Strategy

Putting All the Financial ‘Eggs’ in One Basket


by FEI Daily Staff

Private company owners must navigate fairly narrow channels in making decisions affecting not only the business but the people they spend holidays with and those named in their wills.

If “closely held” sounds personal, it is. As many readers know, closely held businesses are closely held by design — the owners have good reasons for keeping their companies private and ownership in the family. This doesn’t make them free of complex issues and decision-making scenarios.

If anything, private company owners must navigate fairly narrow channels when it comes to making decisions that affect not only the business but also the people with whom they spend their holidays and who they name in their wills.

One of the biggest issues private company owners face is the necessity for financial services in business and personal matters. Even though business and personal accounts may be separate, the wealth of the individuals connected to the closely held business depends on the success of the business, as well as investment strategies across the board.

There are many elements that play a major role in both business and personal success — asset management, tax planning, retirement, financial and estate planning, risk management, insurance and business succession. They are all key pieces in the financial planning equation.

While some private business owners have sound reasons for seeking financial services from several different providers — especially when some financial services professionals can be partial to certain products — more private company owners are moving toward single-source resources.

Too Many Baskets Aren’t Always a Plus

For the most part, financial, business, tax, compensation, succession and insurance advisers are extremely well-informed. Even so, no one individual can be as up to date on the complex issues surrounding all these topics as a specialist who has a depth of knowledge in one or two of these areas.

So what’s a business owner to do? Many closely held business partners are finding a single-source adviser to be the best option for their companies and their families. The demand for advisory firms that employ highly knowledgeable specialists and also provide a wide range of services is increasing as business and personal financial services become ever more complex.

Seeking services from one provider has its advantages:

▪ Personal and business decisions reflect each other rather than contradict each other — a business upswing and triplets entering Ivy League schools in the same year, for instance, may impact decision-making on several levels.

▪ Objective advisers who serve on a dedicated team and who are not compensated through preferred-product sales can engage in built-in, give-and-take business, investment and succession scenarios — with the goal of providing the best advice across the board.

▪ Individuals involved in one business but who have different needs and personal investment philosophies can work with the same financial services provider that serves the family business, on their own terms.

▪ Another reason for private companies to work closely with one financial services provider is that they may have even more specific needs than other small or family owned businesses.

For example, agribusinesses, real estate developers, companies with significant intellectual property and those that do business overseas may need a greater depth of experience than other businesses.

Is One Provider the Preferred Route?                                                

Weighing the many personal and business-side demands can sometimes prove to be quite a challenge. The business side has its own set of critical concerns — business valuation, due diligence, fiduciary concerns, retirement plans, among others. Of course, many key issues intersect within the personal and the company space more directly — health and key-person insurance, business insurance, trusts and buy/sell agreements.

And the personal side may involve research and analysis, discretionary asset management, fixed-income considerations, charitable giving, wealth transfer and more issues. And the list goes on.

Working with several providers can result in both personal and professional overload and lead to undesirable consequences. It’s worth the effort to carefully evaluate all the options when it comes to financial services, no matter what needs may fit into a particular basket.

Michael D. McConnell, CPA, is a partner with the public accounting firm CliftonLarsonAllen LLP. He specializes in business succession planning, financial planning, estate planning, investment management, life and health insurance, benefit plans and mergers and acquisitions.

This article first appeared in Financial Executive magazine.