could usually tie into one of the major business milestones listed.

Summary

Business financial advisors act as strategic partners that aid good decision-making for organisations. Using current financial data and future business goals, they can work with you to make suggestions and set strategies to follow that work to build growth and financial resilience over time.

Not every business needs a financial advisor, but those who would benefit can unlock the benefits of cost savings, staying financially compliant and stable during its lifecycle. When evaluating who to hire as your advisor, consider reviews and recommendations from other similar businesses, and your own business network, and assess if any potential candidate is the right match before agreeing on the terms of service and payment schedule.

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